New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
|
|
Fiscal years ended September 30,
|
2021
|
|
2020
|
|
2019
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net income
|
$
|
117,890
|
|
|
$
|
163,007
|
|
|
$
|
123,935
|
|
Adjustments to reconcile net income to cash flows from operating activities
|
|
|
|
|
|
Unrealized loss (gain) on derivative instruments
|
54,203
|
|
|
(9,644)
|
|
|
2,881
|
|
Gain on sale of available for sale securities
|
—
|
|
|
—
|
|
|
(1,567)
|
|
Gain on sale of businesses
|
—
|
|
|
—
|
|
|
(645)
|
|
Impairment loss on investment in equity method investees
|
92,000
|
|
|
—
|
|
|
—
|
|
Depreciation and amortization
|
111,387
|
|
|
107,368
|
|
|
81,109
|
|
Amortization of acquired wholesale energy contracts
|
4,604
|
|
|
4,924
|
|
|
8,424
|
|
Allowance for equity used during construction
|
(20,303)
|
|
|
(17,053)
|
|
|
(6,492)
|
|
Allowance for doubtful accounts
|
18,986
|
|
|
2,238
|
|
|
2,387
|
|
Noncash lease expense
|
3,920
|
|
|
3,851
|
|
|
—
|
|
Deferred income taxes
|
23,796
|
|
|
34,346
|
|
|
(2,822)
|
|
Equivalent value of ITCs recognized on equipment financing
|
(6,482)
|
|
|
(6,482)
|
|
|
(6,482)
|
|
Manufactured gas plant remediation costs
|
(17,532)
|
|
|
(7,651)
|
|
|
(13,878)
|
|
Equity in earnings, net of distributions received from equity investees
|
(3,046)
|
|
|
(5,848)
|
|
|
(4,156)
|
|
Cost of removal - asset retirement obligations
|
(1,129)
|
|
|
(245)
|
|
|
(258)
|
|
Contributions to postemployment benefit plans
|
(7,669)
|
|
|
(9,032)
|
|
|
(8,157)
|
|
Taxes related to stock-based compensation
|
(159)
|
|
|
647
|
|
|
1,290
|
|
Changes in:
|
|
|
|
|
|
Components of working capital
|
10,254
|
|
|
(8,096)
|
|
|
(27,759)
|
|
Other noncurrent assets
|
13,715
|
|
|
(44,129)
|
|
|
8,193
|
|
Other noncurrent liabilities
|
(3,481)
|
|
|
5,280
|
|
|
38,125
|
|
Cash flows from operating activities
|
390,954
|
|
|
213,481
|
|
|
194,128
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
Expenditures for:
|
|
|
|
|
|
Utility plant
|
(376,312)
|
|
|
(290,040)
|
|
|
(304,809)
|
|
Solar and wind equipment
|
(87,852)
|
|
|
(133,841)
|
|
|
(157,828)
|
|
Storage and transportation assets and other
|
(110,130)
|
|
|
(24,228)
|
|
|
(23,100)
|
|
Cost of removal
|
(50,316)
|
|
|
(22,059)
|
|
|
(40,195)
|
|
Acquisition of assets, net of cash acquired of $5.1 million
|
—
|
|
|
(523,647)
|
|
|
—
|
|
Distributions from equity investees in excess of equity in earnings
|
3,183
|
|
|
1,907
|
|
|
2,428
|
|
Investments in equity investees
|
(690)
|
|
|
(2,117)
|
|
|
(4,102)
|
|
|
|
|
|
|
|
Proceeds from sale of available for sale securities, net
|
—
|
|
|
—
|
|
|
34,484
|
|
Proceeds from sale of businesses, net of closing costs
|
—
|
|
|
—
|
|
|
205,745
|
|
Cash flows used in investing activities
|
(622,117)
|
|
|
(994,025)
|
|
|
(287,377)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Proceeds from long-term debt
|
—
|
|
|
660,000
|
|
|
467,900
|
|
Payments of long-term debt
|
(18,007)
|
|
|
(20,286)
|
|
|
(218,638)
|
|
Proceeds from term loan
|
—
|
|
|
350,000
|
|
|
—
|
|
Payments of term loan
|
—
|
|
|
(350,000)
|
|
|
—
|
|
Proceeds from (payments of) short-term debt, net
|
251,950
|
|
|
99,900
|
|
|
(126,500)
|
|
Proceeds from sale leaseback transaction - solar
|
17,673
|
|
|
42,927
|
|
|
—
|
|
Proceeds from sale leaseback transaction - natural gas meters
|
—
|
|
|
4,000
|
|
|
9,895
|
|
Payments of common stock dividends
|
(116,960)
|
|
|
(117,804)
|
|
|
(104,059)
|
|
Proceeds from equity offering
|
—
|
|
|
212,900
|
|
|
—
|
|
Cash settlement of equity forward agreement
|
(2,823)
|
|
|
—
|
|
|
—
|
|
Proceeds from waiver discount issuance of common stock
|
—
|
|
|
—
|
|
|
57,391
|
|
Proceeds from issuance of common stock
|
15,105
|
|
|
18,080
|
|
|
16,717
|
|
Purchases of treasury stock
|
(27,217)
|
|
|
—
|
|
|
—
|
|
Tax withholding payments related to net settled stock compensation
|
(1,938)
|
|
|
(3,813)
|
|
|
(7,104)
|
|
Cash flows from financing activities
|
117,783
|
|
|
895,904
|
|
|
95,602
|
|
Change in cash, cash equivalents and restricted cash
|
(113,380)
|
|
|
115,360
|
|
|
2,353
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
119,423
|
|
|
4,063
|
|
|
1,710
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
6,043
|
|
|
$
|
119,423
|
|
|
$
|
4,063
|
|
CHANGES IN COMPONENTS OF WORKING CAPITAL
|
|
|
|
|
|
Receivables
|
$
|
(81,366)
|
|
|
$
|
5,065
|
|
|
$
|
63,795
|
|
Inventories
|
(25,257)
|
|
|
(3,254)
|
|
|
14,265
|
|
Recovery of natural gas costs
|
(13,124)
|
|
|
17,479
|
|
|
(15,733)
|
|
Natural gas purchases payable
|
72,752
|
|
|
(41,326)
|
|
|
(74,031)
|
|
Natural gas purchases payable - related parties
|
70
|
|
|
1
|
|
|
(360)
|
|
Accounts payable and other
|
30,063
|
|
|
20,390
|
|
|
2,256
|
|
Prepaid expenses
|
(1,527)
|
|
|
2,548
|
|
|
(1,193)
|
|
Prepaid and accrued taxes
|
(3,449)
|
|
|
(2,376)
|
|
|
2,271
|
|
Restricted broker margin accounts
|
28,013
|
|
|
(6,097)
|
|
|
(22,004)
|
|
Customers’ credit balances and deposits
|
6,652
|
|
|
(1,182)
|
|
|
(209)
|
|
Other current assets, net
|
(2,573)
|
|
|
656
|
|
|
3,184
|
|
Total
|
$
|
10,254
|
|
|
$
|
(8,096)
|
|
|
$
|
(27,759)
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
Interest (net of amounts capitalized)
|
$
|
78,650
|
|
|
$
|
66,146
|
|
|
$
|
50,371
|
|
Income taxes
|
$
|
6,381
|
|
|
$
|
7,594
|
|
|
$
|
12,647
|
|
Accrued capital expenditures
|
$
|
64,626
|
|
|
$
|
19,434
|
|
|
$
|
30,725
|
|
See Notes to Consolidated Financial Statements
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
September 30,
|
2021
|
2020
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
Utility plant, at cost
|
$
|
3,324,611
|
|
$
|
2,800,052
|
|
Construction work in progress
|
182,196
|
|
379,846
|
|
Nonutility plant and equipment, at cost
|
1,124,896
|
|
1,108,512
|
|
Construction work in progress
|
365,346
|
|
176,556
|
|
Total property, plant and equipment
|
4,997,049
|
|
4,464,966
|
|
Accumulated depreciation and amortization, utility plant
|
(611,827)
|
|
(601,635)
|
|
Accumulated depreciation and amortization, nonutility plant and equipment
|
(171,709)
|
|
(140,562)
|
|
Property, plant and equipment, net
|
4,213,513
|
|
3,722,769
|
|
|
|
|
CURRENT ASSETS
|
|
|
Cash and cash equivalents
|
4,749
|
|
117,012
|
|
Customer accounts receivable:
|
|
|
Billed
|
212,838
|
|
134,173
|
|
Unbilled revenues
|
10,351
|
|
9,226
|
|
Allowance for doubtful accounts
|
(24,652)
|
|
(7,242)
|
|
Regulatory assets
|
30,118
|
|
36,530
|
|
Natural gas in storage, at average cost
|
193,606
|
|
167,504
|
|
Materials and supplies, at average cost
|
19,561
|
|
20,406
|
|
Prepaid expenses
|
8,166
|
|
6,639
|
|
Prepaid and accrued taxes
|
51,211
|
|
24,301
|
|
Derivatives, at fair value
|
35,251
|
|
23,310
|
|
Restricted broker margin accounts
|
72,840
|
|
69,444
|
|
|
|
|
Other current assets
|
20,235
|
|
21,029
|
|
Total current assets
|
634,274
|
|
622,332
|
|
|
|
|
NONCURRENT ASSETS
|
|
|
Investments in equity investees
|
114,529
|
|
208,375
|
|
Regulatory assets
|
522,099
|
|
527,459
|
|
Operating lease assets
|
173,928
|
|
131,769
|
|
Derivatives, at fair value
|
3,403
|
|
3,349
|
|
|
|
|
Intangible assets
|
5,029
|
|
10,060
|
|
Software costs
|
5,582
|
|
4,707
|
|
Other noncurrent assets
|
49,921
|
|
85,657
|
|
Total noncurrent assets
|
874,491
|
|
971,376
|
|
Total assets
|
$
|
5,722,278
|
|
$
|
5,316,477
|
|
See Notes to Consolidated Financial Statements
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
(Thousands, except share data)
|
|
|
September 30,
|
2021
|
2020
|
|
|
|
CAPITALIZATION
|
|
|
Common stock, $2.50 par value; authorized 150,000,000 shares;
outstanding shares September 30, 2021 — 95,709,662; September 30, 2020 — 95,949,183
|
$
|
240,644
|
|
$
|
240,243
|
|
Premium on common stock
|
502,584
|
|
491,982
|
|
Accumulated other comprehensive loss, net of tax
|
(34,528)
|
|
(44,315)
|
|
Treasury stock at cost and other;
shares September 30, 2021 — 762,313; September 30, 2020 — 148,310
|
(12,448)
|
|
8,485
|
|
Retained earnings
|
934,610
|
|
947,501
|
|
Common stock equity
|
1,630,862
|
|
1,643,896
|
|
Long-term debt
|
2,162,164
|
|
2,259,466
|
|
Total capitalization
|
3,793,026
|
|
3,903,362
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
Current maturities of long-term debt
|
72,840
|
|
27,236
|
|
Short-term debt
|
377,300
|
|
125,350
|
|
Natural gas purchases payable
|
168,697
|
|
95,945
|
|
Natural gas purchases payable to related parties
|
861
|
|
791
|
|
Accounts payable and other
|
225,242
|
|
141,500
|
|
Dividends payable
|
34,768
|
|
31,902
|
|
Accrued taxes
|
3,356
|
|
2,717
|
|
Regulatory liabilities
|
28,007
|
|
26,188
|
|
New Jersey Clean Energy Program
|
16,308
|
|
15,570
|
|
Derivatives, at fair value
|
87,145
|
|
33,865
|
|
|
|
|
|
|
|
Operating lease liabilities
|
4,300
|
|
6,724
|
|
Customers’ credit balances and deposits
|
32,586
|
|
25,934
|
|
Total current liabilities
|
1,051,410
|
|
533,722
|
|
|
|
|
NONCURRENT LIABILITIES
|
|
|
Deferred income taxes
|
163,530
|
|
138,081
|
|
Deferred investment tax credits
|
3,010
|
|
3,332
|
|
Deferred gain
|
847
|
|
1,035
|
|
Derivatives, at fair value
|
13,497
|
|
13,352
|
|
Manufactured gas plant remediation
|
135,012
|
|
150,590
|
|
Postemployment employee benefit liability
|
169,267
|
|
237,221
|
|
Regulatory liabilities
|
193,051
|
|
196,450
|
|
Operating lease liabilities
|
141,363
|
|
95,030
|
|
Asset retirement obligation
|
46,306
|
|
33,723
|
|
Other noncurrent liabilities
|
11,959
|
|
10,579
|
|
Total noncurrent liabilities
|
877,842
|
|
879,393
|
|
Commitments and contingent liabilities (Note 15)
|
|
|
Total capitalization and liabilities
|
$
|
5,722,278
|
|
$
|
5,316,477
|
|
See Notes to Consolidated Financial Statements
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Number of Shares
|
Common Stock
|
Premium on Common Stock
|
Accumulated Other Comprehensive (Loss) Income
|
Treasury Stock And Other
|
Retained Earnings
|
Total
|
Balance at September 30, 2018
|
88,293
|
|
$
|
226,196
|
|
$
|
274,748
|
|
|
$
|
(12,610)
|
|
|
$
|
(76,473)
|
|
$
|
882,803
|
|
$
|
1,294,664
|
|
Net income
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
123,935
|
|
123,935
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
|
(15,731)
|
|
|
—
|
|
—
|
|
(15,731)
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive compensation plan
|
182
|
|
453
|
|
3,334
|
|
|
—
|
|
|
—
|
|
—
|
|
3,787
|
|
Dividend reinvestment plan (1)
|
351
|
|
—
|
|
2,718
|
|
|
—
|
|
|
13,945
|
|
—
|
|
16,663
|
|
Waiver discount
|
1,181
|
|
—
|
|
10,531
|
|
|
—
|
|
|
46,860
|
|
—
|
|
57,391
|
|
Cash dividend declared ($1.19 per share)
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
(106,342)
|
|
(106,342)
|
|
Treasury stock and other
|
(8)
|
|
—
|
|
—
|
|
|
—
|
|
|
5,232
|
|
—
|
|
5,232
|
|
Adoption of ASU 2016-01
|
—
|
|
—
|
|
—
|
|
|
(3,446)
|
|
|
—
|
|
3,446
|
|
—
|
|
Adoption of ASU 2017-05
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
4,970
|
|
4,970
|
|
Adoption of ASU 2014-09/ASC 606
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
(2,736)
|
|
(2,736)
|
|
Balance at September 30, 2019
|
89,999
|
|
226,649
|
|
291,331
|
|
|
(31,787)
|
|
|
(10,436)
|
|
906,076
|
|
1,381,833
|
|
Net income
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
163,007
|
|
163,007
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
|
(12,528)
|
|
|
—
|
|
—
|
|
(12,528)
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
Common stock offering
|
5,333
|
|
13,333
|
|
199,567
|
|
|
—
|
|
|
—
|
|
—
|
|
212,900
|
|
Incentive compensation plan
|
105
|
|
261
|
|
3,511
|
|
|
—
|
|
|
—
|
|
—
|
|
3,772
|
|
Dividend reinvestment plan (1)
|
520
|
|
—
|
|
2,833
|
|
|
—
|
|
|
15,324
|
|
—
|
|
18,157
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared ($1.27 per share)
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
(121,582)
|
|
(121,582)
|
|
Treasury stock and other
|
(8)
|
|
—
|
|
(5,260)
|
|
|
—
|
|
|
3,597
|
|
—
|
|
(1,663)
|
|
Balance at September 30, 2020
|
95,949
|
|
240,243
|
|
491,982
|
|
|
(44,315)
|
|
|
8,485
|
|
947,501
|
|
1,643,896
|
|
Net income
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
117,890
|
|
117,890
|
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
|
9,787
|
|
|
—
|
|
—
|
|
9,787
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
Common stock offering
|
—
|
|
—
|
|
(2,823)
|
|
|
—
|
|
|
—
|
|
—
|
|
(2,823)
|
|
Incentive compensation plan
|
84
|
|
210
|
|
4,053
|
|
|
—
|
|
|
—
|
|
—
|
|
4,263
|
|
Dividend reinvestment plan (1)
|
431
|
|
191
|
|
9,372
|
|
|
—
|
|
|
5,593
|
|
—
|
|
15,156
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared ($1.36 per share)
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
(130,781)
|
|
(130,781)
|
|
Treasury stock and other
|
(754)
|
|
—
|
|
—
|
|
|
—
|
|
|
(26,526)
|
|
—
|
|
(26,526)
|
|
Balance at September 30, 2021
|
95,710
|
|
$
|
240,644
|
|
$
|
502,584
|
|
|
$
|
(34,528)
|
|
|
$
|
(12,448)
|
|
$
|
934,610
|
|
$
|
1,630,862
|
|
(1)Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.
See Notes to Consolidated Financial Statements
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
1. NATURE OF THE BUSINESS
NJR provides regulated natural gas distribution services, transmission and storage services and operates certain unregulated businesses primarily through the following:
NJNG provides natural gas utility service to approximately 564,000 customers throughout Burlington, Middlesex, Monmouth, Morris, Ocean and Sussex 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 located in New Jersey and Connecticut.
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, invests in energy-related ventures through its subsidiaries. The Company 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. 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.
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
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Other financial investments or contractual interests that lack the characteristics of a voting interest entity, which are commonly referred to as variable interest entities, are evaluated by the Company to determine if the entity has the power to direct business activities and, therefore, would be considered a controlling interest that the Company would have to consolidate. Based on those evaluations, NJR has determined that it does not have any investments in variable interest entities as of September 30, 2021, 2020 and 2019.
Investments in entities over which the Company does not have a controlling financial interest are either accounted for under the equity method or cost method of accounting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period. On a 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.
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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 U.S. The Company’s 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 September 30, 2021.
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 data 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.
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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
As a result of the adoption of ASC 606, Revenue from Contracts with Customers, as of October 1, 2018, the Company excludes from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax on a net basis in operating revenues on the Consolidated Statements of Operations.
Natural Gas Purchases
NJNG’s tariff includes a component for BGSS, which is designed to allow it to recover the cost of natural gas through rates charged to its customers and is typically revised on an annual basis. As part of computing its BGSS rate, NJNG projects its cost of natural gas, net of supplier refunds, the impact of hedging activities and cost savings created by BGSS incentive programs. NJNG subsequently recovers or credits the difference, if any, of actual costs compared with those included in current rates. Any underrecoveries or overrecoveries are either credited to customers or deferred and, subject to BPU approval, reflected in the BGSS rates in subsequent years.
Natural gas purchases at Energy Services are composed of natural gas costs to be paid upon completion of a variety of transactions, as well as realized gains and losses from settled derivative instruments and unrealized gains and losses on the change in fair value of derivative instruments that have not yet settled. Changes in the fair value of derivatives that economically hedge the forecasted purchases of natural gas are recognized in natural gas purchases as they occur.
Demand Fees
For the purpose of securing storage and pipeline capacity in support of their respective businesses, the Energy Services and Natural Gas Distribution segments enter into storage and pipeline capacity contracts, which require the payment of associated demand fees and charges that allow them access to a high priority of service in order to maintain the ability to access storage or pipeline capacity during a fixed time period, which generally ranges from one to 10 years. Many of these demand fees and charges are based on established tariff rates as established and regulated by FERC. These charges represent commitments to pay storage providers and pipeline companies for the priority right to transport and/or store natural gas utilizing their respective assets.
The following table summarizes the demand charges, which are net of capacity releases, and are included as a component of natural gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
2021
|
2020
|
2019
|
Energy Services
|
$
|
120.5
|
|
$
|
121.8
|
|
$
|
120.4
|
|
Natural Gas Distribution
|
123.2
|
|
131.9
|
|
119.1
|
|
Total
|
$
|
243.7
|
|
$
|
253.7
|
|
$
|
239.5
|
|
Energy Services expenses demand charges over the term of the service being provided.
The Natural Gas Distribution segment’s costs associated with demand charges are included in its weighted average cost of natural gas. The demand charges are expensed based on NJNG’s BGSS sales and recovered as part of its natural gas commodity component of its BGSS tariff.
Operations and Maintenance Expenses
Operations and maintenance expenses include operations and maintenance salaries and benefits, materials and supplies, usage of vehicles, tools and equipment, payments to contractors, utility plant maintenance, amortization of software costs for unregulated entities, customer service, professional fees and other outside services, insurance expense, accretion of cost of removal for future retirements of utility assets and other administrative expenses and are expensed as incurred.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Stock-Based Compensation
Stock-based compensation represents costs related to stock-based awards granted to employees and members of NJR’s Board of Directors. NJR recognizes stock-based compensation based upon the estimated fair value of awards. The recognition period for these costs begins at either the applicable service inception date or grant date and continues throughout the requisite service period. The related compensation cost is recognized as O&M expense on the Consolidated Statements of Operations. See Note 10. Stock-Based Compensation for further information.
Income Taxes
The Company computes income taxes using the asset and liability method, whereby deferred income taxes are generally determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. See Note 13. Income Taxes. In addition, the Company evaluates its tax positions to determine the appropriate accounting and recognition of future obligations associated with unrecognized tax benefits.
To the extent that NJNG invests in property that qualifies for ITCs, the ITC is deferred and amortized to income over the life of the equipment in accordance with regulatory treatment. ITCs at the unregulated subsidiaries of NJR are recorded on the balance sheet as a reduction to property, plant and equipment when the property is placed in service, and recognized in earnings as depreciation expense, over the useful lives of the related assets.
Projects placed in service through December 31, 2019, qualified for a 30-percent federal ITC. The TC declined to 26 percent for property under construction before the end of 2020. The Consolidated Appropriations Act, 2021 extended the 26 percent ITC for property under construction during 2021 and 2022. The ITC will drop to 22 percent for property under construction before the end of 2023. After 2023 the ITC will be reduced to 10 percent.
Investments in Equity Investees
The Company accounts for its investments in Steckman Ridge and PennEast using the equity method of accounting where it is not the primary beneficiary, as defined under ASC 810, Consolidation, its respective ownership interests are 50 percent or less and/or it has significant influence over operating and management decisions. The Company’s share of earnings is recognized as equity in earnings of affiliates on the Consolidated Statements of Operations.
Equity method investments are reviewed for impairment when changes in facts and circumstances indicate that the current fair value may be less than the asset’s carrying amount. If the Company determines the decline in the value of its equity method investment is other than temporary, an impairment charge is recorded in an amount equal to the excess of the carrying value of the asset over its fair value. See Note 7. Investments in Equity Investees for more information regarding impairments.
Property Plant and Equipment
Property, plant and equipment is stated at original cost. Costs include direct labor, materials and third-party construction contractor costs, capitalized interest and certain indirect costs related to equipment and employees engaged in construction. Utility plant and nonutility plant for Adelphia Gateway also includes AFUDC. Upon retirement, the cost of depreciable property, plus removal costs less salvage, is charged to accumulated depreciation with no gain or loss recorded.
Depreciation is computed on a straight-line basis over the useful life of the assets for the Company’s nonutility entities, and using rates based on the estimated average lives of the various classes of depreciable property for NJNG. The composite rate of depreciation used for NJNG was 2.42 percent of average depreciable property in fiscal 2021, 2.65 percent in fiscal 2020 and 2.25 percent in fiscal 2019. The Company recorded $111.4 million, $107.4 million and $81.1 million in depreciation expense during fiscal 2021, 2020 and 2019, respectively.
During fiscal 2019, the estimated useful lives of commercial solar assets ranged from 15 to 25 years. During the fourth quarter of fiscal 2020, the Company reassessed the estimated useful lives of its commercial solar asset fleet. Based upon this review, the Company concluded that the actual lives of certain commercial solar assets were longer than the estimated useful lives used for depreciation purposes. As a result, effective July 1, 2020, the Company changed its estimates of the useful lives of its solar assets to a range of 15 to 35 years. The effects of this change were considered immaterial to the Consolidated Financial Statements.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Property, plant and equipment was comprised of the following as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Estimated
|
|
|
|
|
Property Classifications
|
Useful Lives
|
|
2021
|
2020
|
Distribution facilities
|
38 to 74 years
|
|
$
|
2,558,651
|
|
$
|
2,309,039
|
|
|
Transmission facilities
|
35 to 56 years
|
|
643,942
|
|
332,947
|
|
|
Storage facilities
|
34 to 47 years
|
|
79,892
|
|
79,922
|
|
|
Solar property
|
15 to 35 years
|
|
675,376
|
|
665,233
|
|
|
Storage and transportation property
|
5 to 50 years
|
|
433,678
|
|
428,491
|
|
|
All other property
|
5 to 35 years
|
|
57,968
|
|
92,932
|
|
|
Construction work in progress
|
|
|
547,542
|
|
556,402
|
|
(1)
|
Total property, plant and equipment
|
|
|
4,997,049
|
|
4,464,966
|
|
|
Accumulated depreciation and amortization
|
|
|
(783,536)
|
|
(742,197)
|
|
|
Property, plant and equipment, net
|
|
|
$
|
4,213,513
|
|
$
|
3,722,769
|
|
|
(1)During fiscal 2020, construction work in progress was included within the various property classifications.
Within storage and transportation property, base gas is required to maintain the necessary pressure and to allow for efficient operation of the Leaf River storage facility. The base gas is determined to be recoverable and is considered part of the facility and thus presented as a component in property, plant and equipment. This natural gas is not depreciated, as it is expected to be recovered and sold. As of September 30, 2021 and 2020, the base gas had a cost basis of $7.9 million and $5.7 million, respectively.
Capitalized and Deferred Interest
NJNG’s base rates include the ability to recover AFUDC on its construction work in progress. For all NJNG construction projects, an incremental cost of equity is recoverable during periods when NJNG’s short-term debt balances are lower than its construction work in progress. For more information on AFUDC treatment with respect to certain accelerated infrastructure projects, see Note 4. Regulation - Infrastructure Programs.
Capitalized amounts associated with the debt and equity components of NJNG’s AFUDC are recorded in utility plant on the Consolidated Balance Sheets. Corresponding amounts for the debt component are recognized in interest expense and in other income for the equity component on the Consolidated Statements of Operations.
Adelphia Gateway’s base rates include the ability to recover AFUDC on its construction work in progress. Beginning in the fourth quarter of fiscal 2020, capitalized amounts associated with Adelphia Gateway’s AFUDC are recorded in nonutility plant on the Consolidated Balance Sheets. Corresponding amounts are recorded in other income on the Consolidated Statements of Operations.
Capitalized and deferred interest include the following for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
2021
|
2020
|
2019
|
AFUDC:
|
NJNG
|
Adelphia Gateway
|
NJNG
|
Adelphia Gateway
|
NJNG
|
|
Debt
|
$
|
5,648
|
|
$
|
2,101
|
|
$
|
5,134
|
|
$
|
1,394
|
|
$
|
3,710
|
|
|
Equity
|
16,605
|
|
3,698
|
|
14,599
|
|
2,454
|
|
6,492
|
|
|
Total
|
$
|
22,253
|
|
$
|
5,799
|
|
$
|
19,733
|
|
$
|
3,848
|
|
$
|
10,202
|
|
|
Weighted average interest rate
|
5.97
|
%
|
8.28
|
%
|
6.79
|
%
|
8.28
|
%
|
6.35
|
%
|
|
Pursuant to a BPU order, NJNG is permitted to recover carrying costs on uncollected balances related to SBC program costs, which include NJCEP, RAC and USF expenditures. The SBC interest rate changes each September based on the August 31 seven-year constant maturity treasury rate plus 60 basis points. The rate was 1.68 percent, 1.97 percent and 3.30 percent for the fiscal years ended September 30, 2021, 2020 and 2019, respectively. Accordingly, other income included $346,000, $511,000 and $760,000 in the fiscal years ended September 30, 2021, 2020 and 2019, respectively.
Clean Energy Ventures capitalizes interest on the allocation of the costs of debt borrowed for the financing of solar investments. Capitalized amounts are included in nonutility plant and equipment on the Consolidated Balance Sheets.
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 Consolidated Balance Sheets.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total amounts in the Statements of Cash Flows, as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Balance Sheet
|
|
|
|
Cash and cash equivalents
|
$
|
4,749
|
|
$
|
117,012
|
|
$
|
2,676
|
|
Restricted cash in other noncurrent assets
|
$
|
1,294
|
|
$
|
2,411
|
|
$
|
1,387
|
|
Statements of Cash Flow
|
|
|
|
Cash, cash equivalents and restricted cash
|
$
|
6,043
|
|
$
|
119,423
|
|
$
|
4,063
|
|
Allowance for Doubtful Accounts
As of October 1, 2020, the Company adopted 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 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.
Allowance for doubtful accounts was comprised of the following as of September 30:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
Natural Gas Distribution
|
$
|
(17,040)
|
|
$
|
(5,628)
|
|
Energy Services
|
$
|
(5,825)
|
|
$
|
(104)
|
|
Clean Energy Ventures
|
$
|
(1,787)
|
|
$
|
(1,504)
|
|
NJR Home Services & Other
|
$
|
—
|
|
$
|
(6)
|
|
Total
|
$
|
(24,652)
|
|
$
|
(7,242)
|
|
In February 2021, severe winter weather affected the U.S. mid-continent and southern regions and resulted in increased demand for natural gas supply and increases in wholesale energy prices. As a result, Energy Services evaluated its counterparties for credit deterioration, as well as the related receivables for the purchase and receipt of natural gas for amounts past due. The Company examined the credit characteristics of its counterparties, including the history of past due amounts for contractual settlements, counterparty credit ratings, and the likelihood of recovering amounts owed. The Company recorded a reserve for expected credit losses for Energy Services totaling $5.2 million within operations and maintenance expense on the Consolidated Statement of Operations, representing management’s best estimate of expected credit losses during the second quarter of fiscal 2020. It is possible that future developments could occur that could result in impairment of a portion or all of the remaining amounts owed to Energy Services, which would result in an additional charge to earnings.
Loans Receivable
NJNG currently provides loans, with terms ranging from 2 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 Consolidated Balance Sheets. The Company has $14.2 million and $13.7 million recorded in other current assets and $32.3 million and $35.3 million in other noncurrent assets as of September 30, 2021 and 2020, respectively, on the 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 September 30, 2021 and 2020, the Company has not recorded any impairments for SAVEGREEN loans.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Regulatory Assets & Liabilities
Under cost-based regulation, regulated utility enterprises generally are permitted to recover their operating expenses and earn a reasonable rate of return on their utility investment.
The Natural Gas Distribution segment maintains its accounts in accordance with the FERC Uniform System of Accounts as prescribed by the BPU and in accordance with the ASC 980, Regulated Operations. As a result of the impact of the ratemaking process and regulatory actions of the BPU, NJNG is required to recognize the economic effects of rate regulation. Accordingly, NJNG capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing probable future expenditures as regulatory liabilities on the Consolidated Balance Sheets. See Note 4. Regulation for a more detailed description of NJNG’s regulatory assets and liabilities.
In January 2020, NJR acquired Adelphia Gateway an existing 84-mile pipeline in southeastern Pennsylvania, which maintains its accounts in accordance with the FERC Uniform System of Accounts and in accordance with the ASC 980, Regulated Operations. Accordingly, Adelphia Gateway capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing probable future expenditures as regulatory liabilities on the Consolidated Balance Sheets. See Note 4. Regulation for a more detailed description of Adelphia Gateway’s regulatory assets and liabilities.
Natural Gas in Storage
Natural gas in storage is reflected at average cost on the Consolidated Balance Sheets and represents natural gas and LNG that will be utilized in the ordinary course of business. The following table summarizes natural gas in storage, at average cost by company, as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
($ in thousands)
|
Natural Gas in Storage
|
Bcf
|
Natural Gas in Storage
|
Bcf
|
Natural Gas Distribution
|
|
$
|
115,824
|
|
27.6
|
|
|
$
|
110,037
|
|
27.2
|
|
Energy Services
|
|
77,782
|
|
18.8
|
|
|
57,352
|
|
34.3
|
|
Storage and Transportation
|
|
—
|
|
—
|
|
|
115
|
|
0.02
|
|
Total
|
|
$
|
193,606
|
|
46.40
|
|
|
$
|
167,504
|
|
61.52
|
|
Derivative Instruments
The Company accounts for its financial instruments, such as futures, options, foreign exchange contracts and interest rate contracts, as well as its physical commodity contracts related to the purchase and sale of natural gas at Energy Services, as derivatives, and therefore recognizes them at fair value on the Consolidated Balance Sheets. The Company’s unregulated subsidiaries record changes in the fair value of their financial commodity derivatives in natural gas purchases and changes in the fair value of their physical forward contracts in natural gas purchases or operating revenues, as appropriate, on the Consolidated Statements of Operations. Ineffective portions of the cash flow hedges are recognized immediately in earnings.
The ASC 815, Derivatives and Hedging also provides for a NPNS scope exception for qualifying physical commodity contracts for which physical delivery is probable and the quantities delivered are expected to be used or sold over a reasonable period of time in the normal course of business. Effective January 1, 2016, the Company prospectively applies this normal scope exception on a case-by-case basis to physical commodity contracts at NJNG and PPAs at Clean Energy Ventures. When applied, it does not account for these contracts until the contract settles and the related underlying natural gas or power is delivered. Gains and/or losses on NJNG’s derivatives used to economically hedge its regulated natural gas supply obligations, as well as its exposure to interest rate variability, are recoverable through its BGSS, a component of its tariff. Accordingly, the offset to the change in fair value of these derivatives is recorded as a regulatory asset or liability on the Consolidated Balance Sheets. See Note 5. Derivative Instruments for additional details regarding natural gas trading and hedging activities.
Fair values of exchange-traded instruments, including futures and swaps, are based on unadjusted, quoted prices in active markets. The Company’s non-exchange-traded financial instruments, foreign currency derivatives, over-the-counter physical commodity contracts at Energy Services and interest rate contracts are valued using observable, quoted prices for similar or identical assets when available. In establishing the fair value of contracts for which a quoted basis price is not available at the measurement date, management utilizes available market data and pricing models to estimate fair values. Fair values are subject to change in the near term and reflect management’s best estimate based on a variety of factors. Estimating fair values of instruments that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected to be received from, or paid to, a third party in settlement of the instruments. These amounts could be materially different from amounts that might be realized in an actual sale transaction.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
During fiscal 2020, the Company entered into treasury lock transactions to fix the benchmark treasury rate associated with debt issuances for NJNG and NJR that occurred during the fiscal year. Settlement of the NJNG treasury locks resulted in a loss, which was recorded as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized in earnings over the term of the debt as a component of interest expense on the Consolidated Statements of Operations. 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, which was recorded within OCI and is amortized into earnings over the term of the associated debt as a component of interest expense on the Consolidated Statements of Operations. As of September 30, 2021 and 2020, amounts recognized in interest expense related to the amortization of the loss on treasury lock transactions totaled $223,000 and $50,000, respectively, for NJNG, and $1.0 million and $108,000, respectively, for NJR.
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 Consolidated Financial Statements, as of September 30:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
Balance Sheets
|
|
|
Utility plant, at cost
|
$
|
16,543
|
|
$
|
13,452
|
|
Construction work in progress
|
$
|
7,801
|
|
$
|
—
|
|
Nonutility plant and equipment, at cost
|
$
|
338
|
|
$
|
316
|
|
Construction work in progress
|
$
|
8
|
|
$
|
—
|
|
Accumulated depreciation and amortization, utility plant
|
$
|
(1,333)
|
|
$
|
(279)
|
|
Accumulated depreciation and amortization, nonutility plant and equipment
|
$
|
(29)
|
|
$
|
(5)
|
|
Software costs
|
$
|
5,582
|
|
$
|
4,707
|
|
Statements of Operations
|
|
|
Operation and maintenance (1)
|
$
|
9,141
|
|
$
|
6,720
|
|
Depreciation and amortization
|
$
|
1,078
|
|
$
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)During fiscal 2021 and 2020, $447,000 and 63,000, respectively, was amortized into O&M.
Intangible Assets
Finite-lived intangible assets are stated at cost less accumulated amortization. The Company amortizes intangible assets based upon the pattern in which the economic benefits are consumed over the life of the asset unless a pattern cannot be reliably determined, in which case the Company uses a straight-line amortization method. As of September 30, 2021, intangible assets consist primarily of acquired wholesale natural gas energy contracts totaling $5.0 million. The wholesale natural gas contracts are being amortized based upon expected cash flows over the respective terms of the agreements.
The estimated future amortization expense as of September 30, is as follows:
|
|
|
|
|
|
(Thousands)
|
|
2022
|
$
|
2,681
|
|
2023
|
$
|
2,271
|
|
2024
|
$
|
77
|
|
2025
|
$
|
—
|
|
2026
|
$
|
—
|
|
Long-lived Assets
The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as significant adverse changes in regulation, business climate or market conditions, including prolonged periods of adverse commodity and capacity prices. If there are changes indicating that the carrying value of such assets may not be recoverable, an undiscounted cash flows test is performed. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value. Factors that the Company analyzes in
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
determining whether an impairment in its long-lived assets exists include: a significant decrease in the market price of a long-lived asset; a significant adverse change in the extent in which a long-lived asset is being used in its physical condition; legal proceedings or other contributing factors; significant business climate changes; accumulations of costs in significant excess of the amounts expected; a current-period operating or cash flow loss combined with a history of such events; and current expectations that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. During fiscal 2021 and 2020, there were no events or circumstances that indicated that the carrying value of long-lived assets or finite-lived intangibles were not recoverable.
Debt Issuance Costs
Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt. See Note 9. Debt for the total unamortized debt issuance costs that are recorded as a reduction to long-term debt on the Consolidated Balance Sheets.
Sale Leasebacks
NJNG utilizes sale leaseback arrangements as a financing mechanism to fund certain of its capital expenditures related to natural gas meters, whereby the physical asset is sold concurrent with an agreement to lease the asset back. These agreements include options to renew the lease or repurchase the asset at the end of the term. Proceeds from sale leaseback transactions are accounted for as financing arrangements and are included in long-term debt on the Consolidated Balance Sheets. During fiscal 2020, NJNG received $4.0 million in connection with the sale leaseback of its natural gas meters with terms ranging from seven to 11 years. There were no natural gas meter sale leasebacks recorded during fiscal 2021.
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 arrangement does not qualify as a sale as the Company retains control of the underlying assets and, as such, the Company uses the financing method to account for the transaction. Under the financing method, the Company recognizes the proceeds received from the buyer-lessor that constitute a payment to acquire the solar energy asset as a financing arrangement, which is recorded as a component of debt on the Consolidated Balance Sheets.
During fiscal 2021 and 2020, Clean Energy Ventures received proceeds of $17.7 million and $42.9 million, respectively, in connection with sale leasebacks of commercial solar assets. The proceeds received were recognized as a financing obligation on the Consolidated Balance Sheets. Clean Energy Ventures simultaneously entered into agreements to lease the assets back over a term of five- to 15-years. The Company continues to operate the solar assets and is responsible for related expenses and entitled to retain the revenue generated from RECs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the buyer; however, the payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax attributes. Accordingly, Clean Energy Ventures recognizes the equivalent value of the tax attributes in other income on the Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease. There were no sale leasebacks during fiscal 2019.
Environmental Contingencies
Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. Estimating probable losses requires an analysis of uncertainties that often depend upon judgments about potential actions by third parties. Accruals for loss contingencies are recorded based on an analysis of potential results.
With respect to environmental liabilities and related costs, NJNG periodically, and at least annually, performs an environmental review of MGP sites, including a review of potential liability for investigation and remedial action. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries. NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination. See Note 15. Commitments and Contingent Liabilities for more details.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Pension and Postemployment Plans
The Company has two noncontributory defined pension plans covering eligible employees, including officers. Benefits are based on each employee’s years of service and compensation. The Company’s funding policy is to contribute annually to these plans at least the minimum amount required under the Employee Retirement Income Security Act, as amended, and not more than can be deducted for federal income tax purposes. Plan assets consist of equity securities, fixed-income securities and short-term investments. The Company did not make any discretionary contributions to the pension plans during fiscal 2021 and 2020.
The Company also provides two primarily noncontributory medical and life insurance plans for eligible retirees and dependents. Medical benefits, which make up the largest component of the plans, are based upon an age and years-of-service vesting schedule and other plan provisions. Funding of these benefits is made primarily into Voluntary Employee Beneficiary Association trust funds. The Company contributed $7.2 million and $8.4 million in aggregate to these plans during fiscal 2021 and 2020, respectively, which is recorded in postemployment employee benefit liability on the Consolidated Balance Sheets. See Note 11. Employee Benefit Plans, for a more detailed description of the Company’s pension and postemployment plans.
Asset Retirement Obligations
The Company recognizes ARO related to the costs associated with cutting and capping NJNG’s main and service natural gas distribution mains, which is required by New Jersey law when taking such natural gas distribution mains out of service. The Company also recognizes ARO associated with Clean Energy Ventures’ solar assets when there are decommissioning provisions in lease agreements that require removal of the asset at the end of the lease term.
ARO are initially recognized when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made. The discounted fair value is recognized as an ARO liability with a corresponding amount capitalized as part of the carrying cost of the underlying asset. The obligation is subsequently accreted to the future value of the expected retirement cost and the corresponding asset retirement cost is depreciated over the life of the related asset. Accretion expense associated with Clean Energy Ventures’ ARO is recognized as a component of operations and maintenance expense on the Consolidated Statements of Operations. Accretion amounts associated with NJNG’s ARO are recognized as part of its depreciation expense and the corresponding regulatory asset and liability will be shown gross on the Consolidated Balance Sheets.
Estimating future removal costs requires management to make significant judgments because most of the removal obligations span long time frames and removal may be conditioned upon future events. Asset removal technologies are also constantly changing, which makes it difficult to estimate removal costs. Accordingly, inherent in the estimate of ARO are various assumptions including the ultimate settlement date, expected cash outflows, inflation rates, credit-adjusted risk-free rates and consideration of potential outcomes where settlement of the ARO can be conditioned upon events. In the latter case, the Company develops possible retirement scenarios and assigns probabilities based on management’s reasonable judgment and knowledge of industry practice. Accordingly, ARO are subject to change.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Accumulated Other Comprehensive Income
The following table presents the changes in the components of accumulated other comprehensive income, net of related tax effects, as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Cash Flow Hedges
|
Postemployment Benefit Obligation
|
Total
|
Balance at September 30, 2019
|
$
|
—
|
|
|
$
|
(31,787)
|
|
|
$
|
(31,787)
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
Other comprehensive (loss), before reclassifications, net of tax of $3,203, $1,235 and $4,438, respectively
|
(10,505)
|
|
|
(4,882)
|
|
|
(15,387)
|
|
Amounts reclassified from accumulated other comprehensive (loss), net of tax of $(32), $(668) and $(700), respectively
|
108
|
|
|
2,751
|
|
(1)
|
2,859
|
|
Net current-period other comprehensive income, net of tax of $3,171, $567 and $3,738, respectively
|
(10,397)
|
|
|
(2,131)
|
|
|
(12,528)
|
|
Balance at September 30, 2020
|
$
|
(10,397)
|
|
|
$
|
(33,918)
|
|
|
$
|
(44,315)
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
Other comprehensive income, before reclassifications, net of tax of $—, $(1,618), $(1,618), respectively
|
—
|
|
|
5,494
|
|
|
5,494
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax of $(350), $(957), $(1,307), respectively
|
1,021
|
|
|
3,272
|
|
(1)
|
4,293
|
|
Net current-period other comprehensive income, net of tax of $(350), $(2,575), $(2,925), respectively
|
1,021
|
|
|
8,766
|
|
|
9,787
|
|
Balance at September 30, 2021
|
$
|
(9,376)
|
|
|
$
|
(25,152)
|
|
|
$
|
(34,528)
|
|
(1)Included in the computation of net periodic pension cost, a component of O&M expense on the Consolidated Statements of Operations. For more details, see Note 11. Employee Benefit Plans.
Foreign Currency Transactions
The market area of Energy Services includes Canadian delivery points and as a result, Energy Services incurs certain natural gas commodity costs and demand fees denominated in Canadian dollars. Gains or losses that occur as a result of these foreign currency transactions are reported as a component of natural gas purchases on the Consolidated Statements of Operations. Gains and losses recognized for the fiscal years ended September 30, 2021, 2020 and 2019, are considered immaterial.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. Construction work in progress previously classified within various property classifications in the Property Plant and Equipment section of this note has been reclassified to its own category.
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 records 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The impact of the change in accounting policy on the Consolidated Statements of Operations during the fiscal years ended September 30, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
As Previously
|
Effect of
|
As
|
September 30, 2020
|
Reported
|
Change
|
Adjusted
|
Depreciation and amortization
|
$
|
119,894
|
|
(12,526)
|
|
$
|
107,368
|
|
Total operating expenses
|
$
|
1,737,285
|
|
(12,526)
|
|
$
|
1,724,759
|
|
Operating income
|
$
|
216,383
|
|
12,526
|
|
$
|
228,909
|
|
Income before income taxes and equity in earnings of affiliates
|
$
|
172,664
|
|
12,526
|
|
$
|
185,190
|
|
Income tax (benefit) expense
|
$
|
(6,944)
|
|
43,438
|
|
$
|
36,494
|
|
Net income
|
$
|
193,919
|
|
(30,912)
|
|
$
|
163,007
|
|
Weighted average shares outstanding
|
|
|
|
Diluted
|
$
|
95,107
|
|
(4)
|
|
$
|
95,103
|
|
Earnings per common share
|
|
|
|
Basic
|
$
|
2.05
|
|
(0.33)
|
|
$
|
1.72
|
|
Diluted
|
$
|
2.04
|
|
(0.33)
|
|
$
|
1.71
|
|
September 30, 2019
|
|
|
|
Depreciation and amortization
|
$
|
91,730
|
|
(10,621)
|
|
$
|
81,109
|
|
Total operating expenses
|
$
|
2,438,110
|
|
(10,621)
|
|
$
|
2,427,489
|
|
Operating income
|
$
|
153,935
|
|
10,621
|
|
$
|
164,556
|
|
Income before income taxes and equity in earnings of affiliates
|
$
|
118,126
|
|
10,621
|
|
$
|
128,747
|
|
Income tax (benefit) expense
|
$
|
(37,751)
|
|
56,191
|
|
$
|
18,440
|
|
Net income
|
$
|
169,505
|
|
(45,570)
|
|
$
|
123,935
|
|
Weighted average shares outstanding
|
|
|
|
Diluted
|
$
|
89,616
|
|
(20)
|
|
$
|
89,596
|
|
Earnings per common share
|
|
|
|
Basic
|
$
|
1.90
|
|
(0.51)
|
|
$
|
1.39
|
|
Diluted
|
$
|
1.89
|
|
(0.51)
|
|
$
|
1.38
|
|
The cumulative effect of the change in accounting policy on the 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
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The impact of the change in accounting policy on the Consolidated Statements of Cash Flows as of September 30, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
As Previously
|
Effect of
|
As
|
September 30, 2020
|
Reported
|
Change
|
Adjusted
|
Depreciation and amortization
|
$
|
119,894
|
|
(12,526)
|
|
$
|
107,368
|
|
Deferred income taxes
|
$
|
(9,092)
|
|
43,438
|
|
$
|
34,346
|
|
September 30, 2019
|
|
|
|
Depreciation and amortization
|
$
|
91,730
|
|
(10,621)
|
|
$
|
81,109
|
|
Deferred income taxes
|
$
|
(59,013)
|
|
56,191
|
|
$
|
(2,822)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact of the change in accounting policy on the Consolidated Statements of Common Stock Equity as of September 30, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously
|
Effect of
|
As
|
(Thousands)
|
Reported
|
Change
|
Adjusted
|
Retained Earnings
|
|
|
|
Balance at September 30, 2018
|
$
|
1,007,117
|
|
(124,314)
|
|
$
|
882,803
|
|
Net Income
|
$
|
169,505
|
|
(45,570)
|
|
$
|
123,935
|
|
Balance at September 30, 2019
|
$
|
1,075,960
|
|
(169,884)
|
|
$
|
906,076
|
|
Net Income
|
$
|
193,919
|
|
(30,912)
|
|
$
|
163,007
|
|
Balance at September 30, 2020
|
$
|
1,148,297
|
|
(200,796)
|
|
$
|
947,501
|
|
Total Common stock equity
|
|
|
|
Balance at September 30, 2018
|
$
|
1,418,978
|
|
(124,314)
|
|
$
|
1,294,664
|
|
Net Income
|
$
|
169,505
|
|
(45,570)
|
|
$
|
123,935
|
|
Balance at September 30, 2019
|
$
|
1,551,717
|
|
(169,884)
|
|
$
|
1,381,833
|
|
Net Income
|
$
|
193,919
|
|
(30,912)
|
|
$
|
163,007
|
|
Balance at September 30, 2020
|
$
|
1,844,692
|
|
(200,796)
|
|
$
|
1,643,896
|
|
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.
The Company completed its evaluation of this amendment and all subsequent amendments related to this topic and adopted this guidance on 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Fair Value
In August 2018, the FASB issued ASU No. 2018-13, an amendment to ASC 820, Fair Value Measurement which removes, modifies and adds to certain disclosure requirements of fair value measurements. Disclosure requirements removed include the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Modifications include considerations around the requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse. The additions include the requirement to disclose changes in unrealized gains and losses for the period in other comprehensive income for recurring Level 3 fair value measurements held and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this guidance on October 1, 2020 on a prospective basis. 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 position, results of operations or cash flows.
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 Company adopted this guidance on October 1, 2020. There was no impact to the Company's financial position, results of operations or cash flows.
Reference Rate Reform
In January 2021, the FASB issued ASU No. 2021-01, which refines the scope of ASC 848, Reference Rate Reform, and clarifies some of its guidance of global reference rate reform activities. The amendments in this update permit 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”). The amendments in this update are effective upon the ASU issuance and allow for retrospective application or prospective application through December 31, 2022. NJR adopted this standard prospectively in January 2021.
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 simplifies 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 and will be applied on a prospective basis. The Company has evaluated the amendments and concluded that they are either not applicable, currently applied, or will have no material impact on its financial position, results of operations, cash flows and disclosures upon adoption.
Investments - Equity Method and Derivatives and Hedging
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The update requires an entity 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 and will be applied on a prospective basis. The Company has evaluated the amendments and does not expect a material impact on its financial position, results of operations, cash flows and disclosures upon adoption.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other
In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements, 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 the Company on October 1, 2021. The Company has evaluated the amendments and does not expect a material impact on its financial position, results of operations, cash flows and disclosures upon adoption.
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 Consolidated Statements of Operations.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Below is a listing of performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms and the nature of the goods and services being transferred, by reporting segment and other business operations:
|
|
|
|
|
|
|
|
|
Revenue Recognized Over Time:
|
Segment
|
Performance Obligation
|
Description
|
Natural Gas Distribution
|
Natural gas utility sales
|
NJNG's performance obligation is to provide natural gas to residential, commercial and industrial customers as demanded, based on regulated tariff rates, which are established by the BPU. Revenues from the sale of natural gas are recognized in the period that natural gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period. Payment is due each month for the previous month's deliveries. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates. NJNG is entitled to be compensated for performance completed until service is terminated.
Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers. As NJNG is acting as an agent on behalf of the third-party supplier, revenue is recorded for the delivery of natural gas to the customer.
|
Clean Energy Ventures
|
Commercial solar and wind electricity
|
Clean Energy Ventures operates wholly-owned solar projects that recognize revenue as electricity is generated and transferred to the customer. The performance obligation is to provide electricity to the customer in accordance with contract terms or the interconnection agreement and is satisfied upon transfer of electricity generated. All wind assets were sold as of February 7, 2019.
Revenue is recognized as invoiced and the payment is due each month for the previous month's services.
|
Clean Energy Ventures
|
Residential solar electricity
|
Clean Energy Ventures provides access to residential rooftop and ground-mount solar equipment to customers who then pay the Company a monthly fee. The performance obligation is to provide electricity to the customer based on generation from the underlying residential solar asset and is satisfied upon transfer of electricity generated.
Revenue is derived from the contract terms and is recognized as invoiced, with the payment due each month for the previous month's services.
|
Clean Energy Ventures
|
Transition renewable energy certificates
|
Clean Energy Ventures generates 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. Storage and Transportation generates revenues from firm storage contracts and transportation contracts, related usage fees for the use of storage space, injection and withdrawal at the storage facility and the delivery of natural gas to customers. Revenue is recognized over time as customers receive the benefits of its 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.
|
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.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
|
|
|
|
|
|
|
|
|
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 fiscal 2021, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Natural Gas Distribution
|
Clean Energy Ventures
|
|
Energy Services
|
Storage and Transportation
|
Home Services
and Other
|
Total
|
2021
|
|
|
|
|
|
|
|
Natural gas utility sales
|
$
|
694,635
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
$
|
694,635
|
|
Natural gas services
|
—
|
|
—
|
|
|
26,933
|
|
51,020
|
|
—
|
|
77,953
|
|
Service contracts
|
—
|
|
—
|
|
|
—
|
|
—
|
|
33,250
|
|
33,250
|
|
Installations and maintenance
|
—
|
|
—
|
|
|
—
|
|
—
|
|
18,979
|
|
18,979
|
|
Renewable energy certificates
|
—
|
|
4,571
|
|
|
—
|
|
—
|
|
—
|
|
4,571
|
|
Electricity sales
|
—
|
|
25,270
|
|
|
—
|
|
—
|
|
—
|
|
25,270
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
—
|
|
(1,768)
|
|
(785)
|
|
(2,553)
|
|
Revenues from contracts with customers
|
694,635
|
|
29,841
|
|
|
26,933
|
|
49,252
|
|
51,444
|
|
852,105
|
|
Alternative revenue programs (2)
|
(7,282)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(7,282)
|
|
Derivative instruments
|
44,443
|
|
65,434
|
|
(3)
|
1,201,487
|
|
—
|
|
—
|
|
1,311,364
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
426
|
|
—
|
|
—
|
|
426
|
|
Revenues out of scope
|
37,161
|
|
65,434
|
|
|
1,201,913
|
|
—
|
|
—
|
|
1,304,508
|
|
Total operating revenues
|
$
|
731,796
|
|
95,275
|
|
|
1,228,846
|
|
49,252
|
|
51,444
|
|
$
|
2,156,613
|
|
2020
|
|
|
|
|
|
|
|
Natural gas utility sales
|
$
|
695,858
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
$
|
695,858
|
|
Natural gas services
|
—
|
|
—
|
|
|
24,511
|
|
44,728
|
|
—
|
|
69,239
|
|
Service contracts
|
—
|
|
—
|
|
|
—
|
|
—
|
|
32,455
|
|
32,455
|
|
Installations and maintenance
|
—
|
|
—
|
|
|
—
|
|
—
|
|
18,562
|
|
18,562
|
|
Renewable energy certificates
|
—
|
|
1,384
|
|
|
—
|
|
—
|
|
—
|
|
1,384
|
|
Electricity sales
|
—
|
|
20,099
|
|
|
—
|
|
—
|
|
—
|
|
20,099
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
—
|
|
(2,713)
|
|
(1,207)
|
|
(3,920)
|
|
Revenues from contracts with customers
|
695,858
|
|
21,483
|
|
|
24,511
|
|
42,015
|
|
49,810
|
|
833,677
|
|
Alternative revenue programs (2)
|
15,750
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
15,750
|
|
Derivative instruments
|
18,315
|
|
81,134
|
|
(3)
|
1,005,908
|
|
—
|
|
—
|
|
1,105,357
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
(1,116)
|
|
—
|
|
—
|
|
(1,116)
|
|
Revenues out of scope
|
34,065
|
|
81,134
|
|
|
1,004,792
|
|
—
|
|
—
|
|
1,119,991
|
|
Total operating revenues
|
$
|
729,923
|
|
102,617
|
|
|
1,029,303
|
|
42,015
|
|
49,810
|
|
$
|
1,953,668
|
|
2019
|
|
|
|
|
|
|
|
Natural gas utility sales
|
$
|
680,151
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
680,151
|
|
Natural gas services
|
—
|
|
—
|
|
|
31,459
|
|
—
|
|
—
|
|
31,459
|
|
Service contracts
|
—
|
|
—
|
|
|
—
|
|
—
|
|
31,499
|
|
31,499
|
|
Installations and maintenance
|
—
|
|
—
|
|
|
—
|
|
—
|
|
19,403
|
|
19,403
|
|
|
|
|
|
|
|
|
|
Electricity sales
|
—
|
|
22,121
|
|
|
—
|
|
—
|
|
—
|
|
22,121
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(2,302)
|
|
(2,302)
|
|
Revenues from contracts with customers
|
680,151
|
|
22,121
|
|
|
31,459
|
|
—
|
|
48,600
|
|
782,331
|
|
Alternative revenue programs (2)
|
10,364
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
10,364
|
|
Derivative instruments
|
20,278
|
|
75,978
|
|
(3)
|
1,711,332
|
|
—
|
|
—
|
|
1,807,588
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
(8,238)
|
|
—
|
|
—
|
|
(8,238)
|
|
Revenues out of scope
|
30,642
|
|
75,978
|
|
|
1,703,094
|
|
—
|
|
—
|
|
1,809,714
|
|
Total operating revenues
|
$
|
710,793
|
|
98,099
|
|
|
1,734,553
|
|
—
|
|
48,600
|
|
2,592,045
|
|
(1)Consists of transactions between subsidiaries that are eliminated in consolidation.
(2)Includes CIP revenue.
(3)Includes SREC revenue.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Natural Gas Distribution
|
Clean Energy Ventures
|
Energy Services
|
Storage and Transportation
|
Home Services
and Other
|
Total
|
2021
|
|
|
|
|
|
|
Residential
|
$
|
487,018
|
|
11,319
|
|
—
|
|
—
|
|
50,689
|
|
$
|
549,026
|
|
Commercial and industrial
|
124,519
|
|
18,522
|
|
26,933
|
|
49,252
|
|
755
|
|
219,981
|
|
Firm transportation
|
79,256
|
|
—
|
|
—
|
|
—
|
|
—
|
|
79,256
|
|
Interruptible and off-tariff
|
3,842
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,842
|
|
Revenues out of scope
|
37,161
|
|
65,434
|
|
1,201,913
|
|
—
|
|
—
|
|
1,304,508
|
|
Total operating revenues
|
$
|
731,796
|
|
95,275
|
|
1,228,846
|
|
49,252
|
|
51,444
|
|
$
|
2,156,613
|
|
2020
|
|
|
|
|
|
|
Residential
|
$
|
490,233
|
|
10,233
|
|
—
|
|
—
|
|
48,867
|
|
$
|
549,333
|
|
Commercial and industrial
|
129,946
|
|
11,250
|
|
24,511
|
|
42,015
|
|
943
|
|
208,665
|
|
Firm transportation
|
69,357
|
|
—
|
|
—
|
|
—
|
|
—
|
|
69,357
|
|
Interruptible and off-tariff
|
6,322
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,322
|
|
Revenues out of scope
|
34,065
|
|
81,134
|
|
1,004,792
|
|
—
|
|
—
|
|
1,119,991
|
|
Total operating revenues
|
$
|
729,923
|
|
102,617
|
|
1,029,303
|
|
42,015
|
|
49,810
|
|
$
|
1,953,668
|
|
2019
|
|
|
|
|
|
|
Residential
|
$
|
440,787
|
|
9,003
|
|
—
|
|
—
|
|
47,655
|
|
$
|
497,445
|
|
Commercial and industrial
|
171,357
|
|
13,118
|
|
31,459
|
|
—
|
|
945
|
|
216,879
|
|
Firm transportation
|
61,370
|
|
—
|
|
—
|
|
—
|
|
—
|
|
61,370
|
|
Interruptible and off-tariff
|
6,637
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,637
|
|
Revenues out of scope
|
30,642
|
|
75,978
|
|
1,703,094
|
|
—
|
|
—
|
|
1,809,714
|
|
Total operating revenues
|
$
|
710,793
|
|
98,099
|
|
1,734,553
|
|
—
|
|
48,600
|
|
$
|
2,592,045
|
|
Customer Accounts Receivable/Credit Balances and Deposits
The timing of revenue recognition, customer billings and cash collections resulting in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Consolidated Balance Sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Accounts Receivable
|
Customers' Credit
|
(Thousands)
|
Billed
|
Unbilled
|
Balances and Deposits
|
Balance as of September 30, 2019
|
$
|
139,263
|
|
$
|
6,510
|
|
$
|
27,116
|
|
(Decrease)/Increase
|
(5,090)
|
|
2,716
|
|
(1,182)
|
|
Balance as of September 30, 2020
|
134,173
|
|
9,226
|
|
25,934
|
|
Increase
|
78,665
|
|
1,125
|
|
6,652
|
|
Balance as of September 30, 2021
|
$
|
212,838
|
|
$
|
10,351
|
|
$
|
32,586
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 Consolidated Balance Sheets as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Natural Gas Distribution
|
Clean Energy Ventures
|
Energy Services
|
Storage and Transportation
|
Home Services
and Other
|
|
Total
|
2021
|
|
|
|
|
|
|
|
Customer accounts receivable
|
|
|
|
|
|
|
Billed
|
$
|
54,514
|
|
5,534
|
|
147,087
|
|
3,956
|
|
1,747
|
|
|
$
|
212,838
|
|
Unbilled
|
8,427
|
|
1,924
|
|
—
|
|
—
|
|
—
|
|
|
10,351
|
|
Customers' credit balances and deposits
|
(32,586)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(32,586)
|
|
Total
|
$
|
30,355
|
|
7,458
|
|
147,087
|
|
3,956
|
|
1,747
|
|
|
$
|
190,603
|
|
2020
|
|
|
|
|
|
|
|
Customer accounts receivable
|
|
|
|
|
|
|
Billed
|
$
|
52,134
|
|
5,282
|
|
70,457
|
|
3,905
|
|
2,395
|
|
|
$
|
134,173
|
|
Unbilled
|
7,842
|
|
1,384
|
|
—
|
|
—
|
|
—
|
|
|
9,226
|
|
Customers' credit balances and deposits
|
(25,934)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(25,934)
|
|
Total
|
$
|
34,042
|
|
6,666
|
|
70,457
|
|
3,905
|
|
2,395
|
|
|
$
|
117,465
|
|
4. REGULATION
The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape. NJNG is required, pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas suppliers. Customers can choose the supplier of their natural gas commodity in NJNG’s service territory.
As required by EDECA, NJNG’s rates are segregated into two primary components: the commodity portion, which represents the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the natural gas to NJNG’s service territory; and the delivery portion, which represents the transportation of the commodity portion through NJNG’s natural gas distribution system to the end-use customer. NJNG does not earn utility gross margin on the commodity portion of its natural gas sales. NJNG earns utility gross margin through the delivery of natural gas to its customers, regardless of whether it or a third-party supplier provides the wholesale natural gas commodity.
Under EDECA, the BPU is required to audit the state’s energy utilities every two years. The primary purpose of the audit is to ensure that utilities and their affiliates offering unregulated retail services do not have an unfair competitive advantage over nonaffiliated providers of similar retail services. A combined competitive services and management audit of NJNG commenced in August 1, 2013. A draft management audit report was accepted by the BPU on July 23, 2014, for public comment. To date, NJNG has implemented all audit recommendations with the approval of BPU staff and is waiting for final BPU approval.
NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility capital investments based on the BPU’s approval. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets, and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations.
NJNG’s recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to make filings to the BPU for review of its BGSS, CIP and other programs and related rates. Annual rate changes are requested to be effective at the beginning of the following fiscal year. The current base rates include a weighted average cost of capital of 6.95 percent and a return on common equity of 9.6 percent. 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 II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Regulatory assets and liabilities included on the Consolidated Balance Sheets for NJNG are comprised of the following, as of September 30:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
Regulatory assets-current
|
|
|
New Jersey Clean Energy Program
|
$
|
16,308
|
|
$
|
15,570
|
|
Conservation Incentive Program
|
11,839
|
|
19,120
|
|
|
|
|
|
|
|
Other current regulatory assets
|
1,554
|
|
1,682
|
|
Total current regulatory assets
|
$
|
29,701
|
|
$
|
36,372
|
|
Regulatory assets-noncurrent
|
|
|
Environmental remediation costs:
|
|
|
Expended, net of recoveries
|
$
|
58,483
|
|
$
|
36,516
|
|
Liability for future expenditures
|
135,012
|
|
150,590
|
|
Deferred income taxes
|
39,694
|
|
28,241
|
|
Derivatives at fair value, net
|
—
|
|
1
|
|
SAVEGREEN
|
32,941
|
|
21,281
|
|
Postemployment and other benefit costs
|
117,194
|
|
188,170
|
|
Deferred storm damage costs
|
4,343
|
|
6,515
|
|
Cost of removal
|
99,238
|
|
75,080
|
|
|
|
|
Other noncurrent regulatory assets
|
32,695
|
|
20,068
|
|
Total noncurrent regulatory assets
|
$
|
519,600
|
|
$
|
526,462
|
|
Regulatory liability-current
|
|
|
Overrecovered natural gas costs
|
$
|
5,510
|
|
$
|
25,914
|
|
|
|
|
|
|
|
Derivatives at fair value, net
|
22,497
|
|
274
|
|
Total current regulatory liabilities
|
$
|
28,007
|
|
$
|
26,188
|
|
Regulatory liabilities-noncurrent
|
|
|
Tax Act impact (1)
|
$
|
190,386
|
|
$
|
195,425
|
|
Derivatives at fair value, net
|
1,166
|
|
352
|
|
|
|
|
Other noncurrent regulatory liabilities
|
336
|
|
509
|
|
Total noncurrent regulatory liabilities
|
$
|
191,888
|
|
$
|
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 Consolidated Balance Sheets for Adelphia Gateway are comprised of the following, as of September 30:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
Total current regulatory assets
|
$
|
417
|
|
$
|
158
|
|
Total noncurrent regulatory assets
|
$
|
2,499
|
|
$
|
997
|
|
|
|
|
Total-noncurrent regulatory liabilities
|
$
|
1,163
|
|
$
|
—
|
|
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 Clean Energy Program
The NJCEP is a statewide program that encourages energy efficiency and renewable energy. Funding amounts are determined by the BPU’s Office of Clean Energy and all New Jersey utilities are required to share in the annual funding obligation. The current NJCEP program is for the State of New Jersey’s fiscal year ending June 2022. NJNG recovers the costs associated with its portion of the NJCEP obligation through its NJCEP rider, with interest.
Over and Underrecovered Natural Gas Costs
NJNG recovers its cost of natural gas through the BGSS rate component of its customers’ bills. NJNG’s cost of natural gas includes the purchased cost of the natural gas commodity, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and hedging transactions. Overrecovered natural gas costs represent a regulatory liability that generally occurs when NJNG’s BGSS rates are higher than actual costs and requests approval to be returned to customers including interest, when applicable, in accordance with NJNG’s approved BGSS tariff. Conversely, underrecovered natural gas costs generally occur during periods when NJNG’s BGSS rates are lower than actual costs, in which case NJNG records a regulatory asset and requests amounts to be recovered from customers in the future.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Derivatives
Derivatives are utilized by NJNG to manage the price risk associated with its natural gas purchasing activities and to participate in certain BGSS incentive programs. The gains and losses associated with NJNG’s derivatives are recoverable through its BGSS, as noted above, without interest. See Note 5. Derivative Instruments.
Conservation Incentive Program
The CIP permits NJNG to recover utility gross margin variations related to customer usage resulting from customer conservation efforts and mitigates the impact of weather on its margin. Such utility gross margin variations are recovered in the year following the end of the CIP usage year, without interest, and are subject to additional conditions, including an earnings test, a revenue test and an evaluation of BGSS-related savings. This program has no expiration date.
Environmental Remediation Costs
NJNG is responsible for the cleanup of certain former gas manufacturing facilities. Actual expenditures are recovered from customers, with interest, over seven-year rolling periods, through a RAC rate rider. Recovery for NJNG’s estimated future liability will be requested and/or recovered when actual expenditures are incurred. See Note 15. Commitments and Contingent Liabilities.
Deferred Income Taxes
Upon adoption of a 1993 provision of ASC 740, Income Taxes, NJNG recognized a transition adjustment and corresponding regulatory asset representing the difference between NJNG’s existing deferred tax amounts compared with the deferred tax amounts calculated in accordance with the change in method prescribed by ASC 740. NJNG recovers the regulatory asset associated with these tax impacts through future base rates, without interest.
SAVEGREEN
NJNG administers certain programs that supplement the state’s NJCEP and that allow NJNG to promote clean energy to its residential and commercial customers, as described further below. NJNG will recover related expenditures and a weighted average cost of capital on the unamortized balance through a tariff rider, with interest, as approved by the BPU, over a two- to 10-year period depending upon the specific program incentive.
Postemployment and Other Benefit Costs
Postemployment and Other Benefit Costs represents NJNG’s underfunded postemployment benefit obligations, as well as a fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated with Medicare Part D, both of which are deferred as regulatory assets and are recoverable, without interest, in base rates. The BPU approved the recovery of the tax charge through NJNG’s base rates effective October 2016 over a seven-year amortization period. See Note 11. Employee Benefit Plans.
Deferred Storm Damage Costs
Portions of NJNG’s distribution system incurred significant damage as a result of Post-Tropical Cyclone Sandy in October 2012. NJNG deferred the uninsured incremental O&M costs associated with its restoration efforts, which were approved for recovery by the BPU through NJNG’s base rates, without interest, effective October 2016 over a seven-year amortization period.
Cost of Removal
NJNG accrues and collects for cost of removal in base rates on its utility property, without interest. These costs are recorded in accumulated depreciation for regulatory reporting purposes, and actual costs of removal, without interest, will be recovered in subsequent rates, pursuant to the BPU order. Consistent with GAAP, amounts recorded within accumulated depreciation for regulatory accounting purposes are reclassified out of accumulated depreciation to either a regulatory asset or a regulatory liability depending on whether actual cost of removal is still subject to collection or amounts overcollected will be refunded back to customers. NJNG’s prior regulatory liability represented customer collections in excess of actual expenditures, which the Company returned to customers as a reduction to depreciation expense.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Regulatory Assets
Other regulatory assets consist primarily of deferred costs associated with certain components of NJNG’s SBC, as discussed further in the regulatory proceedings section, and NJNG’s compliance with federal and state-mandated PIM provisions. NJNG’s related costs to maintain the operational integrity of its distribution and transmission main are recoverable, without interest, subject to BPU review and approval. As of September 30, 2021, NJNG recorded $1.1 million of PIM in other regulatory assets, which is being recovered through base rates over a seven-year amortization period effective October 2016.
The following is a description of certain regulatory proceedings during fiscal 2020 and 2021:
On March 30, 2021, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $165.7 million including a rate recovery for SRL and other infrastructure investments. On July 9, 2021, the Company updated its base rate request to $163.9 million, based on nine months of actual information through June 30, 2021. On September 23, 2021, NJNG filed its second update to the base rate case. The updated filing seeks a base rate increase of $162.5 million.
On November 17, 2021, the BPU issued an order adopting a stipulation of settlement approving a $79.0 million increase to base rates, effective December 1, 2021. The increase includes an overall rate of return on rate base of 6.84 percent, return on common equity of 9.6 percent, a common equity ratio of 54.0 percent and a depreciation rate of 2.78 percent.
BGSS and CIP
BGSS rates are normally revised on an annual basis. In addition, to manage the fluctuations in wholesale natural gas costs, NJNG has the ability to make two interim filings during each fiscal year to increase residential and small commercial customer BGSS rates on a self-implementing and provisional basis. NJNG is also permitted to refund or credit back a portion of the commodity costs to customers at any time given five days’ notice when the natural gas commodity costs decrease in comparison to amounts projected or to amounts previously collected from customers. Concurrent with the annual BGSS filing, NJNG files for an annual review of its CIP. NJNG’s annual BGSS and CIP filings are summarized as follows:
•2020 BGSS/CIP filing — On March 3, 2021, the BPU approved, on a final basis, NJNG’s annual petition to modify its BGSS, balancing charge and CIP rates for residential and small commercial customers. The rate changes will result in a $20.4 million decrease to the annual revenues credited to BGSS, a $3.8 million annual decrease related to its balancing charge, as well as changes to CIP rates, which resulted in a $16.5 million annual recovery increase, effective October 1, 2020. 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. On December 22, 2020, NJNG notified the BPU of the extension of the BGSS bill credits through January 31, 2021. The actual bill credits given to customers totaled $20.6 million, $19.3 million net of tax.
•2021 BGSS/CIP filing — On May 28, 2021, NJNG submitted to the BPU the annual petition to modify its BGSS, balancing charge and CIP rates. On November 17, 2021, the BPU approved a $2.9 million increase to the annual revenues credited to BGSS, a $13.0 million annual increase related to its balancing charge, as well as changes to CIP rates, which will result in a $6.3 million decrease to the annual recovery, effective December 1, 2021.
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing programs that include off-system sales, capacity release and storage incentive programs. The Company is permitted to annually propose a process to evaluate and discuss alternative incentive programs, should performance of the existing incentives or market conditions warrant re-evaluation.
Energy Efficiency Programs
SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are designed to encourage the installation of high efficiency heating and cooling equipment and other upgrades to promote energy efficiency to its residential and commercial customers while stimulating state and local economies through the creation of jobs. Depending on the specific initiative or approval, NJNG recovers costs associated with the programs over a three- to 10-year period through a tariff rider mechanism. As of September 30, 2021, the BPU approved total SAVEGREEN investments of approximately $354.3 million, including $135.0 million that was approved in September 2018, for a continuation of existing EE programs and the implementation of new programs through December 2021.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
On March 3, 2021 the BPU approved the three-year SAVEGREEN program consisting of approximately $126.1 million of direct investment, $109.4 million in financing options, and $23.4 million in operation and maintenance expenses, which resulted in a $15.6 million annual recovery increase, effective July 1, 2021. SAVEGREEN investments and costs are filed with the BPU on an annual basis. NJNG’s annual EE filings are summarized as follows:
•2020 EE filing — On May 29, 2020, NJNG filed a petition with the BPU to minimally decrease its EE recovery rate. Throughout the course of the proceeding, the Company updated the filing for additional actual information. Based on the updated information, the BPU approved the request to maintain its existing rate, which results in an annual recovery of approximately $11.4 million, effective November 1, 2020.
•2021 EE filing — On June 11, 2021, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through 2018. If approved, the proposed rate increase will increase annual recoveries by $2.2 million. It is anticipated that this increase will be effective in early 2022.
Societal Benefits Charge
The SBC is comprised of three primary riders that allow NJNG to recover costs associated with USF, which is a permanent statewide program for all natural gas and electric utilities for the benefit of income-eligible customers, MGP remediation and the NJCEP. NJNG has submitted the following filings to the BPU, which include a report of program expenditures incurred each program year:
•2019 SBC filing — On September 9, 2020, the BPU approved NJNG's annual SBC application which included an increase in the RAC rate of $1.2 million annually and a decrease to the NJCEP factor of $600,000, which was effective October 1, 2020.
•2020 USF filing — On October 1, 2020, the BPU approved NJNG’s annual USF compliance filing to decrease the statewide USF rate by approximately $400,000 annually, which was effective October 1, 2020.
•2020 SBC filing — On April 7, 2021, the BPU approved a stipulation resolving NJNG’s annual SBC application requesting to recover remediation expenses, including an increase in the RAC of approximately $1.3 million annually and an increase to the NJCEP factor, which resulted in an annual increase of approximately $6.0 million, effective May 1, 2021.
•2021 USF filing — On June 25, 2021, NJNG filed its annual USF compliance filing proposing an increase to the statewide USF rate, which results in an annual increase of approximately $4.9 million. On September 14, 2021, the BPU approved the increase, effective October 1, 2021.
•2021 SBC filing - On September 30, 2021, NJNG filed its annual SBC application requesting to recover remediation expenses including an increase in the RAC of approximately $2.0 million annually and a decrease to the NJCEP factor, which will result in an annual decrease of approximately $500,000, effective April 1, 2022.
Infrastructure Programs
NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs. NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG’s natural gas distribution system, including SAFE and NJ RISE.
SAFE/NJ RISE
The SAFE program replaces portions of NJNG’s natural gas distribution unprotected steel, cast iron infrastructure and associated services to improve the safety and reliability of the natural gas distribution system. SAFE I was approved to invest up to $130.0 million, exclusive of AFUDC, over a four-year period. SAFE II was approved to invest up to $200.0 million, excluding AFUDC, over a five-year period. NJNG will recover approximately $157.5 million through annual rate filings, with the remainder recovered through subsequent rate cases. As a condition of approval of the program, NJNG was required to file a base rate case no later than November 2019 and satisfied this requirement with its March 29, 2019 base rate case filing.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJ RISE consists of six capital investment projects estimated to cost $102.5 million over a five-year period, excluding AFUDC, for natural gas distribution storm-hardening and mitigation projects, along with incremental depreciation expense. NJ RISE includes a weighted average cost of capital that ranges from 6.74 percent to 6.9 percent and a return on equity of 9.75 percent. Requests for recovery of future NJ RISE capital costs will occur in conjunction with SAFE II.
On September 27, 2019, the BPU approved NJNG’s annual SAFE II/NJ RISE petition requesting a base rate increase of $7.8 million, effective October 1, 2019. On September 9, 2020, the BPU approved NJNG’s annual SAFE II/NJ RISE petition requesting a base rate increase of $7.1 million, effective October 1, 2020.
On March 31, 2021, NJNG filed a petition with the BPU requesting the final base rate increase of approximately $311,000 for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $3.4 million made through June 30, 2021. On June 22, 2021, this filing was consolidated with the 2021 base rate case and on July 30, 2021, was updated for actual information through June 30, 2021. Changes to base rates are anticipated to be effective concurrent with the base rate case request.
On July 30, 2021, NJNG updated its annual SAFE II/NJ RISE cost recovery filing through June 30, 2021, this filing seeks a base rate increase of approximately $269,000 annually. This is expected to be the last annual SAFE II/NJ RISE cost recovery filings. This increase will be effective December 1, 2021, concurrent with the rate case.
Southern Reliability Link
The SRL is an approximately 30-mile, 30-inch transmission main designed to support improved system reliability and integrity in the southern portion of NJNG’s service territory. SRL was placed in service during August 2021 with total costs of $304.4 million.
Infrastructure Investment Program
On February 28, 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP is approximately $507.0 million. Upon approval from the BPU, investments will be recovered through annual filings to adjust base rates. On October 28, 2020, the BPU approved the Company’s transmission and distribution component of the IIP for $150.0 million over five years, effective November 1, 2020. The recovery of information technology replacement and enhancements, that was included in the original IIP filing, will be included as part of base rate filings as projects are placed in service.
Other Filings
COVID-19 Pandemic
On July 2, 2020, the BPU issued an order which authorized New Jersey utilities to create a regulatory asset by deferring incremental COVID-19 related costs and required a related quarterly report be filed for the COVID-19-related costs and savings incurred. Utilities must file petition by later of December 31, 2021, or within 60 days of the close of the regulatory asset period and rate recovery can be addressed in the filing or the utility may request consideration be deferred to future rate case. Any potential rate recovery and the appropriate period of recovery, will be addressed through that filing, or may request a deferral of rate recovery for a future base rate case. On September 14, 2021, the BPU extended the filing date to December 31, 2022, or within 60 days of the close of the regulatory asset period.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
5. DERIVATIVE INSTRUMENTS
The Company is subject primarily to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company is exposed to foreign currency and interest rate risk and may utilize foreign currency derivatives to hedge Canadian dollar denominated natural gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations in interest rates. All of these types of contracts are accounted for as derivatives, unless the Company elects NPNS, which is done on a contract-by-contract election. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Consolidated Balance Sheets. For a more detailed discussion of the Company’s fair value measurement policies and level disclosures associated with the Company’s derivative instruments, see Note 6. Fair Value.
Energy Services
Energy Services chooses not to designate its financial commodity and physical forward commodity derivatives as accounting hedges or to elect NPNS. The changes in the fair value of these derivatives are recorded as a component of natural gas purchases or operating revenues, as appropriate for Energy Services, on the Consolidated Statements of Operations as unrealized gains or losses. For Energy Services at settlement, realized gains and losses on all financial derivative instruments are recognized as a component of natural gas purchases and realized gains and losses on all physical derivatives follow the presentation of the related unrealized gains and losses as a component of either natural gas purchases or operating revenues.
Energy Services also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of Canadian currency relative to the U.S. dollar. Energy Services may utilize foreign currency derivatives to lock in the exchange rates associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures or swaps and are accounted for as derivatives. These derivatives are typically used to hedge demand fee payments on pipeline capacity, storage and natural gas purchase agreements.
As a result of Energy Services entering into transactions to borrow natural gas, commonly referred to as “park and loans,” an embedded derivative is recognized relating to differences between the fair value of the amount borrowed and the fair value of the amount that will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location over the contract term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed natural gas is expected to occur, and is considered a derivative transaction that is recorded at fair value on the Consolidated Balance Sheets, with changes in value recognized in current-period earnings.
Expected production of SRECs is hedged through the use of forward and futures contracts. All contracts require the Company to physically deliver SRECs through the transfer of certificates as per contractual settlement schedules. Energy Services recognizes changes in the fair value of these derivatives as a component of operating revenues. Upon settlement of the contract, the related revenue is recognized when the SREC is transferred to the counterparty.
Natural Gas Distribution
Changes in fair value of NJNG's financial commodity derivatives are recorded as a component of regulatory assets or liabilities on the Consolidated Balance Sheets. The Company elects NPNS accounting treatment on all physical commodity contracts that NJNG entered into on or before December 31, 2015, and accounts for these contracts on an accrual basis. Accordingly, physical natural gas purchases are recognized in regulatory assets or liabilities on the Consolidated Balance Sheets when the contract settles and the natural gas is delivered. The average cost of natural gas is 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 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 Consolidated Balance Sheets. The loss is being amortized into earnings over the term of the debt as a component of interest expense on the Consolidated Statements of Operations, which totaled $223,000 and $50,000, as of September 30, 2021 and 2020, respectively.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on its $100 million variable rate term loan, which fixed the variable rate at 2.84 percent. The swap terminated on August 16, 2019, which coincided with the maturity of the debt. The change in the fair value and the settlement of the interest rate swap was recorded as a component of interest expense on the Consolidated Statements of Operations.
During fiscal 2020, NJR entered into treasury lock transactions to fix the benchmark treasury rate associated with a $260 million debt issuance that was finalized in July 2020 and a $200 million debt issuance that was finalized in September 2020. NJR designated its treasury lock contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the hedges were recorded in OCI. Settlement of the treasury locks in fiscal 2020 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 Consolidated Statements of Operations, which totaled $1.0 million and $108,000, net of tax, as of September 30, 2021 and 2020, respectively.
Fair Value of Derivatives
The following table presents the fair value of the Company’s derivative assets and liabilities recognized on the Consolidated Balance Sheets as of September 30:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives at Fair Value
|
|
|
|
2021
|
|
2020
|
(Thousands)
|
Balance Sheet Location
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Natural Gas Distribution:
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
Derivatives - current
|
|
$
|
36
|
|
|
$
|
16
|
|
|
$
|
78
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
Financial commodity contracts
|
Derivatives - current
|
|
2,046
|
|
|
13
|
|
|
71
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services:
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
Derivatives - current
|
|
2,818
|
|
|
24,592
|
|
|
6,454
|
|
|
20,438
|
|
|
Derivatives - noncurrent
|
|
333
|
|
|
13,237
|
|
|
1,264
|
|
|
12,003
|
|
Financial commodity contracts
|
Derivatives - current
|
|
30,226
|
|
|
62,521
|
|
|
16,671
|
|
|
12,965
|
|
|
Derivatives - noncurrent
|
|
3,068
|
|
|
260
|
|
|
2,037
|
|
|
1,346
|
|
Foreign currency contracts
|
Derivatives - current
|
|
125
|
|
|
3
|
|
|
36
|
|
|
104
|
|
|
Derivatives - noncurrent
|
|
2
|
|
|
—
|
|
|
48
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivatives
|
|
|
$
|
38,654
|
|
|
$
|
100,642
|
|
|
$
|
26,659
|
|
|
$
|
47,217
|
|
Offsetting of Derivatives
The Company transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets and liabilities with the same counterparty. However, the Company’s policy is to present its derivative assets and liabilities on a gross basis at the contract level unit of account on the Consolidated Balance Sheets. The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but elects not to, financial collateral, as well as the net amounts the Company could present on the Consolidated Balance Sheets but elects not to.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Amounts Presented on Balance Sheets (1)
|
Offsetting Derivative Instruments (2)
|
Financial Collateral Received/Pledged (3)
|
Net Amounts (4)
|
As of September 30, 2021:
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
3,151
|
|
|
$
|
(894)
|
|
|
$
|
(700)
|
|
|
$
|
1,557
|
|
Financial commodity contracts
|
|
33,294
|
|
|
(33,294)
|
|
|
20,532
|
|
|
20,532
|
|
Foreign currency contracts
|
|
127
|
|
|
(3)
|
|
|
|
|
124
|
|
Total Energy Services
|
|
$
|
36,572
|
|
|
$
|
(34,191)
|
|
|
$
|
19,832
|
|
|
$
|
22,213
|
|
Natural Gas Distribution
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
36
|
|
|
$
|
(8)
|
|
|
$
|
—
|
|
|
$
|
28
|
|
Financial commodity contracts
|
|
2,046
|
|
|
(13)
|
|
|
—
|
|
|
2,033
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution
|
|
$
|
2,082
|
|
|
$
|
(21)
|
|
|
$
|
—
|
|
|
$
|
2,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
37,829
|
|
|
$
|
(894)
|
|
|
$
|
—
|
|
|
$
|
36,935
|
|
Financial commodity contracts
|
|
62,781
|
|
|
(33,294)
|
|
|
—
|
|
|
29,487
|
|
Foreign currency contracts
|
|
3
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Total Energy Services
|
|
$
|
100,613
|
|
|
$
|
(34,191)
|
|
|
$
|
—
|
|
|
$
|
66,422
|
|
Natural Gas Distribution
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
16
|
|
|
$
|
(8)
|
|
|
$
|
—
|
|
|
$
|
8
|
|
Financial commodity contracts
|
|
13
|
|
|
(13)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution
|
|
$
|
29
|
|
|
$
|
(21)
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution
|
|
$
|
358
|
|
|
$
|
(136)
|
|
|
$
|
—
|
|
|
$
|
222
|
|
(1)Derivative assets and liabilities are presented on a gross basis on the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.
(2)Includes transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with ISDA netting.
(3)Financial collateral includes cash balances at FCMs, as well as cash received from or pledged to other counterparties.
(4)Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Energy Services utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical natural gas to be used for storage injection and its subsequent sale at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased natural gas are recognized prior to the gains or (losses) on the physical transaction, which are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged, along with fair value changes in derivative instruments, creates volatility in the results of Energy Services, although the Company’s intended economic results relating to the entire transaction are unaffected.
The following table presents the effect of derivative instruments recognized on the Consolidated Statements of Operations as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Location of gain (loss) recognized in income on derivatives
|
Amount of gain (loss) recognized
in income on derivatives
|
Derivatives not designated as hedging instruments:
|
2021
|
|
2020
|
|
2019
|
Energy Services:
|
|
|
|
|
|
|
Physical commodity contracts
|
Operating revenues
|
$
|
30,011
|
|
|
$
|
1,163
|
|
|
$
|
(5,732)
|
|
Physical commodity contracts
|
Natural gas purchases
|
1,052
|
|
|
(3,366)
|
|
|
(521)
|
|
Financial commodity contracts
|
Natural gas purchases
|
(43,997)
|
|
|
58,949
|
|
|
(643)
|
|
Foreign currency contracts
|
Natural gas purchases
|
238
|
|
|
(41)
|
|
|
(283)
|
|
Home Services and Other:
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
—
|
|
|
—
|
|
|
(233)
|
|
Total unrealized and realized (losses) gains
|
$
|
(12,696)
|
|
|
$
|
56,705
|
|
|
$
|
(7,412)
|
|
NJNG’s derivative contracts are part of the Company’s risk management activities that relate to its natural gas purchases and BGSS incentive programs. At settlement, the resulting gains and/or losses are payable to or recoverable from utility customers and are deferred in regulatory assets or liabilities resulting in no impact to earnings.
The following table reflects the gains and/or (losses) associated with NJNG’s derivative instruments as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
|
2020
|
|
2019
|
Natural Gas Distribution:
|
|
|
|
|
|
Physical commodity contracts
|
$
|
2,174
|
|
|
$
|
2,077
|
|
|
$
|
5,926
|
|
Financial commodity contracts
|
32,725
|
|
|
(3,903)
|
|
|
(7,700)
|
|
|
|
|
|
|
|
Total unrealized and realized (losses) gains
|
$
|
34,899
|
|
|
$
|
(1,826)
|
|
|
$
|
(1,774)
|
|
NJR designates its treasury lock contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the hedges are recorded in OCI and upon settlement of the contracts, realized gains and (losses) are reclassified from OCI to interest expense on the Consolidated Statements of Operations.
The following table reflects the effect of derivative instruments designated as cash flow hedges in OCI as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Amount of pre-tax gain (loss) recognized in OCI on derivatives
|
Location of gain (loss) reclassified from OCI into income
|
Amount of pre-tax gain (loss) reclassified from OCI into income
|
|
Derivatives in cash flow hedging relationships:
|
2021
|
2020
|
|
2021
|
2020
|
|
|
Interest rate contracts
|
$
|
—
|
|
$
|
(13,568)
|
|
Interest expense
|
$
|
(1,371)
|
|
$
|
140
|
|
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG and Energy Services had the following outstanding long (short) derivatives as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bcf)
|
|
|
Transaction Type
|
|
|
2021
|
|
2020
|
Natural Gas Distribution
|
|
Futures
|
|
|
22.2
|
|
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical Commodity
|
|
|
7.6
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
Energy Services
|
|
Futures
|
|
|
(13.4)
|
|
|
(27.5)
|
|
|
|
Swaps
|
|
|
(0.3)
|
|
|
(1.8)
|
|
|
|
|
|
|
|
|
|
|
|
Physical Commodity
|
|
|
0.6
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not included in the above table are Energy Services' net notional amount of foreign currency transactions of approximately $(123,000) and $5.1 million and 1,358,000 and 960,000 SRECs that were open, as of September 30, 2021 and 2020, respectively.
Broker Margin
Futures exchanges have contract-specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily marked-to-market relative to maintenance margin requirements. The Company maintains separate broker margin accounts for the Natural Gas Distribution and Energy Services segments. The balances as of September 30, by segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Balance Sheet Location
|
2021
|
2020
|
Natural Gas Distribution
|
Restricted broker margin accounts
|
$
|
2,790
|
|
$
|
13,525
|
|
|
|
|
|
Energy Services
|
Restricted broker margin accounts
|
$
|
70,050
|
|
$
|
55,919
|
|
|
|
|
|
Wholesale Credit Risk
NJNG, Energy Services, Clean Energy Ventures and the Storage and Transportation segment are exposed to credit risk as a result of their sales/wholesale marketing activities. As a result of the inherent volatility in the prices of natural gas commodities, derivatives, SRECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty fails to perform the obligations under its contract, then the Company could sustain a loss.
The Company monitors and manages the credit risk of its wholesale operations through credit policies and procedures that management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties’ financial statements and/or credit ratings, daily monitoring of counterparties’ credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to the Company’s election not to extend credit or because exposure exceeds defined thresholds. Most of the Company’s wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due.
Internally-rated exposure applies to counterparties that are not rated by Fitch or Moody’s. In these cases, the counterparty’s or guarantor’s financial statements are reviewed, and similar methodologies and ratios used by Fitch and/or Moody’s are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of September 30, 2021. The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services and Clean Energy Ventures residential solar installations.
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Gross Credit
Exposure
|
Investment grade
|
|
$
|
161,680
|
|
|
Noninvestment grade
|
|
10,891
|
|
|
Internally-rated investment grade
|
|
25,827
|
|
|
Internally-rated noninvestment grade
|
|
36,589
|
|
|
Total
|
|
$
|
234,987
|
|
|
Conversely, certain of NJNG’s and Energy Services’ derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG’s credit rating were to fall below its current level. Specifically, most, but not all, of these additional payments will be triggered if NJNG’s debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings, but are based on certain financial metrics.
Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company’s credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed applicable threshold limits. There were no derivative instruments with credit-risk-related contingent features that were in a liability position for which collateral is required as of September 30, 2021 and 2020. These amounts differ from the respective net derivative liabilities reflected on the Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.
6. FAIR VALUE
Fair Value of Assets and Liabilities
The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the Company expects to receive, which approximates fair value, in other noncurrent assets on the Consolidated Balance Sheets. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.
As of September 30, the estimated fair value of long-term debt, including current maturities, excluding finance leases, debt issuance costs and solar asset financing obligations, is as follows (1):
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
NJNG (2) (3)
|
|
|
Carrying value
|
$
|
1,092,845
|
|
$
|
1,092,845
|
|
Fair market value
|
$
|
1,188,261
|
|
$
|
1,271,715
|
|
NJR (4)
|
|
|
Carrying value
|
$
|
1,010,000
|
|
$
|
1,010,000
|
|
Fair market value
|
$
|
1,100,283
|
|
$
|
1,146,033
|
|
(1)See Note 9. Debt for a reconciliation to long-term and short-term debt.
(2)Excludes finance leases of $20.1 million and $74.2 million as of September 30, 2021 and September 30, 2020, respectively.
(3)Excludes NJNG's debt issuance costs of $9.1 million and $9.2 million as of September 30, 2021 and September 30, 2020, respectively.
(4)Excludes NJR's debt issuance costs of $3.3 million and $3.4 million as of September 30, 2021 and September 30, 2020, respectively.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Clean Energy Ventures enters into transactions to sell certain commercial solar assets and lease the assets back for a term specified in the lease. These transactions are considered financing obligations for accounting purposes and are recorded within long-term debt on the Consolidated Balance Sheets. The estimated fair value of solar asset financing obligations as of September 30, 2021 and 2020 was $132.5 million and $149.2 million, respectively.
The Company utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate for the maturity of the specific issue and the Company's credit rating. As of September 30, 2021, NJR discloses its debt within Level 2 of the fair value hierarchy.
Fair Value Hierarchy
The Company applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, investments in equity securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and include the following:
Level 1Unadjusted quoted prices for identical assets or liabilities in active markets. The Company’s Level 1 assets and liabilities include exchange traded natural gas futures and options contracts, listed equities and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that the Company refers to internally as basis swaps, fixed swaps, futures and financial options that are cleared through a FCM.
Level 2Other significant observable inputs, such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. The Company’s Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). NJNG’s treasury lock is also considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation model. Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts, the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:
•widely accepted and public;
•non-proprietary and sourced from an independent third party; and
•observable and published.
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
Level 3Inputs derived from a significant amount of unobservable market data. These include the Company’s best estimate of fair value and are derived primarily through the use of internal valuation methodologies.
Financial derivative portfolios of NJNG and Energy Services consist mainly of futures, options and swaps. The Company primarily uses the market approach and its policy is to use actively quoted market prices when available. The principal market for its derivative transactions is the natural gas wholesale market; therefore, the primary sources for its price inputs are CME, NYMEX and ICE. Energy Services uses Platts and Natural Gas Exchange for Canadian delivery points. However, Energy Services also engages in transactions that result in transporting natural gas to delivery points for which there is no actively quoted market price. In most instances, the transportation cost to the final delivery location is not significant to the overall valuation. If required, Energy Services’ policy is to use the best information available to determine fair value based on internal pricing models, which would include estimates extrapolated from broker quotes or other pricing services.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company also has other financial assets that include listed equities, mutual funds and money market funds for which there are active exchange quotes available.
When the Company determines fair values, measurements are adjusted, as needed, for credit risk associated with its counterparties, as well as its own credit risk. The Company determines these adjustments by using historical default probabilities that correspond to the applicable S&P issuer ratings, while also taking into consideration collateral and netting arrangements that serve to mitigate risk.
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
Significant Other Observable Inputs
|
Significant
Unobservable
Inputs
|
|
(Thousands)
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
As of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
3,187
|
|
|
|
$
|
—
|
|
|
$
|
3,187
|
|
Financial commodity contracts
|
|
35,340
|
|
|
|
—
|
|
|
|
—
|
|
|
35,340
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
127
|
|
|
|
—
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
41
|
|
|
|
—
|
|
|
|
—
|
|
|
41
|
|
Other
|
|
1,815
|
|
|
|
—
|
|
|
|
—
|
|
|
1,815
|
|
Total assets at fair value
|
|
$
|
37,196
|
|
|
|
$
|
3,314
|
|
|
|
$
|
—
|
|
|
$
|
40,510
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
37,845
|
|
|
|
$
|
—
|
|
|
$
|
37,845
|
|
Financial commodity contracts
|
|
62,188
|
|
|
|
606
|
|
|
|
—
|
|
|
62,794
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
62,188
|
|
|
|
$
|
38,454
|
|
|
|
$
|
—
|
|
|
$
|
100,642
|
|
As of September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
7,796
|
|
|
|
$
|
—
|
|
|
$
|
7,796
|
|
Financial commodity contracts
|
|
18,279
|
|
|
|
500
|
|
|
|
—
|
|
|
18,779
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
84
|
|
|
|
—
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
112,291
|
|
|
|
—
|
|
|
|
—
|
|
|
112,291
|
|
Other
|
|
1,840
|
|
|
|
—
|
|
|
|
—
|
|
|
1,840
|
|
Total assets at fair value
|
|
$
|
132,410
|
|
|
|
$
|
8,380
|
|
|
|
$
|
—
|
|
|
$
|
140,790
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
32,517
|
|
|
|
$
|
—
|
|
|
$
|
32,517
|
|
Financial commodity contracts
|
|
14,593
|
|
|
|
—
|
|
|
|
—
|
|
|
14,593
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
107
|
|
|
|
—
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
14,593
|
|
|
|
$
|
32,624
|
|
|
|
$
|
—
|
|
|
$
|
47,217
|
|
During the third quarter of fiscal 2021, the Company evaluated its equity method investment in PennEast and determined that it was other-than-temporarily impaired. As of September 30, 2021, the Company recognized an impairment charge of $92.0 million, which was determined primarily using significant unobservable inputs (Level 3) in the estimation of fair value, including the probabilities assigned to development options and potential outcomes, forecasts for construction costs and operating revenues, and timing of capital expenditures and in service dates. See the Company’s discussion of investments in equity method investees in Note 7. Investments in Equity Investees below for more information regarding the impairment.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
7. INVESTMENTS IN EQUITY INVESTEES
As of September 30, the Company’s investments in equity method investees includes the following:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
Steckman Ridge (1)
|
$
|
109,050
|
|
$
|
112,378
|
|
PennEast (2)
|
5,479
|
|
95,997
|
|
Total
|
$
|
114,529
|
|
$
|
208,375
|
|
(1)Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2021 and 2020, which accrue interest at a variable rate that resets quarterly and are due October 1, 2023.
(2)Includes a deferred tax component related to AFUDC equity of $4.6 million for September 30, 2020. As a result of the impairment of the equity method investment in PennEast, the deferred tax component was reversed and charged to earnings as of September 30, 2021.
Steckman Ridge
The Company holds a 50 percent equity method investment in Steckman Ridge, a jointly owned and controlled natural gas storage facility located in Bedford County, Pennsylvania. NJNG and Energy Services have entered into storage and park and loan agreements with Steckman Ridge. See Note 18. Related Party Transactions for more information on these intercompany transactions.
PennEast
The Company, through its subsidiary NJR Midstream Company, is a 20 percent investor in PennEast, a partnership whose purpose was to construct and operate a 120-mile natural gas pipeline that would have extended from northeast Pennsylvania to western New Jersey.
PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018. On June 29, 2021, the Supreme Court ruled in favor of PennEast reversing the earlier decision by the Third Circuit on the use of eminent domain to acquire state owned lands for pipeline construction and remanding the case back to the Third Circuit for further proceedings.
Despite the favorable outcome from the Supreme Court, PennEast continues to experience regulatory and legal challenges. As a result, the Company evaluated its equity investment in PennEast for impairment as of June 30, 2021, and determined that it was other-than-temporarily impaired. The Company estimated the fair value of its investment in PennEast using probability weighted scenarios assigned to discounted future cash flows. The impairment is the result of management's estimates and assumptions regarding the likelihood of certain outcomes related to required regulatory approvals and pending legal matters, the timing of which remains uncertain, the timing and magnitude of construction costs and in-service dates, the evaluation of the current environmental and political climate as it relates to interstate pipeline development, and transportation capacity revenues and discount rates.
As of September 30, 2021, the Company recognized an other-than-temporary impairment charge of $92.0 million, or approximately $74.5 million, net of income taxes. The other-than-temporary impairment is recorded in equity in (losses) earnings from affiliates in the Consolidated Statements of Operations. On September 27, 2021, the PennEast partnership determined that this project is no longer supported, and all further development has ceased. Given that construction of the pipeline will not continue, the Company re-evaluated its investment for an additional other-than temporary impairment as of September 30, 2021. It was determined that no additional impairment was needed as the current value of the investment noted above represents the best estimate of the salvage value of the remaining assets of the project.
It is possible that future developments could impact the fair value and could result in the recognition of additional impairment charges.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following is the summarized financial information for Steckman Ridge and PennEast for fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Steckman Ridge
|
|
|
|
Operating revenues
|
$
|
21,847
|
|
$
|
28,814
|
|
$
|
32,087
|
|
Gross profit
|
$
|
13,350
|
|
$
|
20,537
|
|
$
|
24,051
|
|
Income from continuing operations
|
$
|
11,483
|
|
$
|
16,926
|
|
$
|
18,944
|
|
Net income
|
$
|
11,483
|
|
$
|
16,926
|
|
$
|
18,944
|
|
Net income attributable to NJR
|
$
|
5,742
|
|
$
|
8,463
|
|
$
|
9,472
|
|
Current assets
|
$
|
14,786
|
|
$
|
7,979
|
|
|
Noncurrent assets
|
$
|
202,670
|
|
$
|
207,051
|
|
|
Current liabilities
|
$
|
9,738
|
|
$
|
945
|
|
|
Noncurrent liabilities
|
$
|
140,810
|
|
$
|
140,810
|
|
|
PennEast
|
|
|
|
Operating revenues
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Gross profit
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Income from continuing operations
|
$
|
(406,305)
|
|
$
|
34,376
|
|
$
|
31,689
|
|
Net (loss) income
|
$
|
(406,305)
|
|
$
|
34,376
|
|
$
|
31,689
|
|
Net (loss) income attributable to NJR
|
$
|
(81,261)
|
|
$
|
6,875
|
|
$
|
6,338
|
|
Current assets
|
$
|
822
|
|
$
|
2,829
|
|
|
Noncurrent assets
|
$
|
44,998
|
|
$
|
446,212
|
|
|
Current liabilities
|
$
|
248
|
|
$
|
1,761
|
|
|
Noncurrent liabilities
|
$
|
500
|
|
$
|
500
|
|
|
8. EARNINGS PER SHARE
The following table presents the calculation of the Company’s basic and diluted earnings per share for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands, except per share amounts)
|
2021
|
2020
|
2019
|
Net income, as reported
|
$
|
117,890
|
|
$
|
163,007
|
|
$
|
123,935
|
|
Basic earnings per share
|
|
|
|
Weighted average shares of common stock outstanding-basic
|
96,227
|
|
94,798
|
|
89,242
|
|
Basic earnings per common share
|
$1.23
|
$1.72
|
$1.39
|
Diluted earnings per share
|
|
|
|
Weighted average shares of common stock outstanding-basic
|
96,227
|
|
94,798
|
|
89,242
|
|
Incremental shares (1)
|
333
|
|
305
|
|
354
|
|
Weighted average shares of common stock outstanding-diluted
|
96,560
|
|
95,103
|
|
89,596
|
|
Diluted earnings per common share (2)
|
$1.22
|
$1.71
|
$1.38
|
(1)Incremental shares consist primarily of unvested stock awards and performance units.
(2)There were anti-dilutive shares of 74,000 excluded from the calculation of diluted earnings per share related to the equity forward sale agreement for fiscal 2020. There were no anti-dilutive shares excluded from the calculation of diluted earnings per share for fiscal 2021 and 2019.
9. DEBT
NJNG and NJR finance working capital requirements and capital expenditures through various short-term debt and long-term financing arrangements, including a commercial paper program and committed unsecured credit facilities.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Long-term Debt
The following table presents the long-term debt of the Company as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NJNG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage bonds:
|
Maturity date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.00%
|
Series OO
|
August 1, 2041
|
46,500
|
|
46,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.15%
|
Series PP
|
April 15, 2028
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.58%
|
Series QQ
|
March 13, 2024
|
70,000
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.61%
|
Series RR
|
March 13, 2044
|
55,000
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.82%
|
Series SS
|
April 15, 2025
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.66%
|
Series TT
|
April 15, 2045
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.63%
|
Series UU
|
June 21, 2046
|
125,000
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01%
|
Series VV
|
May 11, 2048
|
125,000
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.50%
|
Series WW
|
April 1, 2042
|
10,300
|
|
10,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.38%
|
Series XX
|
April 1, 2038
|
10,500
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.45%
|
Series YY
|
April 1, 2059
|
15,000
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.76%
|
Series ZZ
|
July 17, 2049
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.86%
|
Series AAA
|
July 17, 2059
|
85,000
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.75%
|
Series BBB
|
August 1, 2039
|
9,545
|
|
9,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.00%
|
Series CCC
|
August 1, 2043
|
41,000
|
|
41,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.13%
|
Series DDD
|
June 30, 2050
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.13%
|
Series EEE
|
July 23, 2050
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.33%
|
Series FFF
|
July 23, 2060
|
25,000
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.87%
|
Series GGG
|
September 1, 2050
|
25,000
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.97%
|
Series HHH
|
September 1, 2060
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligation-buildings
|
June 30, 2037
|
—
|
|
47,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligation-meters
|
Various dates
|
20,135
|
|
26,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt issuance costs
|
|
(9,093)
|
|
(9,195)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities of long-term debt
|
|
(5,393)
|
|
(10,416)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NJNG long-term debt
|
1,098,494
|
|
1,147,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NJR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25%
|
Unsecured senior notes
|
September 17, 2022
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.20%
|
Unsecured senior notes
|
August 18, 2023
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.48%
|
Unsecured senior notes
|
November 7, 2024
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.54%
|
Unsecured senior notes
|
August 18, 2026
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.96%
|
Unsecured senior notes
|
June 8, 2028
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.29%
|
Unsecured senior notes
|
July 17, 2029
|
150,000
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.60%
|
Unsecured senior notes
|
July 23, 2032
|
130,000
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.50%
|
Unsecured senior notes
|
July 23, 2030
|
130,000
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25%
|
Unsecured senior notes
|
September 1, 2033
|
80,000
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.13%
|
Unsecured senior notes
|
September 1, 2031
|
120,000
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt issuance costs
|
|
(3,269)
|
|
(3,424)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities of long-term debt
|
|
(50,000)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NJR long-term debt
|
956,731
|
|
1,006,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean Energy Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar asset financing obligation
|
Various dates
|
124,387
|
|
122,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities of long-term debt
|
(17,448)
|
|
(16,820)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Clean Energy Ventures long-term debt
|
106,939
|
|
105,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
$
|
2,162,164
|
|
$
|
2,259,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Annual long-term debt redemption requirements, excluding finance leases, debt issuance costs and solar asset financing obligations, as of September 30, are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
NJR
|
NJNG
|
2022
|
$
|
50,000
|
|
$
|
—
|
|
2023
|
$
|
50,000
|
|
$
|
—
|
|
2024
|
$
|
100,000
|
|
$
|
70,000
|
|
2025
|
$
|
—
|
|
$
|
50,000
|
|
2026
|
$
|
100,000
|
|
$
|
—
|
|
Thereafter
|
$
|
710,000
|
|
$
|
972,845
|
|
NJNG
First Mortgage Bonds
NJNG and Trustee entered into the Mortgage Indenture, dated September 1, 2014, which secures all of the outstanding First Mortgage Bonds issued by NJNG. The Mortgage Indenture provides a direct first mortgage lien upon substantially all of the operating properties and franchises of NJNG (other than excepted property, such as cash on hand, choses-in-action, securities, rent, natural gas meters and certain materials, supplies, appliances and vehicles), subject only to certain permitted encumbrances. The Mortgage Indenture contains provisions subjecting after-acquired property (other than excepted property and subject to pre-existing liens, if any, at the time of acquisition) to the lien thereof.
NJNG’s Mortgage Indenture does not restrict NJNG’s ability to pay dividends. New Jersey Administrative Code 14:4-4.7 states that a public utility cannot issue dividends, without regulatory approval, if its equity to total capitalization ratio falls below 30 percent. As of September 30, 2021, NJNG’s equity to total capitalization ratio is 52.9 percent and has the ability to issue up to $1.2 billion of FMB under the terms of the Mortgage Indenture.
On October 28, 2021, NJNG entered into a Note Purchase Agreement for $100 million of its senior notes, of which $50 million were issued at an interest rate of 2.97 percent, maturing in 2051, and $50 million were issued at an interest rate of 3.07 percent, maturing in 2061. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s Mortgage Indenture.
Sale Leasebacks
NJNG received $4.0 million during fiscal 2020, in connection with the sale leaseback of its natural gas meters with terms ranging from seven to 11 years. NJNG records a finance lease liability that is paid over the term of the lease and has the option to purchase the meters back at fair value upon expiration of the lease. NJNG exercised early purchase options with respect to certain outstanding meter leases by making final principal payments of $1.2 million for both fiscal 2021 and 2020. There were no natural gas meter sale leasebacks recorded during fiscal 2021.
Contractual commitments for finance lease payments, as of the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
Lease Payments
|
2022
|
|
$
|
6,004
|
|
2023
|
|
4,622
|
|
2024
|
|
5,279
|
|
2025
|
|
3,396
|
|
2026
|
|
2,324
|
|
|
|
|
Subtotal
|
|
21,625
|
|
Less: Interest component
|
|
(1,490)
|
|
Total
|
|
$
|
20,135
|
|
Clean Energy Ventures
Clean Energy Ventures enters into transactions to sell the commercial solar assets concurrent with agreements to lease the assets back over a period of five to 15 years. These transactions are treated as financing obligations for accounting purposes, and are typically secured by the renewable energy facility asset and its future cash flows from SREC, TRECs and energy sales.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITCs and other tax benefits associated with these solar projects are transferred to the buyer, if applicable; however, the lease payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Clean Energy Ventures continues to operate the solar assets, including related expenses, and retain the revenue generated from SRECs, TRECs, and energy sales, and has the option to renew the lease or repurchase the assets sold at the end of the lease term. Clean Energy Ventures received proceeds of $17.7 million and $42.9 million during fiscal 2021 and 2020, respectively, in connection with the sale leaseback of commercial solar assets. The proceeds received were recognized as a financing obligation on the Consolidated Balance Sheets.
Contractual commitments for the solar financing obligation payments, as of the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
Lease Payments
|
2022
|
|
$
|
13,749
|
|
2023
|
|
13,886
|
|
2024
|
|
41,132
|
|
2025
|
|
33,873
|
|
2026
|
|
974
|
|
Thereafter
|
|
9,036
|
|
Subtotal
|
|
112,650
|
|
Less: Interest component
|
|
(10,985)
|
|
Total
|
|
$
|
101,665
|
|
Short-term Debt
A summary of NJR’s credit facility and NJNG’s commercial paper program and credit facility as of September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
|
2020
|
|
Expiration Dates
|
NJR
|
|
|
|
|
|
Bank revolving credit facilities (1)
|
$
|
500,000
|
|
|
$
|
—
|
|
|
September 2026
|
Notes outstanding at end of period
|
$
|
219,100
|
|
|
$
|
—
|
|
|
|
Weighted average interest rate at end of period
|
1.05
|
%
|
|
—
|
%
|
|
|
Amount available at end of period (2)
|
$
|
270,312
|
|
|
$
|
—
|
|
|
|
Bank revolving credit facilities (3)
|
$
|
—
|
|
|
$
|
425,000
|
|
|
December 2023
|
Notes outstanding at end of period
|
$
|
—
|
|
|
$
|
125,350
|
|
|
|
Weighted average interest rate at end of period
|
—
|
%
|
|
1.49
|
%
|
|
|
Amount available at end of period (4)
|
$
|
—
|
|
|
$
|
289,356
|
|
|
|
Bank revolving credit facilities (3)
|
$
|
—
|
|
|
$
|
250,000
|
|
|
April 2021
|
Notes outstanding at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Weighted average interest rate at end of period
|
—
|
%
|
|
—
|
%
|
|
|
Amount available at end of period
|
$
|
—
|
|
|
$
|
250,000
|
|
|
|
NJNG
|
|
|
|
|
|
Bank revolving credit facilities (3)
|
$
|
250,000
|
|
|
$
|
—
|
|
|
September 2026
|
Commercial paper outstanding at end of period
|
$
|
158,200
|
|
|
$
|
—
|
|
|
|
Weighted average interest rate at end of period
|
0.17
|
%
|
|
—
|
%
|
|
|
Amount available at end of period (5)
|
$
|
91,069
|
|
|
$
|
—
|
|
|
|
Bank revolving credit facilities (3)
|
$
|
—
|
|
|
$
|
250,000
|
|
|
December 2023
|
Commercial paper outstanding at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Weighted average interest rate at end of period
|
—
|
%
|
|
—
|
%
|
|
|
Amount available at end of period (5)
|
$
|
—
|
|
|
$
|
249,269
|
|
|
|
(1)Committed credit facilities, which require commitment fees ranging from 0.10 percent on the unused amounts.
(2)Letters of credit outstanding total $10.6 million as of September 30, 2021, which reduces amount available by the same amount.
(3)Committed credit facilities, which require commitment fees ranging from 0.075 percent on the unused amounts
(4)Letters of credit outstanding total $10.3 million as of September 30, 2020, which reduces amount available by the same amount.
(5)Letters of credit outstanding total $731,000 as of both September 30, 2021 and 2020, which reduces amount available by the same amount.
Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJR
On September 2, 2021, NJR entered into a Second Amended and Restated Credit Agreement governing a $500 million NJR Credit Facility. The agreement replaces a $425 million revolving credit facility that was scheduled to expire on December 5, 2023, and the new NJR Credit Facility expires on September 2, 2026, subject to two mutual options for a one-year extension beyond that date. The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as a $75 million sublimit for the issuance of letters of credit. The NJR Credit Facility also includes an accordion feature, which would allow NJR, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJR Credit Facility in minimum increments of $50 million increments up to a maximum of $250 million. Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility. The credit facility is used primarily to finance its share repurchases, to satisfy Energy Services’ short-term liquidity needs and to finance, on an initial basis, unregulated investments.
As of September 30, 2021, NJR had eight letters of credit outstanding totaling $10.6 million on behalf of Energy Services and Clean Energy Ventures. These letters of credit reduce the amount available under NJR’s committed credit facility by the same amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties, and they will be renewed as necessary.
Energy Services’ letters of credit are used for margin requirements for natural gas transactions, collateral and security deposit for retail natural gas sales and expire on dates ranging from December 2021 to September 2022.
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
NJNG
On September 2, 2021, NJNG entered into a Second Amended and Restated Credit Agreement governing a $250 million, NJNG Credit Facility. The agreement refinances a $250 million revolving credit facility that was scheduled to expire on December 5, 2023, but has now been terminated. The NJNG Credit Facility expires on September 2, 2026, subject to two mutual options for a one-year extension beyond that date. The NJNG Credit Facility permits the borrowing of revolving loans and swingline loans, as well as a $30 million sublimit for the issuance of letters of credit. The NJNG Credit Facility also includes an accordion feature, which would allow NJNG, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJNG Credit Facility in minimum increments of $50 million up to a maximum of $100 million.
As of September 30, 2021, NJNG has two letters of credit outstanding for $731,000. NJNG’s letters of credit are used as collateral for remediation projects and expire in August 11, 2022. These letters of credit reduce the amount available under NJNG’s committed credit facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the counterparty and they will be renewed as necessary.
10. STOCK-BASED COMPENSATION
In January 2017, the NJR 2017 Stock Award and Incentive Plan replaced the NJR 2007 Stock Award and Incentive Plan. Shares have been issued in the form of performance share units, restricted stock units, deferred retention stock units and unrestricted common stock to non-employee directors. As of September 30, 2021, 3,102,764 shares remain available for future issuance.
The following table summarizes all stock-based compensation expense recognized during the following fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Stock-based compensation expense:
|
|
|
|
Performance share awards
|
$
|
3,856
|
|
$
|
1,943
|
|
$
|
5,804
|
|
Restricted and non-restricted stock
|
3,193
|
|
2,868
|
|
2,492
|
|
Deferred retention stock
|
100
|
|
1,725
|
|
1,500
|
|
Compensation expense included in operation and maintenance expense
|
7,149
|
|
6,536
|
|
9,796
|
|
Income tax benefit (1)
|
(1,613)
|
|
(1,900)
|
|
(2,848)
|
|
Total, net of tax
|
$
|
5,536
|
|
$
|
4,636
|
|
$
|
6,948
|
|
(1)Excludes additional tax (expense) benefit related to delivered shares of $(159,000), $647,000 and $1.3 million as of September 30, 2021, 2020 and 2019, respectively.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Performance Share Units
In fiscal 2021, the Company granted to certain officers 46,813 performance shares, which are market condition awards that vest on September 30, 2023, subject to the Company meeting certain conditions. In fiscal 2021, the Company also granted to certain officers 70,138 performance shares, of which 44,156 vest on September 30, 2023 and 25,982 vest annually over a three-year period beginning in September 2021, both of which are subject to the Company meeting certain performance conditions.
In fiscal 2020, the Company granted to certain officers 33,123 performance shares, which are market condition awards that vest on September 30, 2022, subject to the Company meeting certain conditions. In fiscal 2020, the Company also granted to certain officers 48,941 performance shares, of which 30,473 vest on September 30, 2022 and 18,468 vest annually over a three-year period beginning in September 2020, both of which are subject to the Company meeting certain performance conditions.
In fiscal 2019, the Company granted to certain officers 36,392 performance shares, which are market condition awards that vested on September 30, 2021, subject to the Company meeting certain conditions. In fiscal 2019, the Company also granted to certain officers 63,870 performance shares, of which 33,844 vested in September 30, 2021 and 30,026 vest annually over a three-year period beginning in September 2019, both of which were subject to the Company meeting certain performance conditions. The vesting of these awards are shown in the table below.
There is approximately $3.9 million of deferred compensation related to unvested performance shares that is expected to be recognized over the weighted average period of 1.8 years.
The following table summarizes the performance share activity under the stock award and incentive plans for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (1)
|
Weighted Average
Grant Date
Fair Value
|
Total Fair Value of Vested Shares (in Thousands)
|
Non-vested and outstanding at September 30, 2018
|
145,176
|
|
|
$39.67
|
|
|
—
|
|
|
Granted
|
100,262
|
|
|
$47.98
|
|
|
—
|
|
|
Vested (2)
|
(103,009)
|
|
|
$38.52
|
|
|
$
|
4,622
|
|
|
Cancelled/forfeited
|
(11,920)
|
|
|
$44.34
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2019
|
130,509
|
|
|
$46.53
|
|
|
—
|
|
|
Granted
|
82,064
|
|
|
$40.61
|
|
|
—
|
|
|
Vested (3)
|
(55,025)
|
|
|
$44.27
|
|
|
$
|
2,083
|
|
|
Cancelled/forfeited
|
(1,817)
|
|
|
$44.38
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2020
|
155,731
|
|
|
$44.22
|
|
|
—
|
|
|
Granted
|
116,951
|
|
|
$33.34
|
|
|
—
|
|
|
Vested (4)
|
(54,918)
|
|
|
$44.64
|
|
|
$
|
1,673
|
|
|
Cancelled/forfeited
|
(51,673)
|
|
|
$45.32
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2021
|
166,091
|
|
|
$36.08
|
|
|
—
|
|
|
(1)The number of common shares issued related to certain performance shares may range from zero to 150 percent of the number of shares shown in the table above based on the Company’s achievement of performance goals.
(2)As certified by the Company’s Leadership and Compensation Committee on November 12, 2019, the number of common shares related to performance shares earned was 119 percent, or 43,641 shares, the number of common shares earned related to NFE performance was 117 percent or 26,413 shares, and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 24,468 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 percent.
(3)As certified by the Company’s Leadership and Compensation Committee on November 9, 2020, there were no common shares earned related to TSR performance, the number of common shares earned related to NFE performance was 114 percent or 28,513 shares, and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 11,139 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 percent.
(4)As certified by the Company’s Leadership and Compensation Committee on November 10, 2021, there were no common shares earned related to TSR performance, the number of common shares earned related to NFE performance was 93 percent or 31,116 shares and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 25,982 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 percent.
The Company measures compensation expense related to performance shares based on the fair value of these awards at their date of grant. In accordance with ASC 718, Compensation - Stock Compensation, compensation expense for market condition grants are recognized for awards granted, and are not adjusted based on actual achievement of the performance goals. The Company estimated the fair value of these grants on the date of grant using a lattice model. Performance condition grants
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
are initially fair valued at the Company’s stock price on grant date, and are subsequently adjusted for actual achievement of the performance goals.
Restricted Stock Units
In fiscal 2021, the Company granted 67,726 shares of restricted stock that vest annually over a three-year period beginning in October 2021. In fiscal 2020, the Company granted 42,478 shares of restricted stock that vest annually over a three-year period beginning in October 2020. In fiscal 2019, the Company granted 29,222 shares of restricted stock that vest annually over a three-year period beginning in October 2019. In fiscal 2019, the Company also granted 6,062 shares of restricted stock that vest annually over a three-year period beginning in April 2020. There is approximately $1.1 million of deferred compensation related to unvested restricted stock shares that is expected to be recognized over the weighted average period of 1.8 years.
The following table summarizes the restricted stock activity under the stock award and incentive plans for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
Weighted Average
Grant Date
Fair Value
|
Total Fair Value of Vested Shares (in Thousands)
|
Non-vested and outstanding at September 30, 2018
|
44,168
|
|
|
$41.24
|
|
|
—
|
|
|
Granted
|
35,284
|
|
|
$48.24
|
|
|
—
|
|
|
Vested
|
(20,748)
|
|
|
$39.26
|
|
|
$
|
935
|
|
|
Cancelled/forfeited
|
(548)
|
|
|
$42.96
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2019
|
58,156
|
|
|
$46.18
|
|
|
—
|
|
|
Granted
|
42,478
|
|
|
$40.61
|
|
|
—
|
|
|
Vested
|
(25,973)
|
|
|
$44.71
|
|
|
$
|
1,073
|
|
|
Cancelled/forfeited
|
(1,175)
|
|
|
$43.62
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2020
|
73,486
|
|
|
$43.52
|
|
|
—
|
|
|
Granted
|
67,726
|
|
|
$33.34
|
|
|
—
|
|
|
Vested
|
(34,000)
|
|
|
$44.30
|
|
|
$
|
996
|
|
|
Cancelled/forfeited
|
(5,591)
|
|
|
$36.34
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2021
|
101,621
|
|
|
$36.87
|
|
|
—
|
|
|
Deferred Retention Stock Units
Deferred retention stock awards are granted upon approval by the Board of Directors, which generally occurs subsequent to the fiscal year end. Deferred retention stock awards vest immediately when granted, with shares delivered at a future date in accordance with the terms of the underlying agreements. The expense for these awards is recognized in the fiscal year in which services are rendered. The following table summarizes the deferred retention stock award under the stock award and incentive plans for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
Weighted Average
Grant Date
Fair Value
|
Total Fair Value of Vested Shares (in Thousands)
|
Outstanding at September 30, 2018
|
242,082
|
|
|
$32.99
|
|
|
—
|
|
|
Granted/Vested
|
167,407
|
|
|
$47.95
|
|
|
—
|
|
|
Delivered
|
(158,733)
|
|
|
$30.32
|
|
|
$
|
7,145
|
|
|
Forfeited
|
(7,195)
|
|
|
$44.41
|
|
|
—
|
|
|
Outstanding at September 30, 2019
|
243,561
|
|
|
$44.67
|
|
|
—
|
|
|
Granted/Vested
|
42,358
|
|
|
$40.72
|
|
|
—
|
|
|
Delivered
|
(57,673)
|
|
|
$35.25
|
|
|
$
|
2,423
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
228,246
|
|
|
$46.32
|
|
|
—
|
|
|
Granted/Vested
|
2,999
|
|
|
$33.34
|
|
|
—
|
|
|
Delivered
|
(22,389)
|
|
|
$45.00
|
|
|
$
|
641
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2021
|
208,856
|
|
|
$46.28
|
|
|
—
|
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Non-Employee Director Stock
Effective January 2020, non-employee director compensation includes an annual equity retainer that is awarded at the time of the Company’s annual meeting of shareowners. The shares vest upon the earlier of the first anniversary of the grant date or the date of the Company’s next annual meeting of shareowners following the grant date and are subsequently amortized to expense over a 12-month period. During fiscal years 2019 and 2018, the equity portion of non-employee director compensation was awarded in shares of NJR common stock. The shares vested immediately and were subsequently amortized to expense over a 12-month period.
The following summarizes non-employee director share awards for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
2019
|
Shares granted
|
34,994
|
|
(1)
|
27,696
|
|
26,165
|
|
Weighted average grant date fair value
|
$35.72
|
|
$42.88
|
$44.80
|
(1)Approximately $313,000 of expense remains as of September 30, 2021, to be recognized through December 31, 2021.
11. EMPLOYEE BENEFIT PLANS
Pension and Other Postemployment Benefit Plans
The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and non-represented employees with more than one year of service. Defined benefit plan benefits are based on years of service and average compensation during the highest 60 consecutive months of employment. The Company also provides postemployment medical and life insurance benefits to employees who meet certain eligibility requirements.
All represented employees of NJRHS hired on or after October 1, 2000, non-represented employees hired on or after October 1, 2009 and NJNG represented employees hired on or after January 1, 2012, are covered by an enhanced defined contribution plan instead of the defined benefit plan. Participation in the postemployment medical and life insurance plan was also frozen to new employees as of the same dates, with the exception of new NJRHS represented employees, for which benefits were frozen beginning April 3, 2012.
The Company maintains an unfunded nonqualified PEP that was established to provide employees with the full level of benefits as stated in the qualified plan without reductions due to various limitations imposed by the provisions of federal income tax laws and regulations. There were no plan assets in the nonqualified plan due to the nature of the plan.
The Company’s funding policy for its pension plans is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In fiscal 2021 and 2020, the Company had no minimum funding requirements. The Company made no discretionary contributions to the pension plans in fiscal 2021 or 2020. The Company does not expect to be required to make additional contributions to fund the pension plans over the following two fiscal years based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents.
There are no federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts due to regulatory agreements with the BPU. The Company contributed $7.2 million and $8.4 million, in fiscal 2021 and 2020, respectively, and estimates that it will contribute between $5 million and $10 million over each of the next five years. Additional contributions may be required based on market conditions and changes to assumptions.
The Affordable Care Act was enacted in March 2010 and created an excise tax applicable to high-cost health plans, commonly known as the Cadillac Tax. Employers who sponsor health plans that have an annual cost that exceeded an amount defined by the law would pay a 40 percent tax on the excess plan costs beginning in 2022. The 2020 federal spending package permanently eliminated the Affordable Care Act-mandated Cadillac tax on high-cost employer-sponsored health coverage. Due to the repeal, the Company's OPEB liability was revalued for these changes. The Company applied a practical expedient to remeasure the plan assets and obligations as of December 31, 2019, which was the nearest calendar month-end date. The impact of the revaluation of the OPEB liability was recorded as of January 1, 2020 and is incorporated within actuarial assumptions at September 30, 2020.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the Consolidated Balance Sheets as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension (1)
|
OPEB
|
(Thousands)
|
2021
|
2020
|
2021
|
2020
|
Change in Benefit Obligation
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
397,164
|
|
$
|
360,477
|
|
$
|
245,862
|
|
$
|
260,003
|
|
Service cost
|
8,730
|
|
8,223
|
|
4,844
|
|
4,854
|
|
Interest cost
|
9,112
|
|
10,587
|
|
6,071
|
|
7,026
|
|
Plan participants’ contributions (2)
|
27
|
|
25
|
|
451
|
|
194
|
|
|
|
|
|
|
Actuarial (gain) loss
|
(7,319)
|
|
29,738
|
|
(4,715)
|
|
(23,226)
|
|
Benefits paid, net of retiree subsidies received
|
(12,167)
|
|
(11,886)
|
|
(7,839)
|
|
(2,989)
|
|
Benefit obligation at end of year
|
$
|
395,547
|
|
$
|
397,164
|
|
$
|
244,674
|
|
$
|
245,862
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
307,968
|
|
$
|
288,634
|
|
$
|
96,406
|
|
$
|
83,925
|
|
Actual return on plan assets
|
58,874
|
|
30,632
|
|
18,144
|
|
6,872
|
|
Employer contributions
|
548
|
|
596
|
|
7,198
|
|
8,436
|
|
Benefits paid, net of plan participants’ contributions (2)
|
(12,106)
|
|
(11,894)
|
|
(7,565)
|
|
(2,827)
|
|
Fair value of plan assets at end of year
|
$
|
355,284
|
|
$
|
307,968
|
|
$
|
114,183
|
|
$
|
96,406
|
|
Funded status
|
$
|
(40,263)
|
|
$
|
(89,196)
|
|
$
|
(130,491)
|
|
$
|
(149,456)
|
|
Amounts recognized on Consolidated Balance Sheets
|
|
|
|
|
Postemployment employee (liability)
|
|
|
|
|
Current
|
$
|
(587)
|
|
$
|
(531)
|
|
$
|
(900)
|
|
$
|
(900)
|
|
Noncurrent
|
(39,676)
|
|
(88,665)
|
|
(129,591)
|
|
(148,556)
|
|
Total
|
$
|
(40,263)
|
|
$
|
(89,196)
|
|
$
|
(130,491)
|
|
$
|
(149,456)
|
|
(1)Includes the Company’s PEP.
(2)Prior to July 1, 1998, employees were eligible to elect an additional participant contribution to enhance their benefits and contributions made during the periods were insignificant.
The actuarial gains on the Company’s pension and OPEB are due primarily to an increase in the discount rate used to measure the benefit obligation. The Company recognizes a liability for its underfunded benefit plans as required by ASC 715, Compensation - Retirement Benefits. The Company records the offset to regulatory assets for the portion of liability relating to NJNG and to accumulated other comprehensive income for the portion of the liability related to its unregulated operations.
The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Pension
|
OPEB
|
|
Pension
|
OPEB
|
Balance at September 30, 2019
|
$
|
99,606
|
|
$
|
111,629
|
|
|
$
|
27,801
|
|
$
|
16,328
|
|
Amounts arising during the period:
|
|
|
|
|
|
Net actuarial loss (gain)
|
11,953
|
|
(21,974)
|
|
|
7,731
|
|
(1,614)
|
|
Amounts amortized to net periodic costs:
|
|
|
|
|
|
Net actuarial (loss)
|
(7,893)
|
|
(6,536)
|
|
|
(2,528)
|
|
(907)
|
|
Prior service (cost) credit
|
(102)
|
|
182
|
|
|
—
|
|
16
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
$
|
103,564
|
|
$
|
83,301
|
|
|
$
|
33,004
|
|
$
|
13,823
|
|
Amounts arising during the period:
|
|
|
|
|
|
Net actuarial (gain)
|
(39,006)
|
|
(16,286)
|
|
|
(7,036)
|
|
(76)
|
|
Amounts amortized to net periodic costs:
|
|
|
|
|
|
Net actuarial (loss)
|
(8,269)
|
|
(6,846)
|
|
|
(3,178)
|
|
(1,064)
|
|
Prior service (cost) credit
|
(102)
|
|
166
|
|
|
—
|
|
13
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
$
|
56,187
|
|
$
|
60,335
|
|
|
$
|
22,790
|
|
$
|
12,696
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The amounts in regulatory assets and accumulated other comprehensive income not yet recognized as components of net periodic benefit cost as of September 30 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
Accumulated Other Comprehensive
Income (Loss)
|
|
Pension
|
OPEB
|
Pension
|
OPEB
|
(Thousands)
|
2021
|
2020
|
2021
|
2020
|
2021
|
2020
|
2021
|
2020
|
Net actuarial loss
|
$
|
55,922
|
|
$
|
103,197
|
|
$
|
60,468
|
|
$
|
83,600
|
|
$
|
22,790
|
|
$
|
33,004
|
|
$
|
12,707
|
|
$
|
13,847
|
|
Prior service cost (credit)
|
265
|
|
367
|
|
(133)
|
|
(299)
|
|
—
|
|
—
|
|
(11)
|
|
(24)
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
56,187
|
|
$
|
103,564
|
|
$
|
60,335
|
|
$
|
83,301
|
|
$
|
22,790
|
|
$
|
33,004
|
|
$
|
12,696
|
|
$
|
13,823
|
|
To the extent the unrecognized amounts in accumulated other comprehensive income or regulatory assets exceed 10 percent of the greater of the benefit obligation or the fair value of plan assets, an amortized amount over the average expected future working lifetime of the active plan participants is recognized. Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost in fiscal 2022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
|
Accumulated Other Comprehensive Income (Loss)
|
(Thousands)
|
Pension
|
OPEB
|
|
Pension
|
OPEB
|
Net actuarial loss
|
$
|
5,843
|
|
$
|
4,577
|
|
|
$
|
2,902
|
|
$
|
1,107
|
|
Prior service cost (credit)
|
102
|
|
(133)
|
|
|
—
|
|
(11)
|
|
|
|
|
|
|
|
Total
|
$
|
5,945
|
|
$
|
4,444
|
|
|
$
|
2,902
|
|
$
|
1,096
|
|
The accumulated benefit obligation for the pension plans, including the PEP, exceeded the fair value of plan assets during fiscal 2020. The projected benefit and accumulated benefit obligations and the fair value of plan assets as of September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
Pension
|
(Thousands)
|
2021
|
2020
|
Projected benefit obligation
|
$
|
395,547
|
|
$
|
397,164
|
|
Accumulated benefit obligation
|
$
|
353,852
|
|
$
|
352,320
|
|
Fair value of plan assets
|
$
|
355,284
|
|
$
|
307,968
|
|
The components of the net periodic cost for pension benefits, including the Company’s PEP, and OPEB costs (principally health care and life insurance) for employees and covered dependents for fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
OPEB
|
(Thousands)
|
2021
|
2020
|
2019
|
2021
|
2020
|
2019
|
Service cost
|
$
|
8,730
|
|
$
|
8,223
|
|
$
|
7,381
|
|
$
|
4,844
|
|
$
|
4,854
|
|
$
|
4,404
|
|
Interest cost
|
9,112
|
|
10,587
|
|
12,173
|
|
6,071
|
|
7,026
|
|
8,324
|
|
Expected return on plan assets
|
(20,150)
|
|
(20,579)
|
|
(19,054)
|
|
(6,497)
|
|
(6,510)
|
|
(5,515)
|
|
Recognized actuarial loss
|
11,446
|
|
10,424
|
|
5,765
|
|
7,909
|
|
7,442
|
|
6,466
|
|
Prior service cost (credit) amortization
|
102
|
|
102
|
|
102
|
|
(179)
|
|
(197)
|
|
(365)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost recognized as expense
|
$
|
9,240
|
|
$
|
8,757
|
|
$
|
6,367
|
|
$
|
12,148
|
|
$
|
12,615
|
|
$
|
13,314
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Assumptions
The weighted average assumptions used to determine the Company’s benefit costs during the fiscal years below and obligations as of September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
OPEB
|
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
|
Benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.95/2.92%
|
(1)
|
3.37/3.35%
|
(1)
|
4.36/4.35%
|
(1)
|
3.08/3.03%
|
(1)
|
3.48/3.44%
|
(1)
|
4.38/4.37%
|
(1)
|
Expected asset return
|
6.75
|
%
|
|
7.25
|
%
|
|
7.00
|
%
|
|
6.75
|
%
|
|
7.25
|
%
|
|
7.00
|
%
|
|
Compensation increase
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.10/3.07%
|
(1)
|
2.95/2.92%
|
(1)
|
3.37/3.35%
|
|
3.24/3.17%
|
(1)
|
3.08/3.03%
|
(1)
|
3.48/3.44%
|
(1)
|
Compensation increase
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
(1)Percentages for represented and nonrepresented plans, respectively.
When measuring its projected benefit obligations, the Company uses an aggregate discount rate at which its obligation could be effectively settled. The Company determines a single weighted average discount rate based on a yield curve comprised of rates of return on a population of high quality debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of its expected future benefit payments. The Company measures its service and interest costs using a disaggregated, or spot rate, approach. The Company applies the duration-specific spot rates from the full yield curve, as of the measurement date, to each year’s future benefit payments, which aligns the timing of the plans’ separate future cash flows to the corresponding spot rates on the yield curve.
Information relating to the assumed HCCTR used to determine expected OPEB benefits as of September 30, and the effect of a 1 percent change in the rate, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
2021
|
|
2020
|
|
2019
|
HCCTR
|
6.9%
|
|
7.6%
|
|
7.6%
|
Ultimate HCCTR
|
4.5%
|
|
4.5%
|
|
4.5%
|
Year ultimate HCCTR reached
|
2027
|
|
2026
|
|
2026
|
Effect of a 1 percentage point increase in the HCCTR on:
|
|
|
|
|
|
Year-end benefit obligation
|
$
|
43,217
|
|
|
$
|
49,106
|
|
|
$
|
49,061
|
|
Total service and interest cost
|
$
|
2,959
|
|
|
$
|
2,799
|
|
|
$
|
2,923
|
|
Effect of a 1 percentage point decrease in the HCCTR on:
|
|
|
|
|
|
Year-end benefit obligation
|
$
|
(34,669)
|
|
|
$
|
(38,844)
|
|
|
$
|
(38,747)
|
|
Total service and interest costs
|
$
|
(2,253)
|
|
|
$
|
(2,151)
|
|
|
$
|
(2,250)
|
|
The Company’s investment objective is a long-term real rate of return on assets before permissible expenses that is approximately 5 percent greater than the assumed rate of inflation, as measured by the consumer price index. The expected long-term rate of return is based on the asset categories in which the Company invests and the current expectations and historical performance for these categories.
The mix and targeted allocation of the pension and OPEB plans’ assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
Assets at
|
|
Target
|
September 30,
|
Asset Allocation
|
Allocation
|
2021
|
|
2020
|
|
U.S. equity securities
|
34
|
%
|
|
36
|
%
|
|
38
|
%
|
|
International equity securities
|
17
|
|
|
17
|
|
|
18
|
|
|
Fixed income
|
38
|
|
|
40
|
|
|
39
|
|
|
Other assets
|
11
|
|
|
7
|
|
|
5
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
The Company adopted the revised mortality assumptions published by the Society of Actuaries for its pension and other postemployment benefit obligations, which reflected increased life expectancies in the U.S. The adoption of the new mortality projection scale, MP-2019 and the Pri-2012 mortality study, did not materially impact the projected benefit obligation for the plans.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following fiscal years:
|
|
|
|
|
|
|
|
|
(Thousands)
|
Pension
|
OPEB
|
2022
|
$
|
13,434
|
|
$
|
6,936
|
|
2023
|
$
|
14,353
|
|
$
|
7,495
|
|
2024
|
$
|
15,294
|
|
$
|
8,069
|
|
2025
|
$
|
16,277
|
|
$
|
8,735
|
|
2026
|
$
|
17,269
|
|
$
|
9,392
|
|
2027 - 2031
|
$
|
101,147
|
|
$
|
55,685
|
|
The Company’s OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare Part D. Therefore, under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Company qualifies for federal subsidies.
The following estimated subsidy payments are expected to be paid during the following fiscal years:
|
|
|
|
|
|
|
|
|
|
Estimated Subsidy
|
(Thousands)
|
Payments
|
2022
|
|
$
|
314
|
|
2023
|
|
$
|
350
|
|
2024
|
|
$
|
388
|
|
2025
|
|
$
|
425
|
|
2026
|
|
$
|
466
|
|
2027 - 2031
|
|
$
|
3,099
|
|
Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Total
|
As of September 30, 2021
|
Pension
|
|
OPEB
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
32
|
|
Registered Investment Companies:
|
|
|
|
|
|
|
|
Equity Funds:
|
|
|
|
|
|
|
|
Large Cap Index
|
103,961
|
|
|
103,961
|
|
|
33,644
|
|
|
33,644
|
|
Extended Market Index
|
21,948
|
|
|
21,948
|
|
|
7,096
|
|
|
7,096
|
|
International Stock
|
61,286
|
|
|
61,286
|
|
|
20,063
|
|
|
20,063
|
|
Fixed Income Funds:
|
|
|
|
|
|
|
|
Emerging Markets
|
18,291
|
|
|
18,291
|
|
|
6,001
|
|
|
6,001
|
|
Core Fixed Income
|
—
|
|
|
—
|
|
|
13,345
|
|
|
13,345
|
|
Opportunistic Income
|
—
|
|
|
—
|
|
|
8,568
|
|
|
8,568
|
|
Ultra Short Duration
|
—
|
|
|
—
|
|
|
8,536
|
|
|
8,536
|
|
High Yield Bond Fund
|
30,300
|
|
|
30,300
|
|
|
9,912
|
|
|
9,912
|
|
Long Duration Fund
|
93,849
|
|
|
93,849
|
|
|
—
|
|
|
—
|
|
Total assets at in the fair value hierarchy
|
$
|
329,635
|
|
|
329,635
|
|
|
$
|
107,197
|
|
|
107,197
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
|
Common collective trusts
|
|
|
25,649
|
|
|
|
|
6,986
|
|
Total assets at fair value
|
|
|
$
|
355,284
|
|
|
|
|
$
|
114,183
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Total
|
As of September 30, 2020:
|
Pension
|
|
OPEB
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
15
|
|
Registered Investment Companies:
|
|
|
|
|
|
|
|
Equity Funds:
|
|
|
|
|
|
|
|
Large Cap Index
|
95,542
|
|
|
95,542
|
|
|
29,908
|
|
|
29,908
|
|
Extended Market Index
|
21,085
|
|
|
21,085
|
|
|
6,470
|
|
|
6,470
|
|
International Stock
|
56,912
|
|
|
56,912
|
|
|
17,390
|
|
|
17,390
|
|
Fixed Income Funds:
|
|
|
|
|
|
|
|
Emerging Markets
|
16,008
|
|
|
16,008
|
|
|
4,958
|
|
|
4,958
|
|
Core Fixed Income
|
—
|
|
|
—
|
|
|
11,146
|
|
|
11,146
|
|
Opportunistic Income
|
—
|
|
|
—
|
|
|
7,128
|
|
|
7,128
|
|
Ultra Short Duration
|
—
|
|
|
—
|
|
|
7,057
|
|
|
7,057
|
|
High Yield Bond Fund
|
26,303
|
|
|
26,303
|
|
|
8,223
|
|
|
8,223
|
|
Long Duration Fund
|
77,036
|
|
|
77,036
|
|
|
—
|
|
|
—
|
|
Total assets at in the fair value hierarchy
|
$
|
292,886
|
|
|
292,886
|
|
|
$
|
92,295
|
|
|
92,295
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
|
Common collective trusts
|
|
|
15,082
|
|
|
|
|
4,111
|
|
Total assets at fair value
|
|
|
$
|
307,968
|
|
|
|
|
$
|
96,406
|
|
The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2021 and 2020, and there have been no changes in valuation methodologies as of September 30, 2021. The Plan held assets that are valued using NAV as a practical expedient, which are excluded from the fair value hierarchy.
The following is a description of the valuation methodologies used for assets measured at fair value:
Money Market funds — Represents bank balances and money market funds that are valued based on the NAV of shares held at year end.
Registered Investment Companies — Equity and fixed income funds valued at the NAV of shares held by the plan at year end as reported on the active market on which the individual securities are traded.
Common collective trusts — The NAV for common collective trusts is provided by the Trustee and is used as a practical expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund less liabilities.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Defined Contribution Plan
The Company offers a Savings Plan to eligible employees. The Company matches 85 percent of participants’ contributions up to 6 percent of base compensation. Represented NJRHS employees, non-represented employees hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are eligible for an employer special contribution of between 3.5 percent and 4.5 percent of base compensation, depending on years of service, into the Savings Plan on their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was $5.1 million in fiscal 2021, $4.5 million in fiscal 2020 and $3.9 million in fiscal 2019. The amount contributed for the employer special contribution of the Savings Plan was $2.1 million in fiscal 2021, $1.6 million in fiscal 2020 and $1.3 million in fiscal 2019.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
12. ASSET RETIREMENT OBLIGATIONS
The Company recognizes ARO when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made. Accordingly, the Company recognizes ARO related to the costs associated with cutting and capping its main and service natural gas distribution pipelines of NJNG, which is required by New Jersey law when taking such natural gas distribution pipeline out of service. The Company also recognizes ARO related to Clean Energy Ventures’ solar assets when there are decommissioning provisions in Clean Energy Ventures’ lease agreements that require removal of the asset.
Accretion amounts associated with NJNG’s ARO are recognized as part of its depreciation expense and the corresponding regulatory asset and liability will be shown gross on the Consolidated Balance Sheets. Accretion amounts associated with Clean Energy Ventures’ ARO are recognized as a component of operations and maintenance expense on the Consolidated Statements of Operations.
The following is an analysis of the change in the Company’s ARO for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
(Thousands)
|
NJNG
|
NJRCEV
|
|
NJNG
|
NJRCEV
|
Balance at October 1
|
$
|
29,280
|
|
$
|
4,444
|
|
|
$
|
26,944
|
|
$
|
4,102
|
|
Accretion
|
1,612
|
|
182
|
|
|
1,476
|
|
196
|
|
Additions
|
5,697
|
|
68
|
|
|
—
|
|
1,306
|
|
Change in estimated useful life
|
—
|
|
—
|
|
|
—
|
|
(1,160)
|
|
Change in assumptions
|
6,151
|
|
—
|
|
|
1,104
|
|
—
|
|
Retirements
|
(1,129)
|
|
—
|
|
|
(244)
|
|
—
|
|
|
|
|
|
|
|
Balance at period end
|
$
|
41,611
|
|
$
|
4,694
|
|
|
$
|
29,280
|
|
$
|
4,444
|
|
Accretion for the next five years, for the fiscal years ended September 30, is estimated to be as follows:
|
|
|
|
|
|
|
Estimated
|
(Thousands)
|
Accretion
|
2022
|
$
|
2,012
|
|
2023
|
2,092
|
|
2024
|
2,174
|
|
2025
|
2,255
|
|
2026
|
2,339
|
|
Total
|
$
|
10,872
|
|
13. INCOME TAXES
The income tax provision (benefit) from operations for the fiscal years ended September 30, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Current:
|
|
|
|
Federal
|
$
|
651
|
|
$
|
(2,164)
|
|
$
|
10,933
|
|
State
|
1,703
|
|
6,763
|
|
3,530
|
|
Deferred:
|
|
|
|
Federal
|
25,030
|
|
28,817
|
|
4,103
|
|
State
|
6,224
|
|
3,400
|
|
4,003
|
|
Investment/production tax credits
|
(322)
|
|
(322)
|
|
(4,129)
|
|
Income tax provision
|
$
|
33,286
|
|
$
|
36,494
|
|
$
|
18,440
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
As of September 30, the temporary differences, which give rise to deferred tax assets (liabilities), consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
|
2020
|
Deferred tax assets
|
|
|
|
Investment tax credits (1)
|
$
|
225,036
|
|
|
$
|
194,840
|
|
Federal net operating losses (2)
|
—
|
|
|
24,091
|
|
State net operating losses
|
38,108
|
|
|
33,233
|
|
Fair value of derivatives
|
16,333
|
|
|
13,979
|
|
Impairment of equity method investment
|
15,395
|
|
|
—
|
|
Postemployment benefits
|
9,665
|
|
|
8,544
|
|
Incentive compensation
|
6,894
|
|
|
7,071
|
|
Amortization of intangibles
|
6,540
|
|
|
5,892
|
|
Overrecovered natural gas costs
|
1,540
|
|
|
7,244
|
|
Allowance for doubtful accounts
|
6,561
|
|
|
1,922
|
|
Other
|
6,140
|
|
|
448
|
|
Total deferred tax assets
|
$
|
332,212
|
|
|
$
|
297,264
|
|
Less: Valuation allowance
|
(23,613)
|
|
|
(17,639)
|
|
Total deferred tax assets net of valuation allowance
|
$
|
308,599
|
|
|
$
|
279,625
|
|
Deferred tax liabilities
|
|
|
|
Property related items
|
$
|
(419,753)
|
|
|
$
|
(359,604)
|
|
Remediation costs
|
(16,347)
|
|
|
(10,207)
|
|
Investments in equity investees
|
(21,739)
|
|
|
(23,395)
|
|
|
|
|
|
|
|
|
|
Conservation incentive plan
|
(3,309)
|
|
|
(5,345)
|
|
Other
|
(6,203)
|
|
|
(6,639)
|
|
Total deferred tax liabilities
|
$
|
(467,351)
|
|
|
$
|
(405,190)
|
|
|
|
|
|
Total net deferred tax liabilities
|
$
|
(158,752)
|
|
|
$
|
(125,565)
|
|
(1)Includes approximately $814,000 and $898,000 for NJNG for fiscal 2021 and 2020, respectively, which is being amortized over the life of the related assets.
(2)See discussion of federal net operating loss utilization in the Other Tax Items section of this note.
A reconciliation of the U.S. federal statutory rate to the effective rate from operations for the fiscal years ended September 30, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Statutory income tax expense
|
$
|
31,747
|
|
$
|
41,896
|
|
$
|
29,898
|
|
Change resulting from:
|
|
|
|
Investment/production tax credits
|
(322)
|
|
(322)
|
|
(4,129)
|
|
Cost of removal of assets placed in service prior to 1981
|
(5,366)
|
|
(5,362)
|
|
(6,349)
|
|
AFUDC equity
|
(786)
|
|
(4,933)
|
|
(2,313)
|
|
State income taxes, net of federal benefit
|
6,124
|
|
11,965
|
|
6,262
|
|
NJ Unitary method change
|
—
|
|
(15,345)
|
|
—
|
|
Valuation allowance
|
5,974
|
|
13,604
|
|
—
|
|
Tax Act - utility excess deferred income taxes amortized
|
(3,573)
|
|
(3,573)
|
|
(3,573)
|
|
Other
|
(512)
|
|
(1,436)
|
|
(1,356)
|
|
Income tax provision
|
$
|
33,286
|
|
$
|
36,494
|
|
$
|
18,440
|
|
Effective income tax rate
|
22.0
|
%
|
18.3
|
%
|
14.0
|
%
|
The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S. Federal jurisdiction and in the states of Colorado, Connecticut, Delaware, Louisiana, Maryland, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Texas, Mississippi and Virginia. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions other than Canada. Due to certain available tax treaty benefits, the Company incurs no tax liability in Canada.
The Company’s federal income tax returns through fiscal 2017 have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. Federal income tax returns for periods subsequent to fiscal 2017 are open to examination by the IRS. For all periods subsequent to those ended September 30, 2017, the Company’s state income
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
tax returns are statutorily open to examination in all applicable states with the exception of Colorado, New Jersey and Texas. In Colorado, New Jersey and Texas, all periods subsequent to September 30, 2016, are statutorily open to examination.
NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. A tax benefit claimed, or expected to be claimed, on a tax return may be recognized if it is more likely than not that the position will be upheld upon examination by the applicable taxing authority. Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest, and penalties are recognized within other noncurrent liabilities on the Consolidated Balance Sheets.
The Company evaluates certain tax benefits that have been recorded in the financial statements for uncertainties. During fiscal 2019, the Company concluded that a portion of tax benefits were uncertain and recorded a reserve against deferred taxes on the Consolidated Balance Sheets. During fiscal 2021, a federal tax audit was completed and, as a result, the positions that the prior tax reserves related to are considered effectively settled and the related tax reserve was released. As a result of the change in the Company's method of accounting for ITCs from the flow through method to the deferral method, which was effective October 1, 2020, the settlement of the reserve was recorded as an adjustment to nonutility plant and equipment, at cost on the Consolidated Balance Sheets. The tax benefits related to fiscal tax years open to examination by the IRS may be subject to subsequent adjustments.
The reserve for uncertain tax benefits for the fiscal year ended September 30, is as follows:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
|
Balance at October 1,
|
$
|
4,930
|
|
$
|
4,930
|
|
|
Reversal of settled tax positions during the current fiscal period
|
(4,930)
|
|
—
|
|
|
Balance at period end
|
$
|
—
|
|
$
|
4,930
|
|
|
CARES Act
On March 27, 2020, the President of the U.S. signed the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes several business tax provisions which include, but are not limited to modifications of federal net operating loss carrybacks and deductibility, changes to prior year refundable alternative minimum tax liabilities, increase of limitations on business interest deductions from 30 percent to 50 percent of earnings before interest, taxes, depreciation, and amortization, technical corrections of the classification of qualified improvement property making them eligible for bonus depreciation, increase of the limits on charitable contribution deductions from 10 percent to 25 percent of adjusted taxable income, modifications of the treatment of federal loans, loan guarantees, and other investments, suspension of industry specific excise taxes, deferral of the company portion of OASDI, and implementation of a refundable employee retention tax credit.
The CARES Act provides for the delay in the required deposit of the employer portion of the OASDI payroll tax from the date of enactment through the end of 2020. Of the taxes that the Company can defer, 50 percent of the deferred taxes are required to be deposited by the end of 2021 and the remaining 50 percent are required to be deposited by the end of 2022. Additionally, The CARES Act provides a refundable tax credit, the employee retention tax credit, to certain employers who are ordered by a competent governmental authority to suspend or reduce business operations due to concern about the spread of COVID-19 or suffered a significant decline in the business during a calendar quarter during 2020 compared to the same calendar quarter during the previous year. As of September 30, 2021 and 2020, the Company deferred approximately $5.1 million and $3.1 million, respectively, related to the employer portion of the OASDI tax.
On March 11, 2021, the President of the U.S. signed the American Rescue Plan Act of 2021, which is primarily an economic stimulus package. It also expanded the scope of Section 162(m) of the Internal Revenue Code, which imposes a $1.0 million deduction limit on compensation paid to covered employees from the top five officers to also include the next five highest paid employees for tax years beginning after December 31, 2026.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Tax Items
As of September 30, 2020, the Company had federal income tax net operating losses of approximately $134.0 million. Federal net operating losses can generally be carried back two years and forward 20 years and will begin to expire in fiscal 2036, with the remainder expiring by 2038. During fiscal 2021, the Company exercised its ability to carryback these federal net operating losses to offset taxable income in prior periods.
For the net operating losses carried back, the Company estimated the portion of taxes considered refundable totaling approximately $22.8 million as of September 30, 2020, which was recorded as a component of prepaid and accrued taxes on the Consolidated Balance Sheets. The remaining $24.1 million that the Company has determined not to be refundable in cash, was recaptured as ITCs that were previously utilized to offset expense.
As of September 30, 2021 and 2020, the Company has tax credit carryforwards of approximately $224.2 million and $195.2 million, respectively, which each have a life of 20 years. The Company expects to utilize this entire carryforward prior to expiration, which would begin in fiscal 2035.
As of September 30, 2021 and 2020, the Company has state income tax net operating losses of approximately $554.6 million and $487.7 million, respectively. These state net operating losses have varying carry-forward periods dictated by the state in which they were incurred; these state carry-forward periods range from seven to 20 years and began to expire in fiscal 2021, with the majority expiring after 2035. The Company expects to utilize this entire carryforward, other than as described below.
The impairment of the equity method investment in PennEast created potential net capital loss attributes totaling approximately $61.8 million, which can only be utilized to offset capital gains income and can be carried back three years and forward five years prior to expiration.
As of September 30, 2021, the Company has a valuation allowance totaling $23.6 million comprised of approximately $17.3 million, related to the recognition of state net operating loss carryforwards, which primarily relate to New Jersey and approximately $6.4 million related to potential capital loss carryforwards resulting from the impairment of the equity method investment in PennEast, which the Company believes may not be fully utilized prior to expiration. As of September 30, 2020, the Company had a valuation allowance totaling $17.6 million related to the state net operating loss carryforwards, as previously discussed.
The Consolidated Appropriations Act extended the 30 percent ITC for solar property that is under construction on or before December 31, 2019. Projects placed in service after December 31, 2019, may also qualify for a 30 percent federal ITC if five percent or more of the total costs of a solar property are incurred before the end of the applicable year and there are continuous efforts to advance towards completion of the project, based on the IRS guidance around ITC safe harbor determination. The credit declined to 26 percent for property under construction before the end of 2020. The Consolidated Appropriations Act, 2021 extended the 26 percent tax credit for property under construction during 2021 and 2022. The credit will drop to 22 percent for property under construction before the end of 2023. After 2023 the ITC will be reduced to 10 percent.
14. LEASES
Lessee Accounting
The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset and accounts for leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of its natural gas meters.
Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. The variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.
Generally, the Company’s solar land lease terms are between 15 and 35 years and may include multiple options to extend the terms for an additional five to ten years. The Company’s office leases vary in duration, ranging from one to 17 years and may or may not include extension or early purchase options. The Company’s meter lease terms are between seven and ten years with purchase options available prior to the end of the term. Equipment leases include general office equipment that also vary in duration, most of which are for a term of five years. The Company's storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases.
The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. There are no material lease transactions with related parties.
The following table presents the Company's lease costs included in the Consolidated Statements of Operations for the fiscal year ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Income Statement Location
|
2021
|
2020
|
|
Operating lease cost (1)
|
Operation and maintenance
|
$
|
8,182
|
|
$
|
6,404
|
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
Depreciation and amortization
|
3,442
|
|
5,007
|
|
|
Interest on lease liabilities
|
Interest expense, net of capitalized interest
|
710
|
|
1,511
|
|
|
Total finance lease cost
|
|
$
|
4,152
|
|
$
|
6,518
|
|
|
Short-term lease cost
|
Operation and maintenance
|
543
|
|
1,041
|
|
|
Variable lease cost
|
Operation and maintenance
|
1,381
|
|
1,025
|
|
|
Total lease cost
|
|
$
|
14,258
|
|
$
|
14,988
|
|
|
(1)Net of capitalized costs.
The following table presents supplemental cash flow information related to leases for the fiscal year ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
Operating cash flows for operating leases
|
$
|
6,675
|
|
$
|
8,804
|
|
|
|
|
Operating cash flows for finance leases
|
$
|
1,167
|
|
$
|
1,189
|
|
|
|
|
Financing cash flows for finance leases
|
$
|
8,180
|
|
$
|
6,985
|
|
|
|
|
Assets obtained or modified for operating lease liabilities totaled approximately $46.1 million and $76.6 million during fiscal 2021 and 2020, respectively. There were no assets obtained or modified through finance lease liabilities during fiscal 2021. Assets obtained or modified through finance lease liabilities totaled approximately $49.7 million during fiscal 2020.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table presents the balance and classifications of the Company’s right of use assets and lease liabilities included in the Consolidated Balance Sheets for the fiscal year ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Balance Sheet Location
|
2021
|
2020
|
|
|
Assets
|
|
|
|
|
|
Noncurrent
|
|
|
|
|
|
Operating lease assets
|
Operating lease assets
|
$
|
173,928
|
|
$
|
131,769
|
|
|
|
Finance lease assets
|
Utility plant
|
13,489
|
|
71,085
|
|
|
|
Total lease assets
|
|
$
|
187,417
|
|
$
|
202,854
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating lease liabilities
|
Operating lease liabilities
|
$
|
4,300
|
|
$
|
6,724
|
|
|
|
Finance lease liabilities
|
Current maturities of long-term debt
|
5,393
|
|
10,416
|
|
|
|
Noncurrent
|
|
|
|
|
|
Operating lease liabilities
|
Operating lease liabilities
|
141,363
|
|
95,030
|
|
|
|
Finance lease liabilities
|
Long-term debt
|
14,742
|
|
63,743
|
|
|
|
Total lease liabilities
|
|
$
|
165,798
|
|
$
|
175,913
|
|
|
|
NJNG was a lessee as part of a lease agreement for its headquarters building with a 16-year term that would have expired in June 2037. On May 26, 2021, NJNG exercised a purchase option of the lease to acquire the building for $41.1 million, which is included in utility plant on the Consolidated Balance Sheets. Following the purchase of the building, NJNG removed the present value of the future lease payments of $46.9 million, which was reflected within utility plant and $45.6 million as presented within finance lease liabilities on the Consolidated Balance Sheets.
For operating lease assets and liabilities, the weighted average remaining lease term was 29.6 years and 25.5 years and the weighted average discount rate used in the valuation over the remaining lease term was 3.2 percent for both September 30, 2021 and 2020. For finance lease assets and liabilities as of September 30, 2021 and 2020, the weighted average remaining lease term was 3.4 years and 11.5 years, respectively, and the weighted average discount rate used in the valuation over the remaining lease term is 3.5 percent and 2.5 percent as of September 30, 2021 and 2020, respectively.
The following table presents the Company's maturities of lease liabilities as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Operating Leases
|
Finance Leases
|
|
2022
|
$
|
7,564
|
|
$
|
6,004
|
|
|
2023
|
8,022
|
|
4,622
|
|
|
2024
|
7,667
|
|
5,279
|
|
|
2025
|
7,127
|
|
3,396
|
|
|
2026
|
7,034
|
|
2,324
|
|
|
Thereafter
|
196,471
|
|
—
|
|
|
Total future lease payments
|
233,885
|
|
21,625
|
|
|
Less: Liability accretion
|
(88,222)
|
|
(1,490)
|
|
|
|
|
|
|
Total lease liability
|
$
|
145,663
|
|
$
|
20,135
|
|
|
On August 14, 2020, the Company entered into a partial termination agreement of its lease contracts associated with its natural gas cavern storage. As a result of the partial termination, the Company paid $28.5 million to the lease owners receiving in return a 50 year non-compete agreement. The Company treated these Leaf River lease arrangements as one combined contract and its termination was recognized as remeasurement of the remaining lease assets that will be amortized over the remaining part of the lease lives.
15. COMMITMENTS AND CONTINGENT LIABILITIES
Cash Commitments
NJNG has entered into long-term contracts, expiring at various dates through November 2038, for the supply, transportation and storage of natural gas. These contracts include annual fixed charges of approximately $168.5 million at current contract rates and volumes, which are recoverable through BGSS.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
For the purpose of securing storage and pipeline capacity, the Energy Services segment enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by Energy Services to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to 10 years. Demand charges are established by interstate storage and pipeline operators and are regulated by FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and/or transport natural gas utilizing their respective assets.
Commitments as of September 30, 2021, for natural gas purchases and future demand fees for the next five fiscal year periods, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2022
|
2023
|
2024
|
2025
|
2026
|
Thereafter
|
Energy Services:
|
|
|
|
|
|
|
Natural gas purchases
|
$
|
220,186
|
|
$
|
1,258
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Storage demand fees
|
20,685
|
|
11,584
|
|
6,205
|
|
4,525
|
|
2,355
|
|
813
|
|
Pipeline demand fees
|
58,143
|
|
39,831
|
|
20,333
|
|
16,730
|
|
15,095
|
|
18,633
|
|
Sub-total Energy Services
|
$
|
299,014
|
|
$
|
52,673
|
|
$
|
26,538
|
|
$
|
21,255
|
|
$
|
17,450
|
|
$
|
19,446
|
|
NJNG:
|
|
|
|
|
|
|
Natural gas purchases
|
$
|
35,389
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Storage demand fees
|
37,293
|
|
27,981
|
|
14,300
|
|
6,856
|
|
1,726
|
|
1,870
|
|
Pipeline demand fees
|
131,207
|
|
126,177
|
|
126,343
|
|
127,990
|
|
121,258
|
|
1,066,014
|
|
Sub-total NJNG
|
$
|
203,889
|
|
$
|
154,158
|
|
$
|
140,643
|
|
$
|
134,846
|
|
$
|
122,984
|
|
$
|
1,067,884
|
|
Total
|
$
|
502,903
|
|
$
|
206,831
|
|
$
|
167,181
|
|
$
|
156,101
|
|
$
|
140,434
|
|
$
|
1,087,330
|
|
Certain pipeline demand fees totaling approximately $4.0 million per year, for which Energy Services is the responsible party, will be paid for by the counterparty to a capacity release transaction beginning November 1, 2021 for a period of 10 years.
As of September 30, 2021, the Company’s future minimum lease payments under various operating leases will not be more than $8.0 million annually for the next five years and $196.5 million in the aggregate for all years thereafter.
Guarantees
As of September 30, 2021, there were NJR guarantees covering approximately $192.4 million of Energy Services’ natural gas purchases and demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
Legal Proceedings
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of certain former MGP sites, dating back to gas operations in the late 1800s and early 1900s, which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative proceedings with the NJDEP, and participating in various studies and investigations by outside consultants, to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under NJDEP regulations.
NJNG periodically, and at least annually, performs an environmental review of former MGP sites located in Atlantic Highlands, Berkeley, Long Branch, Manchester, Toms River, Freehold and Aberdeen, New Jersey, including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures at the former MGP sites for which it is responsible, including potential liabilities for natural resource damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites will range from approximately $115.4 million to $178.4 million. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, as of September 30, 2021, NJNG recorded a MGP remediation liability and a corresponding regulatory asset of approximately $135.0 million on the Consolidated Balance Sheets based on the most likely amount.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
On September 30, 2021, NJNG filed its annual SBC application requesting to recover remediation expenses including an increase in the RAC, of approximately $2.0 million annually, effective April 1, 2022. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and insurance recoveries, if any.
In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership and if former MGP operations were active at the location. The preliminary assessment and site investigation activities are ongoing at the Aberdeen, NJ site location. The estimated costs to complete the preliminary assessment and site investigation phase are included in the MGP remediation liability and corresponding regulatory asset on the Consolidated Balance Sheet at September 30, 2021. NJNG will continue to gather information to determine whether the obligation exists to undertake remedial action, if any, and refine its estimate of potential costs for this site as more information becomes available.
NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC approved by the BPU. On September 9, 2020, the BPU approved NJNG's increase in the RAC, which increased the annual recovery from $8.5 million to $9.7 million, effective October 1, 2020. On April 7, 2021, the BPU approved an increase in the RAC, which increased the annual recovery from $9.7 million to $11.1 million and was effective May 1, 2021. As of September 30, 2021, $58.5 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Consolidated Balance Sheets. NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination.
General
The Company is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory and arbitration proceedings relating to matters that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, the Company cannot state with confidence what the eventual outcome of the pending litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, NJR establishes accruals for litigation for those matters that present loss contingencies as to which it is both probable that a loss will be incurred and the amount of such loss can be reasonably estimated. NJR also discloses contingent matters for which there is a reasonable possibility of a loss. Based upon currently available information, NJR believes that the results of litigation that are currently pending, taken together, will not have a materially adverse effect on the Company’s financial condition, results of operations or cash flows. The actual results of resolving the pending litigation matters may be substantially higher than the amounts accrued.
The foregoing statements about NJR’s litigation are based upon the Company’s judgments, assumptions and estimates and are necessarily subjective and uncertain. The Company has a number of threatened and pending litigation matters at various stages.
16. COMMON STOCK EQUITY
In December 2019, the Company completed an equity offering of 6,545,454 common shares, consisting of 5,333,334 common shares issued directly by the Company and 1,212,120 common shares issuable pursuant to forward sales agreements with investment banks. The issuance of 5,333,334 resulted in proceeds of approximately $212.9 million, net of issuance costs, and was reflected in shareholders' equity and as a financing activity on the statement of cash flows.
Under the forward sale agreements, a total of 1,212,120 common shares were borrowed from third parties and sold to the underwriters. Each forward sale agreement allowed the Company, at its election and prior to September 30, 2020, to physically settle the forward sale agreement by issuing common shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement, which was initially $40.0125 per share, or, alternatively, to settle the forward sale agreement in whole or in part through the delivery or receipt of shares or cash. The forward sale price was subjected to adjustment daily based on a floating interest rate factor and would decrease in respect of certain fixed amounts specified in the agreement, such as anticipated dividends.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Issuances of shares under the forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements have or will be recorded in the financial statements until settlements take place. Prior to any settlements, the only impact to the financial statements is the inclusion of incremental shares within the calculation of diluted EPS using the treasury stock method until settlement of the forward sale agreements. Under this method, the number of the Company common shares used in calculating diluted EPS is deemed to be increased by the excess, if any, of the number of shares that would be issued upon physical settlement of the forward sale agreements less the number of shares that would be purchased by the Company in the market (based on the average market price during the same reporting period) using the proceeds receivable upon settlement (based on the adjusted forward sale price at the end of that reporting period). Share dilution occurs when the average market price of the Company's common shares is higher than the adjusted forward sale price.
On September 18, 2020, the Company amended its forward sale agreements to extend the maturity date of such forward sales agreements from September 30, 2020 to September 10, 2021. On March 3, 2021, the Company cash settled a portion of the forward sale agreement for a payout of approximately $388,000 in lieu of the issuance of 727,272 common shares. On May 26, 2021, the Company cash settled the rest of the forward sale agreements for a payout of approximately $2.4 million in lieu of the issuance of 484,848 common shares.
17. REPORTING SEGMENT AND OTHER OPERATIONS DATA
The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated wholesale and retail energy operations; the Storage and Transportation segment consists of the Company’s investments in natural gas storage and transportation facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Information related to the Company’s various reporting segments and other operations is detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
Fiscal Years Ended September 30,
|
2021
|
2020
|
2019
|
Operating revenues
|
|
|
|
Natural Gas Distribution
|
|
|
|
External customers
|
$
|
731,796
|
|
$
|
729,923
|
|
$
|
710,793
|
|
|
|
|
|
Clean Energy Ventures
|
|
|
|
External customers
|
95,275
|
|
102,617
|
|
98,099
|
|
Energy Services
|
|
|
|
External customers (1)
|
1,228,846
|
|
1,029,303
|
|
1,734,553
|
|
Intercompany
|
(426)
|
|
1,116
|
|
8,238
|
|
Storage and Transportation
|
|
|
|
External customers
|
49,252
|
|
42,015
|
|
—
|
|
Intercompany
|
1,768
|
|
2,713
|
|
—
|
|
Subtotal
|
2,106,511
|
|
1,907,687
|
|
2,551,683
|
|
Home Services and Other
|
|
|
|
External customers
|
51,444
|
|
49,810
|
|
48,600
|
|
Intercompany
|
785
|
|
1,207
|
|
2,302
|
|
Eliminations
|
(2,127)
|
|
(5,036)
|
|
(10,540)
|
|
Total
|
$
|
2,156,613
|
|
$
|
1,953,668
|
|
$
|
2,592,045
|
|
Depreciation and amortization
|
|
|
|
Natural Gas Distribution
|
$
|
80,045
|
|
$
|
71,883
|
|
$
|
57,980
|
|
Clean Energy Ventures
|
20,567
|
|
25,329
|
|
22,376
|
|
Energy Services (2)
|
111
|
|
123
|
|
118
|
|
Storage and Transportation
|
9,960
|
|
9,293
|
|
6
|
|
Subtotal
|
110,683
|
|
106,628
|
|
80,480
|
|
Home Services and Other
|
980
|
|
1,032
|
|
914
|
|
Eliminations
|
(276)
|
|
(292)
|
|
(285)
|
|
Total
|
$
|
111,387
|
|
$
|
107,368
|
|
$
|
81,109
|
|
Interest income (3)
|
|
|
|
Natural Gas Distribution
|
$
|
85
|
|
$
|
538
|
|
$
|
994
|
|
Clean Energy Ventures
|
241
|
|
240
|
|
—
|
|
Energy Services
|
11
|
|
99
|
|
78
|
|
Storage and Transportation
|
2,243
|
|
3,510
|
|
4,000
|
|
Subtotal
|
2,580
|
|
4,387
|
|
5,072
|
|
Home Services and Other
|
522
|
|
8,633
|
|
1,942
|
|
Eliminations
|
(935)
|
|
(10,061)
|
|
(5,391)
|
|
Total
|
$
|
2,167
|
|
$
|
2,959
|
|
$
|
1,623
|
|
(1)Includes sales to Canada for the Energy Services segment, which are immaterial.
(2)The amortization of acquired wholesale energy contracts is excluded above and is included in natural gas purchases - nonutility on the Consolidated Statements of Operations.
(3)Included in other income, net on the Consolidated Statements of Operations.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
Fiscal Years Ended September 30,
|
2021
|
2020
|
2019
|
Interest expense, net of capitalized interest
|
|
|
|
Natural Gas Distribution
|
$
|
36,405
|
|
$
|
30,975
|
|
$
|
26,134
|
|
Clean Energy Ventures
|
22,548
|
|
20,253
|
|
14,846
|
|
Energy Services
|
2,204
|
|
3,276
|
|
5,205
|
|
Storage and Transportation
|
13,348
|
|
13,124
|
|
2,185
|
|
Subtotal
|
74,505
|
|
67,628
|
|
48,370
|
|
Home Services and Other
|
4,054
|
|
10,327
|
|
1,535
|
|
Eliminations
|
—
|
|
(10,358)
|
|
(2,823)
|
|
Total
|
$
|
78,559
|
|
$
|
67,597
|
|
$
|
47,082
|
|
Income tax provision (benefit)
|
|
|
|
Natural Gas Distribution
|
$
|
19,054
|
|
$
|
27,021
|
|
$
|
9,434
|
|
Clean Energy Ventures
|
5,048
|
|
11,034
|
|
7,270
|
|
Energy Services
|
18,371
|
|
(3,615)
|
|
(1,573)
|
|
Storage and Transportation
|
(10,043)
|
|
4,247
|
|
2,254
|
|
Subtotal
|
32,430
|
|
38,687
|
|
17,385
|
|
Home Services and Other
|
(196)
|
|
(2,478)
|
|
1,428
|
|
Eliminations
|
1,052
|
|
285
|
|
(373)
|
|
Total
|
$
|
33,286
|
|
$
|
36,494
|
|
$
|
18,440
|
|
Equity in earnings of affiliates
|
|
|
|
Storage and Transportation
|
$
|
(81,072)
|
|
$
|
15,903
|
|
$
|
15,832
|
|
Eliminations
|
(2,140)
|
|
(1,592)
|
|
(2,204)
|
|
Total
|
$
|
(83,212)
|
|
$
|
14,311
|
|
$
|
13,628
|
|
Net financial earnings (loss)
|
|
|
|
Natural Gas Distribution
|
$
|
107,375
|
|
$
|
126,902
|
|
$
|
78,062
|
|
Clean Energy Ventures
|
16,789
|
|
22,111
|
|
31,903
|
|
Energy Services
|
71,117
|
|
(7,873)
|
|
2,918
|
|
Storage and Transportation
|
13,046
|
|
18,311
|
|
14,689
|
|
Subtotal
|
208,327
|
|
159,451
|
|
127,572
|
|
Home Services and Other
|
(826)
|
|
5,784
|
|
1,911
|
|
Eliminations
|
211
|
|
98
|
|
(93)
|
|
Total
|
$
|
207,712
|
|
$
|
165,333
|
|
$
|
129,390
|
|
Capital expenditures
|
|
|
|
Natural Gas Distribution
|
$
|
426,628
|
|
$
|
290,040
|
|
$
|
345,004
|
|
Clean Energy Ventures
|
87,852
|
|
133,841
|
|
157,828
|
|
Storage and Transportation
|
107,500
|
|
20,998
|
|
20,616
|
|
Subtotal
|
621,980
|
|
444,879
|
|
523,448
|
|
Home Services and Other
|
2,630
|
|
3,230
|
|
2,484
|
|
Total
|
$
|
624,610
|
|
$
|
448,109
|
|
$
|
525,932
|
|
Investments in equity investees
|
|
|
|
Storage and Transportation
|
$
|
690
|
|
$
|
2,117
|
|
$
|
4,102
|
|
Total
|
$
|
690
|
|
$
|
2,117
|
|
$
|
4,102
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company’s assets for the various reporting segments and business operations are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Assets at end of period:
|
|
|
|
Natural Gas Distribution
|
$
|
3,707,461
|
|
$
|
3,531,477
|
|
$
|
3,064,309
|
|
Clean Energy Ventures
|
914,788
|
|
814,277
|
|
694,439
|
|
Energy Services
|
365,423
|
|
244,836
|
|
290,847
|
|
Storage and Transportation
|
862,407
|
|
844,799
|
|
240,955
|
|
Subtotal
|
5,850,079
|
|
5,435,389
|
|
4,290,550
|
|
Home Services and Other
|
162,134
|
|
138,375
|
|
104,411
|
|
Intercompany assets (1)
|
(289,935)
|
|
(257,287)
|
|
(237,019)
|
|
Total
|
$
|
5,722,278
|
|
$
|
5,316,477
|
|
$
|
4,157,942
|
|
(1)Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company’s reporting segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Net financial earnings
|
$
|
207,712
|
|
$
|
165,333
|
|
$
|
129,390
|
|
Less:
|
|
|
|
Unrealized loss (gain) on derivative instruments and related transactions
|
54,203
|
|
(9,644)
|
|
2,881
|
|
Tax effect
|
(12,887)
|
|
2,296
|
|
(711)
|
|
Effects of economic hedging related to natural gas inventory
|
(42,405)
|
|
12,690
|
|
4,309
|
|
Tax effect
|
10,078
|
|
(3,016)
|
|
(1,024)
|
|
Impairment of equity method investment
|
92,000
|
|
—
|
|
—
|
|
Tax effect
|
(11,167)
|
|
—
|
|
—
|
|
Net income
|
$
|
117,890
|
|
$
|
163,007
|
|
$
|
123,935
|
|
The Company uses derivative instruments as economic hedges of purchases and sales of physical natural gas inventory. For GAAP purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues and cost of natural gas related to physical natural gas flow are recognized when the natural gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical natural gas flows. Timing differences occur in two ways:
•unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical natural gas inventory flows; and
•unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in the same period as physical natural gas inventory movements occur.
NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of natural gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current-period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Realized derivative gains and losses are also included in current-period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical natural gas flows. NFE also excludes impairment charges associated with equity method investments, which are non-cash charges considered unusual in nature that occur infrequently and are not indicative of the Company's performance for its ongoing operations. Included in the tax effects are current and deferred income tax expense corresponding with the components of NFE.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
18. RELATED PARTY TRANSACTIONS
Effective April 1, 2020, NJNG entered into a 5-year agreement for 3 Bcf of firm storage capacity with Steckman Ridge, which expires on March 31, 2025. Under the terms of the agreement, NJNG incurs demand fees, at market rates, of approximately $9.3 million annually, a portion of which is eliminated in consolidation. These fees are recoverable through NJNG’s BGSS mechanism and are included as a component of regulatory assets.
Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-jurisdictional natural gas storage facility, Steckman Ridge. As of September 30, 2021, Energy Services has entered into transactions with Steckman Ridge for varying terms, all of which expire by October 31, 2022.
Demand fees, net of eliminations, associated with Steckman Ridge during the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
2019
|
Natural Gas Distribution
|
$
|
6,449
|
|
$
|
5,900
|
|
$
|
5,814
|
|
Energy Services
|
564
|
|
183
|
|
2,134
|
|
Total
|
$
|
7,013
|
|
$
|
6,083
|
|
$
|
7,948
|
|
The following table summarizes demand fees payable to Steckman Ridge as of September 30:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2020
|
Natural Gas Distribution
|
$
|
778
|
|
$
|
775
|
|
Energy Services
|
83
|
|
16
|
|
Total
|
$
|
861
|
|
$
|
791
|
|
NJNG and Energy Services have entered into various asset management agreements, the effects of which are eliminated in consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to Energy Services. As of September 30, 2021, NJNG and Energy Services had two asset management agreements with expiration dates of October 31, 2021 through March 31, 2022.
NJNG has entered into a 5-year transportation precedent agreement with Adelphia Gateway for committed capacity of 130,000 Dths per day, which is expected to begin during the 2nd quarter of fiscal 2022, dependent upon the completion of a compressor.
Energy Services has a 5-year agreement for 3 Bcf of firm storage capacity with Leaf River, which is eliminated in consolidation and expires in March 2024. On February 19, 2021, Energy Services entered into a park and loan agreement with Leaf River for 330,000 Dths, which expired on April 30, 2021, the activity of which is eliminated in consolidation.
In March 2021, NJNG and Clean Energy Ventures entered into a 15-year sublease and PPA agreement related to an onsite solar array and the related energy output at the Company’s headquarters in Wall, New Jersey, the effects of which are immaterial to the consolidated financial statements.
In July 2021, NJNG entered into 16-year lease agreements with various NJR subsidiaries for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation.
New Jersey Resources Corporation
Part II