Always
2014 Annual Report
We are committed to enhancing our customers’ quality of
life by meeting their expectations for reliability and value in
an environmentally responsible way, every day.
• Safe, Reliable and Competitively pRiCed SeRviCe
• CuStomeR SatiSfaCtion
• GRowth
• Quality
• valuinG employeeS
• CoRpoRate CitizenShip
• SupeRioR RetuRn
trust is the strength of our disciplined growth strategy
and our consistent execution that delivers performance
year after year. in fiscal 2014, we once again demonstrated
why we are a company that our shareowners can trust.
Contents
Financial Performance
Letter from the Chairman
Feature Section
Directors and Officers
Presenting Our 2014 Form 10-K
Form 10-K
Shareowner Information
2
3
12
28
30
31
ibc
Financial Performance
dividendS peR ShaRe
$2.00
$1.50
$1.44
$1.36
$1.62
$1.71
$1.54
$1.00
$0.50
payout Ratio (On an NFE‡ basis)
55%
56%
57%
59%
41%
60%
40%
20%
0%
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
peRfoRmanCe GRaph*
value of $10,000 inveSted*** (9/30/09)
to ouR ShaReowneRS
In fiscal 2014, we once again demonstrated why we are a
$16,594
As I began to work on this letter — my 20th since I became chief
company our shareowners can trust. Net financial earnings
$225
$200
$175
$150
$125
$100
$75
$13,972
$13,974
$12,576
$11,208
$17,500
$15,000
19.73%
S&P 500
18.75% nJR
$10,000
17.13%
S&P Utilities
16.32%
Company
Peer Group**
$5,000
$0
2009
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
* The performance graph shows a comparison of the five-year
cumulative return, including reinvestment of dividends, assuming
$100 invested on September 30, 2009, in New Jersey Resources
(NJR) stock, the Company Peer Group, the Standard & Poor’s (S&P)
Utilities Index and the S&P 500 Index. Total return percentages have
been annualized.
** The nine companies in the Company Peer Group noted above
are as follows: AGL Resources, Inc., Atmos Energy Corporation,
The Laclede Group, Inc., Northwest Natural Gas Company,
Piedmont Natural Gas Company, Inc., South Jersey Industries,
Inc., Southwest Gas Corporation, Vectren Corporation and WGL
Holdings, Inc. NJR includes the performance of the Company Peer
Group because the Company Peer Group has a higher percentage
of natural gas utility and combination natural gas and electric
utility companies of comparable size and market capitalization to
that of NJR, as compared with the S&P Utilities Index.
*** Assumes Dividends Reinvested
† According to Cogent Reports, a division of Market Strategies
International, 2014 Utility Trusted Brand and Customer Engagement™
study, NJNG scored the highest in the East region, and was
the fourth highest of all natural gas utilities and eighth highest
of all utilities in the nation. More information can be found at:
marketstrategies.com/en/news.
‡ Net financial earnings (NFE) is a financial measure not calculated in
accordance with generally accepted accounting principles (GAAP)
of the United States as it excludes all unrealized and certain realized
gains and losses associated with derivative instruments, net of
applicable tax adjustments. For further discussion of this financial
measure, please see our Form 10-K.
§ Utility gross margin is a financial measure not calculated in
accordance with GAAP, which is defined as natural gas revenues
less natural gas costs, sales and other taxes and regulatory rider
expenses, and may not be comparable to the definition of gross
margin used by others in the natural gas distribution business and
other industries. For further discussion of this financial measure,
please see our Form 10-K.
Information Regarding Forward-Looking Statements — This letter
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Words such as
“anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,”
“intends,” “expects,” “believes,” “should” and similar expressions may
identify forward-looking information and such forward-looking
statements are made based upon management’s current expec-
tations and/or beliefs as of this date or a prior date concerning
future developments and their potential effect upon NJR.
There can be no assurance that future developments will be in
accordance with management’s expectations or that the effect
of future developments on NJR will be those anticipated by
management. NJR cautions persons reading this letter that the
assumptions that form the basis for forward-looking statements
including, but not limited to, certain statements regarding NJR’s
long-term NFE growth rate, NJR’s annual dividend growth
rate, forecasted contribution of business segments to fiscal
2015 NFE, long-term benefits of increased NFE in fiscal 2014,
future NJNG customer growth, future capital expenditures and
infrastructure investments, NJNG utility gross margin growth, and
the completion of Carroll Area Wind Farm, Alexander Wind Farm
and the PennEast Pipeline projects include many factors that are
beyond the Company’s ability to control or estimate precisely, such
as estimates of future market conditions and the behavior of other
market participants.
The factors that could cause actual results to differ materially from
NJR’s expectations include, but are not limited to, weather and
economic conditions; demographic changes in the NJNG service
territory and their effect on NJNG’s customer growth; volatility
of natural gas and other commodity prices and their impact
on NJNG customer usage, NJNG’s Basic Gas Supply Service
incentive programs, NJRES’ operations and on the Company’s risk
management efforts; changes in rating agency requirements and/
or credit ratings and their effect on availability and cost of capital to
the Company; the impact of volatility in the credit markets on our
access to capital; the ability to comply with debt covenants; the
impact to the asset values and resulting higher costs and funding
obligations of NJR’s pension and postemployment benefit plans as
a result of downturns in the financial markets, a lower discount rate,
and impacts associated with the Patient Protection and Affordable
Care Act; accounting effects and other risks associated with hedging
activities and use of derivatives contracts; commercial and wholesale
credit risks, including the availability of creditworthy customers and
counterparties and liquidity in the wholesale energy trading market;
the ability to obtain governmental and regulatory approvals, land-
use rights and/or financing for the construction, development
and creation of certain of NJR’s energy investments, and NJNG
infrastructure projects; risks associated with the management of the
Company’s joint ventures and partnerships; risks associated with our
investments in distributed power projects, including the availability
of regulatory and tax incentives, logistical risks and potential delays
related to construction, permitting, regulatory approvals and electric
grid interconnection, the availability of viable projects and NJR’s
eligibility for federal investment tax credits (ITC), and production tax
credits (PTC), the future market for SRECs and operational risks related
to projects in service; timing of qualifying for ITCs due to delays or
failures to complete planned solar energy projects and the resulting
effect on our effective tax rate and earnings; the level and rate at
which NJNG’s costs and expenses are incurred and the extent to
which they are allowed to be recovered from customers through
the regulatory process; access to adequate supplies of natural gas
and dependence on third-party storage and transportation facilities
for natural gas supply; operating risks incidental to handling, storing,
transporting and providing customers with natural gas; risks related
to our employee workforce; the regulatory and pricing policies of
federal and state regulatory agencies; the costs of compliance with
present and future environmental laws, including potential climate
change-related legislation; risks related to changes in accounting
standards; the disallowance of recovery of environmental-related
expenditures and other regulatory changes; environmental-related
and other litigation and other uncertainties; risks related to cyber-
attack or failure of information technology systems; and the impact
of natural disasters, terrorist activities and other extreme events on our
operations and customers.
The aforementioned factors are detailed in the “Risk Factors” sections
of our Annual Report on Form 10-K filed on or about November 25,
2014, as filed with the Securities and Exchange Commission (SEC),
which is available on the SEC’s website at sec.gov. Information
included in this letter is representative as of the date of the letter
only, and while NJR periodically reassesses material trends and
uncertainties affecting NJR’s results of operations and financial
condition in connection with its preparation of management’s
discussion and analysis of results of operations and financial condition
contained in its Quarterly and Annual Reports filed with the SEC, NJR
does not, by including this statement, assume any obligation to review
or revise any particular forward-looking statement referenced herein
in light of future events.
executive officer in 1995 — one word kept resonating with me:
(NFE)‡ were $176.9 million, or $4.20 per basic share, compared
Trust. During my tenure, I have learned that trust is more than
with $113.7 million, or $2.73 per share, last year. And in September,
the confidence that is placed in us. It’s our principal obligation
our Board of Directors approved a 7.1 percent dividend increase
to our stakeholders. It’s our promise to always be there to meet
to an annual rate of $1.80 per share, which represented the 21st
their needs and expectations. It’s our highest responsibility,
increase since 1996. Shareowners were rewarded with a total
and it is one that we always strive to meet. So when a national
return of 18.8 percent.
study† ranked us as one of the most trusted utility brands in
the United States, it affirmed that our customers feel the same
NJR Energy Services (NJRES), our unregulated wholesale energy
way we do.
services business, had a record year with NFE of $79.7 million,
compared with $19.3 million last year. New Jersey Natural Gas
For us, trust is the safety, reliability and resiliency of our system.
(NJNG), our principal subsidiary, also delivered solid financial
Trust is what keeps our customers’ homes warm and businesses
results with earnings of $74.2 million, compared with $73.9
running. Trust is the return we provide our investors on the
million last year, even after accounting for higher discretionary
resources they provide. Trust is the character of our team of
expenses, including the impact of a voluntary early retirement
dedicated employees, and what earns us the respect of our
program. NJR Clean Energy Ventures (NJRCEV), our distributed
communities. Trust is the strength of our disciplined growth
power subsidiary, had NFE of $12.7 million, compared with $10.1
strategy and our consistent execution that delivers performance
million last year. NJR Midstream, our natural gas storage and
year after year. I think you will agree that, once again, we
pipeline business, generated earnings of $7.5 million, compared
honored that trust with strong performance in fiscal 2014.
with $7.2 million, last year. And, NJR Home Services (NJRHS),
Throughout our annual report, you will see the many ways our
fiscal 2014, compared with $3.1 million last year. All in all, we had
our retail and appliance service business, earned $2.5 million in
team of more than 960 women and men work together to make
an excellent year.
us one of the most respected companies and trusted brands
in our industry. We are always reliable, resourceful, innovative
With the polar vortex causing extreme weather throughout
and balanced. We are always disciplined in our strategy and
much of the country this past winter, demand for natural gas
approach. And, our customers, shareowners and communities
increased considerably across the United States. In fact, on
can always count on us to deliver.
January 7, 2014, NJNG reached a record sendout of 690,415
3
dekatherms, eclipsing the previous record of 636,063 dekatherms
we have re-invested approximately $50 million into system
Through our Safety Acceleration and Facility Enhancement
Beginning in fiscal 2015, we plan to invest a total of $34 million
set in 2007, which underscores the reliability and resiliency of
growth and renewal projects annually. NJNG’s fiscal 2014
(SAFE) program, we are replacing a total of 276 miles of cast iron
to build a new natural gas liquefier. This added capability,
NJNG’s infrastructure.
capital expenditures totaled more than $156.9 million, including
and unprotected steel mains and associated services through
along with other improvements, will enable us to better
During this time of high demand and resulting volatility, NJRES
Superstorm Sandy (Sandy) restoration efforts, $40.3 million for
million and replaced 150 miles of cast iron and unprotected
well as significantly reduce truck traffic and emissions related
effectively utilized its expertise and strategically located portfolio
our accelerated system safety enhancement projects, $4.8 million
steel main and services. With only about 20 miles remaining to
to the transportation of LNG, while also creating savings for
$30.1 million for customer growth, $9.8 million for ongoing
fiscal 2016. Over the past two years, NJNG has invested $67
utilize our existing Liquefied Natural Gas (LNG) facilities, as
of natural gas storage and transportation assets to meet the needs
on bringing the first public natural gas vehicle (NGV) refueling
be replaced, NJNG has the lowest inventory of cast iron main
our customers.
of its customers throughout the U.S. and Canada. This led to a
stations to our service territory and $10.1 million for our natural
among the state’s local distribution companies and expects to
more than fourfold increase in NFE at NJRES, compared with last
gas liquefaction project. We remain committed to investing the
have it all completed by the end of summer 2015.
Additionally, we plan to invest in a new 28-mile transmission
year. NJRES was the key driver in our overall improved results,
necessary capital to support the safety, reliability and resiliency
main in Ocean County. This project, referred to as the Southern
along with NJNG, which was supported by our infrastructure
of our system and grow our business.
In July 2014, we received approval from the New Jersey Board
Reliability Link (SRL), will enhance both the diversity and
investments, solid customer growth in both the new construction
of Public Utilities (BPU) for our New Jersey Reinvestment in
dependability of our supply portfolio and delivery system, as
and conversion markets and regulatory initiatives.
Our team also successfully completed the relocation of nearly
System Enhancement (NJ RISE) program. Filed in the aftermath
well as our ability to provide safe, reliable service.
20 miles of distribution main and over 540 associated services
of Sandy that devastated the Jersey Shore — the heart of our
Our story begins with our regulated
along Route 35 on the Seaside peninsula as a part of the New
service territory — NJ RISE is designed to improve the reliability
Seeking to expand our midstream footprint, we announced our
infrastructure investments
Jersey Department of Transportation’s (NJDOT) reconstruction
and resiliency of our distribution and transmission systems.
participation in the proposed PennEast Pipeline project, a 108-
Behind our performance is the story of a disciplined strategy
project. This was a major undertaking and, by far, the largest
Over the next five years, we will invest over $100 million on a
mile natural gas transmission pipeline designed to bring 1 Bcf
executed by our team of talented employees that enables us
main relocation project in our history. Not only did we complete
series of storm-hardening and mitigation projects, including the
per day of safe, reliable, low-cost natural gas from Pennsylvania
to safely and reliably serve our customers, invest in growing
the work on an expedited timeframe to accommodate NJDOT’s
installation of new distribution main as secondary feeds; the
to New Jersey.
our Company and reward our shareowners. For those who
work schedule, we did so without any personal injuries or motor
relocation and reinforcement of regulator stations; and, the
have followed us over the years, you know our approach
vehicle accidents.
begins with consistent investments in our infrastructure. Our
installation of approximately 35,000 excess flow valves in the
PennEast successfully completed its open season in September
most storm-prone areas of our service territory. These targeted
2014, which resulted in 965,000 dekatherms per day of binding
extensive pipeline network of nearly 7,300 miles of distribution
This was an exceptional accomplishment by our team, and
improvements will enhance the reliability and resiliency of our
bids. In October, it was accepted into the Federal Energy
and transmission main serves more than 504,000 customers
I am proud that our overall focus on safety was recognized by
system, and should help mitigate the number and duration
Regulatory Commission’s (FERC) pre-filing review process,
throughout Monmouth and Ocean counties and parts of Morris,
the Northeast Gas Association with its annual Excellence in
of future outages and improve our ability to safely respond to
which includes a formal structure for stakeholder input and
Middlesex, Sussex and Burlington counties.
Safety award. This award honors safety programs that positively
service disruptions.
provides the framework for the environmental analysis required
impact the lives of customers, employees and the general public.
for the design, location and permitting of the proposed pipeline.
Since 2009, we have made infrastructure investments of
NJNG was one of only two companies to receive this prestigious
We are also pursuing additional infrastructure investments
PennEast expects to file a formal application with FERC
more than $710 million. On average, over the past six years,
recognition this year.
to further improve service and reliability to our customers.
by mid-2015.
4
5
In fiscal 2014,
New Jersey Resources
achieved NFE of
$176.9 million, or
$4.20 per basic share,
compared with
$113.7 million, or
$2.73 per basic share,
last year; and
shareowners were
rewarded with a total
return of 18.8 percent.
Our existing midstream assets, Steckman Ridge, a 12-Bcf storage
needed basis, when they are safely able to accept it. We also
$40 million in fiscal 2015 to help customers use energy more
Developed in partnership with the BPU and the Division of
facility located in southwestern Pennsylvania jointly owned
converted more than 625 existing customers to natural gas heat
wisely. Through this current program, we expect customers to
Rate Counsel (Rate Counsel), our Basic Gas Supply Service
with Spectra Energy, and our 5.53 percent stake in Iroquois
and other services. Together, we expect these new customers
save close to $115 million through lower energy bills.
(BGSS) incentive programs saved customers over $77 million
Pipeline, continue to contribute steady annual earnings and
and conversions to contribute $4.3 million annually in utility
and generated almost $16 million in utility gross margin
generated $7.5 million of NFE in fiscal 2014. We will continue to
gross margin.§ Additionally, the Red Oak generating station in
Since its inception in 2009, our SAVEGREEN team has completed
in fiscal 2014. These programs complement our natural gas
evaluate new midstream opportunities that meet our strategic
Sayreville, New Jersey became our largest customer with an
over 28,000 energy audits and awarded nearly 30,000 grants for
procurement activities, lower costs for our customers and benefit
and financial objectives.
estimated margin of over $2 million annually. Service is expected
high-efficiency equipment upgrades. More than 4,000 customers
our shareowners. Since 1992, customers have saved nearly
These regulated investments support our long-standing
the next two fiscal years, we expect to add about 8,000 new
rate on-bill repayment program and embraced a “whole-house”
shareowners earned in excess of $2.24 per share, or an average
to commence in the first half of fiscal 2015. And in each of
have taken advantage of the zero-percent annual percentage
$712 million, or an average of almost 7 percent annually, and
commitment to safety and reliability and drive our long-term
customers annually, with about half coming from conversions.
approach to energy efficiency. The number of contractors
of $.09 per share annually.
earnings growth.
participating in the program has grown from 100 to almost 2,100,
In May, the BPU approved the continuation of our Conservation
and NJNG’s total investment of $91.6 million since 2009 has
Working with our regulators is an important part
A sound foundation for customer and margin growth
Incentive Program (CIP). The CIP enables us to actively encourage
resulted in an estimated $248 million in economic activity in our
of our strategy
The healthy demographics of our service territory and the
conservation and energy efficiency, while protecting utility gross
service territory.
benefits of natural gas provide us with a strong foundation
margin. This past year, we helped customers save $33.7 million
Critical to our infrastructure investments and our ability to
safely and reliably meet customer expectations are our
for steady customer growth and higher gross margin. With an
on their energy costs by using less natural gas, and maintained
By the end of 2014, we expect the first public access
constructive regulatory relationships. Working collaboratively
abundant, domestic resource base estimated to be sufficient for
$6.6 million in gross margin for NJNG. Since its inception in
compressed natural gas (CNG) refueling stations in our service
with our regulators at both the BPU and Rate Counsel to identify
more than 100 years, the demand for clean, efficient, affordable
2006, customers have saved a total of $312 million and reduced
territory to be operational. Approved by the BPU in 2012, NJNG
areas of common interest is an important part of our strategy.
natural gas continues to expand. Customers today are more
emissions by more than 3.5 billion pounds of carbon dioxide,
will invest almost $10 million and entered into agreements
Our investments in projects such as SAFE and NJ RISE reflect
informed of their energy choices to heat their homes, run their
the equivalent of removing over 336,500 cars from the road.
with three host facilities — Waste Management, Inc. of Toms
our shared goals to provide customers with affordable service;
businesses and fuel their fleets. When it comes to maintaining
River, Shore Point Distributing Company of Freehold and the
support public policy, including storm resiliency, emissions
comfort, managing costs and reducing emissions, we believe
Our SAVEGREEN Project® continues to be a great success.
Middletown Department of Public Works — to build, own and
reductions and job creation; and strengthen our Company
natural gas, by any measure, is the smartest choice.
Through available rebates and on-bill repayment opportunities,
maintain CNG infrastructure at each location. Each facility
through our commitment to system safety and reliability.
SAVEGREEN makes upgrading to high-efficiency equipment an
will be required to use at least 20 percent of the fueling
In fiscal 2014, 7,599 new customers in our service territory chose
easy and more affordable choice. These programs augment
capacity and open the stations to the public. We expect the
We look forward to building on these relationships to
natural gas, a 2 percent increase over last year. We restored
those offered through New Jersey’s Clean Energy ProgramTM,
stations to be operational in the first quarter of fiscal 2015 and
advance New Jersey’s energy future, prudently investing
natural gas service to 8,821 Sandy-affected customers, but
and support the state’s Energy Master Plan. This past year, we
to help further encourage the market for CNG vehicles, as
in our system as we identify opportunities that benefit our
recognize there are still many displaced families. As customers
invested over $31 million in grants and incentives provided
well as accelerate the economic and environmental benefits
customers and shareowners, while advancing the state’s
return to their homes, we are ready to restore service on an as
to SAVEGREEN customers and plan to invest an additional
they provide.
public policy goals.
6
7
A strong complement of non-regulated investments
West Pemberton and Jacobstown, New Jersey. Through fiscal
We also reached a milestone with our 10,000th plumbing,
NJNG will continue to drive our long-term growth. Our
Our energy-related, non-regulated businesses complement our
2014, NJRCEV has installed in excess of 325,000 solar panels
electrical and generator service contract in less than two years.
focus in 2015 will remain on customer growth, infrastructure
portfolio of regulated infrastructure investments and are built
with a total of 83 megawatts (MW) of installed capacity, which will
Additionally, NJRHS’ marketing efforts are continuing in Sussex,
investments, key initiatives, such as SAVEGREEN and our BGSS
upon our Company’s core competencies.
generate about 100,000 Solar Renewable Energy Certificates
Warren and Hudson counties, as we look to expand our footprint
incentives, along with NJ RISE and SRL. NJRCEV will build out
(SRECs) annually. SRECs are earned by solar equipment
beyond Monmouth, Ocean and Morris counties.
its inventory of BPU-approved, grid-connected projects, adding
On an NFE basis, NJRES has been profitable every year since its
owners and sold to electric suppliers to satisfy New Jersey’s
to its supply of SRECs, which we expect to increase in value
inception in 1995. With its diverse portfolio of supply contracts
requirement that a portion of the state’s electric generation
As you can see, our energy-related, non-regulated businesses
at a reasonable rate of growth from their current levels, and
and physical firm storage and transportation assets, NJRES
comes from renewable sources.
support our overall performance, while providing service to our
prudently pursue residential solar projects. NJRES will continue
manages and provides physical natural gas service to utilities,
customers and value for our shareowners.
to provide physical and producer natural gas services to benefit
power generators, storage operators, pipelines and industrial
Additionally, we successfully completed our first onshore wind
from market volatility. PennEast will focus its efforts on the FERC
customers across North America. On average, NJRES transports
farm in Two Dot, Montana and announced our second project
Our long-term growth strategy
application process. And, NJRHS will continue to expand its
over 1.7 billion cubic feet of natural gas daily and maintains
in Carroll County, Iowa. Consisting of six wind turbines with a
Our excellent financial performance in fiscal 2014 supports our
product and service offerings, while maintaining a focus on
transportation capacity on almost every major interstate pipeline
total capacity of 9.72 MW, Two Dot is producing enough clean
long-term NFE growth prospects through the increased earnings
growing its service contract business.
in the U.S. Our team continues to meet the growing natural gas
energy to power nearly 3,000 homes annually, which is sold
retention, resulting from NJRES’ strong performance, which
needs of our customers and create value by focusing on physical
to NorthWestern Energy through a 25-year power purchase
has reduced our need for future equity issuances. By avoiding
In fiscal 2016, NJNG expects to file a base rate case and place
natural gas services, producer services and asset management
agreement. We expect the 20 MW Carroll Area Wind Farm,
earnings dilution, we increased the per-share profitability of
our liquefaction plant into service. NJRCEV plans to gradually
transactions. Through the combination of our strategically
located 65 miles northwest of Des Moines, to be operational
our new investments, which enabled us to increase our goal of
reduce its solar investments, continue to increase its supply of
located assets and portfolio of services, and the talent of our
by spring 2015. And this past October, we announced our third
long-term NFE growth rate to a range of 5 to 9 percent and our
SRECs and place the Alexander Wind Farm project into service.
team, NJRES remains a national leader in the growing natural
and largest wind farm project to date. The Alexander Wind
dividend growth goal to 6 to 8 percent annually. Our regulated
PennEast is also expected to file its formal application with FERC.
gas market.
Farm located in Rush County, Kansas, which we expect to be
investments are expected to contribute the majority of our NFE.
in service by fall 2015, will consist of 21 turbines with a capacity
As we saw this year, however, actual results will be determined
By fiscal 2017, we will have invested more than $1 billion since
NJRCEV continues to grow and diversify its distributed
of 48 MW. NJRCEV retains all of the production tax credits
by market conditions and execution.
the conclusion of our last base rate case in 2008 to maintain and
power business and provide customers with clean, affordable
generated by the projects, and will continue to evaluate potential
strengthen NJNG’s system and support our growing customer
electricity. This year we added over 1,000 residential solar lease
investment opportunities in other onshore wind projects, as well
Our growth strategy is driven by increased regulated infrastructure
base. In fiscal 2017, NJNG expects to successfully complete
customers and celebrated a new milestone with the addition of
as assessing opportunities for Combined Heat and Power (CHP)
investments that ensure safe, reliable service and anchor our
our base rate case and place SRL into service. We expect that
The Sunlight Advantage’s® 3,000th customer. Launched in 2010,
projects in the still evolving CHP marketplace.
business portfolio; providing customers with cost-efficient
NJRCEV will benefit from increased earnings from wind and
The Sunlight Advantage provides homeowners with simple,
renewable electricity, while reducing our reliance on investment
SREC sales that will offset the expected decline of investment
solar savings. NJRCEV also invested $43.5 million and installed
NJRHS added 7,800 new customers to its premier service plan.
tax credits; and providing physical and producer services to a
tax credits to 10 percent. We also anticipate FERC approval
four commercial projects in Medford, Woolwich Township,
We now have over 31,300 customers enrolled in the plan.
variety of natural gas market participants.
of PennEast.
8
9
Our excellent financial
performance in fiscal
2014 enabled us to
increase our goal of
long-term NFE annual
growth to 5 to 9 percent
and our dividend
growth goal to 6 to 8
percent annually.
This approach affords us the opportunity to continue to provide
contributed over 5,000 hours of service to help support nonprofit
and I am grateful for their willingness to share their expertise
to provide value to our shareowners and safe, reliable service to
our customers with the highest quality service and meet their
organizations in our service territory. Additionally, over the course
and insight to benefit our Company. I’d also like to thank our
our customers in the years ahead. Our commitment to meeting
expectations for safety and reliability, while also creating value
of two days this summer, our employees worked alongside one
leadership team. All of the accomplishments in this report
these expectations will never change. That’s our pledge to you.
for our shareowners.
of our oldest community partners, the United Way of Monmouth
are the result of their dedication, commitment and focus on
An unwavering commitment to corporate citizenship
for families displaced by Sandy. It has been more than two years
January 21, 2015 at Eagle Oaks Golf and Country Club located
This fiscal year, we celebrated the 25th anniversary of our Project
since Sandy left a trail of devastation up and down the Jersey
We are blessed with an exceptional group of employees,
in Farmingdale, New Jersey. I hope you will be able to join us.
County, to help rebuild homes in Monmouth County’s Bayshore
executing our plan.
Our Annual Shareowners Meeting will be held at 9:30 a.m. on
Venture mentoring program. The original idea was simple — to help
Shore. Thanks to our efforts, 10 families are another step closer
many of whom are members of the International Brotherhood
students embrace learning as a lifelong skill and show them how
to getting their lives back to some degree of normalcy.
of Electrical Workers, Local 1820. I would like to recognize
Your feedback is important to me. Please feel free to write,
success in the classroom translates into success in the workplace.
Tom Curtis for his leadership as union president over the past
call or e-mail me at lmdownes@njresources.com and share
Since its inception in 1988, almost 100 employees have mentored
In total, we partnered with 1,778 nonprofit and community-
nine years, and welcome Jeff Bollermann, who was elected
your thoughts on our performance as well as any suggestions
nearly 300 students and helped them gain firsthand experience in
based organizations to help them fulfill their respective missions.
to succeed him. I look forward to working with Jeff and the
for improvement.
the workplace, as well as a glimpse of the possibilities their future
Thanks to the dedication and volunteer efforts of our employees,
members of Local 1820 to expand our strong and mutually
may hold. In particular, I would like to recognize my colleagues,
every day we are making a difference in our communities — and
beneficial partnership.
I began this letter reflecting on trust. I hope you agree that our fiscal
Melody Easy, Rhonda Figueroa, Marianne Harrell, Barbara Tyler,
the lives of those who need it most.
2014 performance fulfilled the trust you place in us. On behalf of
and Debora West, who have been a part of Project Venture since
Our employees are the heart and soul of our Company. They
our entire Company, I appreciate the opportunity to serve our
the very beginning. These five employees have mentored over 100
Our team is always working for you
make all of our achievements possible. It’s people like Bob Lewis,
customers, work with our community partners, policymakers
students and helped make the program the success it is today.
Our consistent performance is the result of our proven and
who joined NJNG on April 20, 1964 and has provided more
and regulators and reward our shareowners with proven results.
Another way we are making a difference in our communities is
diversified customer and gross margin growth, constructive
for our Company. And Sy Farrow, a first responder in Energy
As always, I appreciate the confidence you place in us, and pledge
through our Home Ownership Program. Since 1996, we have
regulatory relationships and prudent investment in the
Delivery, who while responding to a report of a possible natural
that we will continue to give our best to deliver performance of
worked with Interfaith Neighbors and, more recently, Homes for
development of our non-regulated energy portfolio. It’s a
gas leak saved an elderly neighbor’s life when he discovered
which we can all be proud.
sound strategy of reliability-related infrastructure investments,
than 50 years of service to our customers, which is a record
All, Inc. in Ocean County and Morris Habitat for Humanity, to help
reflection of our commitment to corporate citizenship and the
her unconscious after mistakenly leaving her car running in a
85 deserving families become first-time homeowners. More than
communities we serve. And, it’s a testament to the character of
closed garage. Every day, women and men from throughout our
Sincerely,
just houses, these homes represent the building blocks of our
the women and men of NJR.
neighborhoods and the promise of a better tomorrow for us all.
Company give their best. Their dedication is a source of inspiration
and pride, which makes us the Company we are today.
I would like to express my personal appreciation to the members
Through our Volunteers Inspiring Service In Our Neighborhoods
of our Board of Directors for their guidance and support.
As you can see, our business is strong, our strategy sound and
Laurence M. Downes
(VISION) program, our employees, retirees and their families
Collectively, our board has more than 100 years of experience
our team second to none. We have the fundamentals in place
Chairman and CEO
10
11
Always
Balanced
Achieving and maintaining balance requires constant focus and dedication. At NJR, we must meet
the needs of a diverse group of stakeholders, giving equal weight to their expectations — energy for
customers, growth for investors, vibrancy for neighborhoods and sustainability to ensure our future.
Our Conservation Incentive Program exemplifies this commitment to balance. This rate mechanism
encourages our customers to conserve natural gas through a variety of tools, resources and energy-
efficiency incentives and, at the same time, protects utility gross margin that would have been lost
from reduced sales. Customers save energy and money. Emissions are reduced and natural resources
preserved. Shareholders realize continued growth. Guided by the clear set of core values that comprise
NJR’s Commitment to Stakeholders, over 960 dedicated women and men are the balancing force behind
our promise to provide reliability and comfort to our customers, value to our investors, opportunity to
our suppliers and service to our communities and state — in a safe and environmentally responsible way
every day.
12
12
13
13
Always
Renewable
14
14
15
15
You first knew us as clean, energy-efficient natural gas. Then our solar investment strategy took shape as
we built a commercial solar portfolio of more than 55 megawatts and a successful residential program
to make solar energy affordable for customers. Now we’ve harnessed the power of the wind. This year,
our first onshore wind project, located in Two Dot, Montana, was placed into service, to be followed
next year by a second wind farm in Carroll County, Iowa. As our renewable portfolio grows, so does our
commitment to advancing the development of clean energy to help preserve our natural resources for
generations to come.
Always
Local
NJNG planted its roots in Asbury Park in 1952. Today, we’re the only utility that still maintains an office in
this city by the sea. So, when approached by the Asbury Park Chamber of Commerce with an idea to help
promote the city, NJNG was there to lend a hand. This summer, the NJNG Boardwalk Studio filled the
airways with live radio broadcasts right from the Asbury Park shoreline. Crowds grew as the boardwalk
became a gathering place to listen to local and state radio personalities and catch a glimpse of visiting
musicians, dignitaries and celebrities. But there was more to this idea. Each Friday, NJNG played on-air
host to several nonprofit organizations to showcase their community efforts and raise awareness for
their causes. Hundreds of thousands of listeners heard their messages and discovered the excitement
of Asbury Park. The end result? According to Tom Gilmour, director of economic development for the
city, “visitors were up nearly 30 percent this summer, helping to further revitalize this treasured Jersey
Shore town!”
16
16
17
17
Always
Reliable
18
18
19
19
We’re all customers. Our employees are too, so they understand. They know each and every customer
expects and deserves prompt, consistent and meaningful service. They listen, identify and anticipate
individual customer needs. They are our greatest asset. Whether tuning up a furnace before the winter
cold hits, responding to a safety call or providing energy assistance information to a family in need, our
employees all have one thing in common — reliability. There are some things you can always count on in
life. We’d like to think we’re one of them.
Always
Innovative
NJNG was the first utility, and one of the first businesses, to support the state’s goal to reduce greenhouse
gas emissions 20 percent by 2020. Building an environmentally sustainable fleet is an important part
of our plan. With a firm focus on reducing our carbon footprint, we transitioned more than 245 fleet
vehicles to compressed natural gas (CNG), hybrid, electric and bio-fuel, reducing our emissions by 33
percent. We’re also investing $10 million in three CNG fueling stations in our service territory — the
first in Monmouth and Ocean counties that will be open to the public. Working collaboratively with
municipalities, host businesses and regulators, we’re making sure that New Jersey residents have access
to clean, energy-efficient fuel. As a committed environmental steward, our goal is to lead others down
the road to sustainability.
20
20
21
21
Always
Resourceful
Winter 2014 sent an extreme arctic blast throughout the Midwest and Mid-Atlantic, and carried with
it temperatures unseen in decades. This sustained, severe weather created a significantly increased
demand for energy. Through its strategically located portfolio of storage and transportation assets,
NJRES was able to deliver natural gas to energy providers to keep the lights on, homes warm
and businesses running in cities and towns across the country — and create significant value for
our shareowners.
22
22
23
23
Always
Trusted
Trust noun \’tr st\: reliance on the integrity, strength, ability, etc., of a person or thing; confidence.
e
According to a national study released in July 2014 by Cogent Reports, NJNG is one of the most trusted
utility brands in the nation — and the most trusted natural gas utility in the eastern United States. This kind
of trust is evident in each of NJR’s subsidiaries — whether serving homes and businesses along the Jersey
Shore or building wind farms in Montana — all benefiting our customers, communities and investors alike.
2424
25
25
Our Corporate Profile
New Jersey resources (NYSE: NJR) is a Fortune 1000 company that provides safe and reliable natural
gas and clean energy services, including transportation, distribution and asset management. With annual
revenues in excess of $3 billion, NJR is comprised of five primary businesses:
New Jersey Natural Gas is NJR’s principal subsidiary that operates and maintains 7,000 miles of natural
gas transportation and distribution infrastructure to serve over half a million customers in New Jersey’s
Monmouth, Ocean and parts of Morris and Middlesex counties.
NJr eNerGy services manages a diversified portfolio of natural gas transportation and storage assets and
provides physical natural gas services and customized energy solutions to its customers across North America.
NJr cleaN eNerGy veNtures invests in, owns and operates solar and onshore wind projects with a total capacity
in excess of 93 megawatts, providing residential and commercial customers with low-carbon solutions.
NJr MidstreaM serves customers from local distributors and producers to electric generators and wholesale
marketers through its equity ownership in a natural gas storage facility and a transportation pipeline, both
of which are Federal Energy Regulatory Commission, or FERC-regulated investments.
NJr HoMe services provides heating, central air conditioning, standby generators, solar and other indoor
and outdoor comfort products to residential homes and businesses throughout New Jersey and serves
approximately 118,000 service contract customers.
NJR and its more than 960 employees are committed to helping customers save energy and money by
promoting conservation and encouraging efficiency through Conserve to Preserve® and initiatives such as
The SAVEGREEN Project® and The Sunlight Advantage®.
For more information about NJR, visit njresources.com, follow us on Twitter @NJNaturalGas, “like” us on
facebook.com/NewJerseyNaturalGas and download our free NJR investor relations app for iPad and iPhone.
26
26
27
27
Directors and Officers of New Jersey Resources
New Jersey resources
directors
Lawrence R. Codey, 70 (A,B,D)
Lead Director,
President and Chief Operating
Officer (retired)
Public Service Electric and Gas (2000)
Donald L. Correll, 64 (A,B,C)
Chief Executive Officer and
Co-Founder
KWP Capital LLC
(2008)
Laurence M. Downes, 57 (B)
Chairman of the Board, President
and Chief Executive Officer
New Jersey Resources (1995)
Robert B. Evans, 66 (A,B)
President and
Chief Executive Officer (retired)
Duke Energy Americas (2009)
New Jersey resources
aNd subsidiaries
officers
M. William Howard, 68 (B,C)
Pastor
Bethany Baptist Church (2005)
J. Terry Strange, 70 (A,B)
Vice Chairman (retired)
KPMG (2003)
Jane M. Kenny, 63 (B,C,D)
Co-owner and Managing Partner
The Whitman Strategy Group,
LLC (2006)
Sharon C. Taylor, 60 (C)
Senior Vice President–
Human Resouces
Prudential (2012)
Alfred C. Koeppe, 68 (A,B,C,D)
President and Chief
Executive Officer (retired)
Bell Atlantic-New Jersey;
President and Chief
Executive Officer (retired)
Public Service Electric and Gas;
Chief Executive Officer (retired)
Newark Alliance
David A. Trice, 66 (C,D)
President and
Chief Executive Officer (retired)
Newfield Exploration Company
(2004)
George R. Zoffinger, 66 (D)
President and
Chief Executive Officer
Constellation Capital
Corporation (1996)
Date represents year Director joined NJR Board.
(A) Member of Audit Committee
(B) Member of Executive Committee
(C) Member of Leadership Development and Compensation Committee
(D) Member of Nominating and Corporate Governance Committee
Laurence M. Downes
Mariellen Dugan
Kathleen F. Kerr
Thomas J. Massaro Jr.
Mark R. Sperduto
Kathleen T. Ellis
Rhonda M. Figueroa
Stanley M. Kosierowski
Patrick Migliaccio
Stephen D. Westhoven
Glenn C. Lockwood
Richard R. Gardner
Craig A. Lynch
Ginger P. Richman
Deborah G. Zilai
Linda B. Kellner
Joseph J. Marazzo
George C. Smith Jr.
New Jersey resources
officers
Laurence M. Downes, 57
President and
Chief Executive Officer (1985)
Mariellen Dugan, 48
Senior Vice President and
General Counsel (2005)
Kathleen T. Ellis, 61
Senior Vice President,
Corporate Affairs (2004)
Rhonda M. Figueroa, 55
Corporate Secretary (1981)
Linda B. Kellner, 55
Chief of Staff (1995)
Glenn C. Lockwood, 53
Executive Vice President and
Chief Financial Officer (1988)
Patrick Migliaccio, 40
Vice President-Finance and
Accounting and Teasurer (2007)
Date represents year of affiliation
with an NJR company.
directors aNd officers
of New Jersey resources
subsidiaries
New Jersey Natural Gas
directors
Laurence M. Downes, 57 (1995)
Chairman
Lawrence R. Codey, 70 (2000)
Donald L. Correll, 64 (2008)
Robert B. Evans, 66 (2009)
Alfred C. Koeppe, 68 (2003)
Lead Director
Sharon C. Taylor, 60 (2014)
Date represents year Director joined
NJR Board.
officers
Laurence M. Downes, 57
President and
Chief Executive Officer (1985)
Mariellen Dugan, 48
Senior Vice President and
General Counsel (2005)
Kathleen T. Ellis, 61
Executive Vice President and
Chief Operating Officer (2004)
Rhonda M. Figueroa, 55
Corporate Secretary (1981)
Kathleen F. Kerr, 51
Vice President,
Customer Services (2005)
Craig A. Lynch, 53
Senior Vice President,
Energy Delivery (1984)
Thomas J. Massaro Jr., 48
Vice President,
Marketing and Business
Intelligence (1989)
Patrick Migliaccio, 40
Vice President-Finance and
Accounting and Teasurer (2007)
Mark R. Sperduto, 56
Senior Vice President,
Regulatory and External Affairs (2005)
Date represents year of affiliation
with an NJR company.
NJr service
officers
Laurence M. Downes, 57
President and
Chief Executive Officer (1985)
Mariellen Dugan, 48
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 55
Corporate Secretary (1981)
Glenn C. Lockwood, 53
Senior Vice President and
Chief Financial Officer (1988)
Patrick Migliaccio, 40
Vice President-Finance and
Accounting and Teasurer (2009)
George C. Smith Jr., 57
Vice President,
Internal Audit (1984)
Deborah G. Zilai, 61
Vice President,
Corporate Services (1996)
Date represents year of affiliation
with an NJR company.
NJr eNerGy services
directors
Laurence M. Downes, 57 (1995)
Chairman
Robert B. Evans, 66 (2009)
Lead Director
M. William Howard, 68 (2005)
J. Terry Strange, 70 (2003)
David A. Trice, 66 (2004)
George R. Zoffinger, 66 (1996)
coMMercial realty
aNd resources
officers
Mariellen Dugan, 48
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 55
Corporate Secretary (1981)
Glenn C. Lockwood, 53
Senior Vice President,
Chief Financial Officer
and Treasurer (1988)
Date represents year Director joined
NJR Board.
Date represents year of affiliation
with an NJR company.
officers
Laurence M. Downes, 57
President and
Chief Executive Officer (1985)
Mariellen Dugan, 48
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 55
Corporate Secretary (1981)
Glenn C. Lockwood, 53
Senior Vice President and
Chief Financial Officer (1988)
Patrick Migliaccio, 40
Vice President-Finance and
Accounting and Teasurer (2009)
Ginger P. Richman, 50
Vice President,
Energy Services (2003)
Stephen D. Westhoven, 46
Senior Vice President (1990)
Date represents year of affiliation
with an NJR company.
NJr HoMe services
officers
Stanley M. Kosierowski, 62
President (2008)
Joseph J. Marazzo, 56
Vice President and Treasurer (2010)
Date represents year of affiliation
with an NJR company.
NJr cleaN eNerGy
veNtures
directors
Laurence M. Downes, 57 (1995)
Chairman
M. William Howard, 68 (2005)
Lead Director
Jane M. Kenny, 63 (2006)
J. Terry Strange, 70 (2003)
David A. Trice, 66 (2004)
George R. Zoffinger, 66 (1996)
Date represents year Director joined
NJR Board.
officers
Laurence M. Downes, 57
Chief Executive Officer (1985)
Mariellen Dugan, 48
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 55
Corporate Secretary (1981)
Richard R. Gardner, 55
Vice President,
Business Development (1983)
Stanley M. Kosierowski, 62
President (2008)
Glenn C. Lockwood, 53
Senior Vice President,
Chief Financial Officer (1988)
Patrick Migliaccio, 40
Vice President-Finance and
Accounting and Teasurer (2009)
Date represents year of affiliation
with an NJR company.
28
29
Presenting our 2014 Form 10-K
2014 Form 10-K
Our 2014 Form 10-K includes financial statements for NJR.
Part i: a descriPtioN of NJr busiNesses iNcludes:
It also includes detailed information about each of our
• Detailed descriptions of NJR subsidiaries
subsidiaries and the competitive environments of our
• Regulatory outlook for the utility business
businesses, properties we own and other matters.
• Risk factors related to our business
All publicly held companies in the United States are required
to file a Form 10-K report with the Securities and Exchange
Commission (SEC) every year. Our Form 10-K is required by
the rules and regulations of the SEC to contain information
in addition to the financial information included in our
• Description of properties owned and operated by NJR
• Legal proceedings
• Information about our executive officers
Part ii: MaNaGeMeNt’s discussioN of results aNd
fiNaNcial stateMeNts iteMs 5 aNd 6 iNclude:
previous annual reports to shareowners. We are supplying
• Quarterly dividend and stock price information
our 2014 Form 10-K (without exhibits) consistent with our
commitment to provide transparency and full disclosure to
• Selected financial data for NJR
• Operational statistics for NJNG
our shareowners.
iteMs 7 aNd 7a iNclude:
The 2014 Form 10-K is amended, sup plemented and updated
• Management’s Discussion and Analysis of Financial Condition
by any amendment that we may file, and by all of the
and Results of Operations, which provides a discussion of
quarterly reports on Form 10-Q and current reports on Form
changes in earnings and cash flows over the past three years
8-K we file with the SEC during the year. We urge you to
• Quantitative and qualitative disclosures about market risk
read all such reports. Copies may be obtained as described
under “Request for Documents” on the inside back cover of
iteMs 8 aNd 9 iNclude:
this Annual Report.
• Management’s reports on internal control over financial
reporting and disclosure controls and procedures
forM 10-K overview
• Reports of independent auditors
This Annual Report is not a part of, and should not be
• Financial statements and footnotes for NJR
considered to be included in, our 2014 Form 10-K. Use the
• Supplementary financial information (unaudited)
listing below, which includes highlights of the 2014 Form
10-K, to help you find information easily. A comprehensive
Table of Contents with the page number for each item can
be found on page “i” of the 2014 Form 10-K.
Part iii: iNforMatioN about board MeMbers,
executive officers aNd auditors iNcludes:
• Information about members of the Board of Directors,
executive compensation and accounting fees is
incorporated by reference to NJR’s proxy statement
Part iv: exHibits aNd siGNatures iNclude:
• Index of exhibits
• Signatures of members of the Board of Directors and
certain officers
30
31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
incorporation or organization)
1415 Wyckoff Road, Wall, New Jersey 07719
(Address of principal
executive offices)
(I.R.S. Employer
Identification Number)
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
(Title of each class)
New York Stock Exchange
(Name of each exchange on which registered)
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
No:
Yes:
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
No:
Yes:
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes:
No:
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes:
No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule
of the Exchange Act.
Large accelerated filer:
Accelerated filer:
Non-accelerated filer:
(Do not check if a smaller reporting company)
Smaller reporting company:
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
No:
Yes:
The aggregate market value of the Registrant's Common Stock held by nonaffiliates was $2,064,781,156 based on the closing price of $49.80 per share on
March 31, 2014, as reported on the New York Stock Exchange.
The number of shares outstanding of $2.50 par value Common Stock as of November 21, 2014 was 42,249,211.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareowners (Proxy Statement) to be held January 21, 2015, to be filed on
or about December 11, 2014, are incorporated by reference into Part I and Part III of this report.
New Jersey Resources Corporation
TABLE OF CONTENTS
Glossary of Terms
Information Concerning Forward-Looking Statements
PART I
ITEM 1.
Business
Organizational Structure
Business Segments
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Other Business Operations
Home Services and Other
Environment
Employee Relations
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Securities
Selected Financial Data
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 4A.
Executive Officers of the Company
PART II
ITEM 5.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Management's Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 1. Nature of the Business
Note 2. Summary of Significant Accounting Policies
Note 3. Regulation
Note 4. Derivative Instruments
Note 5. Fair Value
Note 6. Investments in Equity Investees
Note 7. Earnings Per Share
Note 8. Debt
Note 9. Stock-Based Compensation
Note 10. Employee Benefit Plans
Note 11. Asset Retirement Obligations
Note 12. Income Taxes
Note 13. Commitments and Contingent Liabilities
Note 14. Business Segment and Other Operations Data
Note 15. Related Party Transactions
Note 16. Selected Quarterly Financial Data (Unaudited)
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
PART III*
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
Index to Financial Statement Schedules
Signatures
Exhibit Index
* Portions of Item 10 and Items 11-14 are Incorporated by Reference from the Proxy Statement.
i
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GLOSSARY OF KEY TERMS
New Jersey Resources Corporation
Allowance for Funds Used During Construction
Accelerated Infrastructure Program
Asset Retirement Obligations
Accounting Standards Codification
Accounting Standards Update
Billion Cubic Feet
Basic Gas Supply Service
New Jersey Board of Public Utilities
Continuing Covenant Agreement
Conservation Incentive Program
Chicago Mercantile Exchange
Commercial Realty & Resources Corp.
Construction Work In Progress
Dodd-Frank Act
DRP
dths
EDA
FASB
FCM
FERC
EDA Bonds
EDECA
Financial Margin
AFUDC
AIP
ARO
ASC
ASU
Bcf
BGSS
BPU
CCA
CIP
CME
CR&R
CWIP
FMB
FRM
GAAP
HCCTR
ICE
Iroquois
ISDA
ITC
LIBOR
LNG
MGP
Moody's
MW
MWh
NAESB
NFE
NGV
NJ RISE
NJCEP
NJDEP
NJNG
Degree Day
The measure of the variation in the weather based on the extent to which the average daily
temperature falls below 65 degrees Fahrenheit
Dodd-Frank Wall Street Reform and Consumer Protection Act
NJR Direct Stock Purchase and Dividend Reinvestment Plan
Dekatherms
New Jersey Economic Development Authority
Collectively, Series 2011A, Series 2011B and Series 2011C Bonds issued by the EDA
Electric Discount and Energy Competition Act
Financial Accounting Standards Board
Futures Commission Merchant
Federal Energy Regulatory Commission
A non-GAAP financial measure, which represents revenues earned from the sale of natural
gas less costs of natural gas sold including any transportation and storage costs, and excludes
any accounting impact from the change in the fair value of certain derivative instruments
Generally Accepted Accounting Principles of the United States
First Mortgage Bonds
Financial Risk Management
Health Care Cost Trend Rate
Intercontinental Exchange
Iroquois Gas Transmission L.P.
JPMC Facility
NJNG's $100 million, four-year credit facility with JPMorgan Chase Bank, N.A. expiring in
Loan Agreement
MetLife
MetLife Facility
NJR's unsecured, uncommitted $100 million private placement shelf note agreement with
New Mortgage Indenture
The Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement
between NJNG and U.S. Bank National Association dated as of September 1, 2014
The International Swaps and Derivatives Association
Investment Tax Credit
August 2015 and terminated on September 26, 2014
London Inter-Bank Offered Rate
Liquefied Natural Gas
Loan Agreement between the EDA and the Company
Metropolitan Life Insurance Company
MetLife, Inc. expiring in September 2016
Manufactured Gas Plant
Moody's Investors Service, Inc.
Megawatts
Megawatt Hour
The North American Energy Standards Board
Net Financial Earnings
Natural Gas Vehicles
New Jersey Reinvestment in System Enhancement
New Jersey's Clean Energy Program
New Jersey Department of Environmental Protection
New Jersey Natural Gas Company
Page 1
NJNG Credit Facility
The $250 million unsecured committed credit facility expiring in May 2019
New Jersey Resources Corporation
New Jersey Resources Corporation
GLOSSARY OF KEY TERMS (cont.)
NJR Credit Facility
NJR Energy
NJR or The Company
NJR Service
NJRCEV
NJRES
NJRHS
Non-GAAP
NPNS
NYMEX
O&M
OCI
Old Mortgage Indenture
OPEB
PBO
PennEast
PEP
PIM
PPA
Prudential
Prudential Facility
PTC
RA
Home Services and Other
Retail Holdings
S&P
SAFE
Sarbanes-Oxley
SAVEGREEN
Savings Plan
SBC
SEC
SREC
Steckman Ridge
Superstorm Sandy
TEFA
Tetco
The Exchange Act
Trustee
U.S.
Union
USF
Wells Fargo
NJR's $425 million unsecured committed credit facility expiring in August 2017
NJR Energy Corporation
New Jersey Resources Corporation
NJR Service Corporation
NJR Clean Energy Ventures Corporation
NJR Energy Services Company
NJR Home Services Company
Not in accordance with Generally Accepted Accounting Principles of the United States
Normal Purchase/Normal Sale
New York Mercantile Exchange
Operation and Maintenance
Other Comprehensive Income
Indenture of Mortgage and Deed of Trust between NJNG and The Bank of New York Mellon
Trust Company, N.A., dated April 1, 1952, as amended
Other Postemployment Benefit Plans
Projected Benefit Obligations
PennEast Pipeline Company, LLC
Pension Equalization Plan
Pipeline Integrity Management
Power Purchase Agreement
Prudential Investment Management, Inc.
NJR's unsecured, uncommitted private placement shelf note agreement with Prudential
Production Tax Credit
Remediation Adjustment
Home Services and Other Operations (formerly Retail and Other Operations)
NJR Retail Holdings Corporation
Standard & Poor's Financial Services, LLC
Safety Acceleration and Facility Enhancement
Sarbanes-Oxley Act of 2002
The SAVEGREEN Project®
Employees' Retirement Savings Plan
Societal Benefits Charge
Securities and Exchange Commission
Solar Renewable Energy Certificate
Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
Post-Tropical Cyclone Sandy
Transitional Energy Facilities Assessment
Texas Eastern Transmission
The Securities Exchange Act of 1934, as amended
U.S. Bank National Association
The United States of America
International Brotherhood of Electrical Workers Local 1820
Universal Service Fund
Wells Fargo Municipal Capital Strategies, LLC
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report, including, without limitation, statements as to management expectations and
beliefs presented in Item 1.-Business, under the captions “BUSINESS SEGMENTS -Natural Gas Distribution-General;-Seasonality
of Gas Revenues;-Gas Supply;-Regulation and Rates;-Competition;” “-Energy Services;” “-Clean Energy Ventures;” “-
Midstream;” “-Home Services and Other;” “ENVIRONMENT,” and Item 3.“-Legal Proceedings,” and in Part II including
“Management's Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, and “Quantitative and
Qualitative Disclosures About Market Risk” in Item 7A are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such
as “anticipate,” “estimate,” “may,” “intend,” “expect,” “believe,” “will,” “plan,” “should,” or “continue” or comparable terminology
and are made based upon management's current expectations and beliefs as of this date concerning future developments and their
potential effect on the Company. There can be no assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Company will be those anticipated by management.
The Company cautions readers that the assumptions that form the basis for forward-looking statements regarding customer
growth, customer usage, qualifications for ITCs, PTCs and SRECs, financial condition, results of operations, cash flows, capital
requirements, future capital expenditures, market risk, effective tax rate and other matters for fiscal 2015 and thereafter include
many factors that are beyond the Company's ability to control or estimate precisely, such as estimates of future market conditions,
the behavior of other market participants and changes in the debt and equity capital markets. The factors that could cause actual
results to differ materially from NJR's expectations include, but are not limited to, those discussed in Item 1A. Risk Factors, as
well as the following:
• weather and economic conditions;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
demographic changes in the NJNG service territory and their effect on NJNG's customer growth;
volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG's BGSS incentive programs, NJRES
operations and on the Company's risk management efforts;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the Company;
the impact of volatility in the credit markets on our access to capital;
the ability to comply with debt covenants;
the impact to the asset values and resulting higher costs and funding obligations of NJR's pension and postemployment benefit plans as a
result of potential downturns in the financial markets, lower discount rates or impacts associated with the Patient Protection and Affordable
Care Act;
accounting effects and other risks associated with hedging activities and use of derivatives contracts;
commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale
energy trading market;
regulatory approval of NJNG's planned infrastructure programs;
the ability to obtain governmental and regulatory approvals, land-use rights, electric grid connection (in the case of distributed power
projects) and/or financing for the construction, development and operation of NJR's non-regulated energy investments and NJNG's
infrastructure projects in a timely manner;
risks associated with the management of the Company's joint ventures and partnerships;
risks associated with NJR's investments in distributed power projects, including the availability of regulatory and tax incentives, the
availability of viable projects, NJR's eligibility for ITCs and PTCs, the future market for SRECs and operational risks related to projects
in service;
effective tax rate and earnings;
regulatory process;
timing of qualifying for ITCs and PTCs due to delays or failures to complete planned solar energy projects and the resulting effect on our
the level and rate at which NJNG's costs are incurred and the extent to which they are allowed to be recovered from customers through the
access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;
operating risks incidental to handling, storing, transporting and providing customers with natural gas;
risks related to our employee workforce;
the regulatory and pricing policies of federal and state regulatory agencies;
the costs of compliance with present and future environmental laws, including potential climate change-related legislation;
risks related to changes in accounting standards;
the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;
environmental-related and other litigation and other uncertainties;
risks related to cyber-attack or failure of information technology systems; and
the impact of natural disasters, terrorist activities, and other extreme events could adversely affect our operations, financial conditions and
results of operations.
While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations
and financial condition in connection with its preparation of management's discussion and analysis of results of operations and
financial condition contained in its Quarterly and Annual Reports, the Company does not, by including this statement, assume
any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.
Page 2
Page 3
New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS
ORGANIZATIONAL STRUCTURE
New Jersey Resources Corporation is a New Jersey corporation formed in 1981 pursuant to a corporate reorganization.
The Company is an energy services holding company whose principal business is the distribution of natural gas through a regulated
utility, and which provides other retail and wholesale energy services to customers and invests in midstream assets. The Company
is an exempt holding company under section 1263 of the Energy Policy Act of 2005. NJR's subsidiaries and businesses include:
New Jersey Natural Gas Company, a local natural gas distribution company that provides regulated retail natural gas
service to approximately 504,300 residential and commercial customers in central and northern New Jersey and
participates in the off-system sales and capacity release markets. NJNG is regulated by the BPU and comprises the
Company's Natural Gas Distribution segment.
NJR Energy Services Company maintains and transacts around a portfolio of physical assets consisting of natural gas
storage and transportation contracts primarily in the Gulf Coast, Mid-Continent, Appalachian, Northeastern, and Western
market areas of the U.S., as well as Canada. NJRES also provides wholesale energy management services to other energy
companies and natural gas producers. NJRES comprises the Company's Energy Services segment.
NJR Clean Energy Ventures Corporation composes the Company's Clean Energy Ventures segment and reports the
results of operations and assets related to the Company's capital investments in distributed power projects, including
commercial and residential solar projects and onshore wind investments, and the Company's 18.7 percent ownership
interest in OwnEnergy.
NJR Energy Investments Corporation, an unregulated affiliate that consolidates the Company's unregulated energy-
related investments, which includes the following subsidiaries:
• NJR Midstream Holdings Corporation invests in energy-related ventures through its subsidiaries, NJR Steckman
Ridge Storage Company, which holds the Company's 50 percent combined interest in Steckman Ridge, a natural
gas storage facility, NJNR Pipeline Company, which holds the Company's 5.53 percent ownership interest in
Iroquois and NJR Pipeline Company, which holds the Company's 20 percent ownership interest in PennEast.
Steckman Ridge, Iroquois and PennEast comprise the Company's Midstream segment. On November 7, 2013,
NJR Energy Holdings Corporation changed its name to NJR Midstream Holdings Corporation.
• NJR Investment Company, a company that makes and holds certain energy-related investments, through equity
instruments of public companies.
• NJR Energy Corporation, a company that invests in energy-related ventures.
NJR Retail Holdings Corporation, an unregulated affiliate that consolidates the Company's unregulated retail
operations. Retail Holdings consists of the following subsidiaries:
• NJR Home Services Company, a company that provides heating, ventilation and cooling service repair and
contract services to approximately 118,000 service contract customers, as well as solar installation projects.
• Commercial Realty & Resources Corp., a company that holds and develops commercial real estate.
• NJR Plumbing Services, Inc., a company that provides plumbing repair and installation services.
NJR Service Corporation, an unregulated company that provides shared administrative services, including corporate
communications, finance and accounting, internal audit, legal, human resources and information technology for NJR
and all subsidiaries.
ITEM 1. BUSINESS (Continued)
BUSINESS SEGMENTS
Ventures and Midstream.
The Company operates within four reportable business segments: Natural Gas Distribution, Energy Services, Clean Energy
The Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management
operations. The Energy Services segment consists of unregulated wholesale energy operations. The Clean Energy Ventures segment
consists of capital investments in distributed power projects. Lastly, the Midstream segment consists of investments in the midstream
natural gas market, such as natural gas transportation and storage facilities.
Net income and assets by business segment at September 30, are as follows:
(Thousands)
2014
2013
2012
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Net Income
Assets
Net Income
Assets
Net Income
Assets
$
$
$
$
74,204 $ 2,143,684 $
73,846 $ 2,094,940 $
73,238 $ 2,005,520
44,394 $
12,654 $
7,498 $
457,080 $
380,707 $
153,891 $
20,725 $
10,060 $
7,199 $
468,096 $
253,663 $
153,536 $
(8,605) $
19,452 $
6,749 $
347,406
223,247
157,779
Additional financial information related to these business segments are set forth in Note 14. Business Segment and Other
Operations Data in the accompanying Consolidated Financial Statements and Item 7. Management's Discussion and Analysis.
Natural Gas Distribution
General
NJNG provides natural gas service to approximately 504,300 customers. NJNG's service territory covers New Jersey's
Monmouth and Ocean counties and parts of Burlington, Morris, Middlesex and Sussex counties. It encompasses 1,516 square
miles, covering 105 municipalities with an estimated population of 1.5 million people. It is primarily suburban, highlighted by
approximately 100 miles of New Jersey coastline. It is in close proximity to New York City, Philadelphia and the metropolitan
areas of northern New Jersey and is accessible through a network of major roadways and mass transportation.
NJNG added 7,599 and 7,456 new customers and added natural gas heat and other services to another 627 and 619 existing
customers in fiscal 2014 and 2013, respectively. NJNG's new customer annual growth rate of approximately 1.5 percent is expected
to continue with projected additions in the range of approximately 15,000 to 17,000 new customers over the next two years. This
anticipated customer growth represents approximately $4.1 million in new annual utility gross margin, a non-GAAP financial
measure, as calculated under NJNG's CIP tariff.
When assessing the potential for future growth in its service area, NJNG uses information derived from county and municipal
planning boards that describes housing developments in various stages of approval. Furthermore, NJNG surveys builders in its
service area to gain insight into future development plans. NJNG has periodically engaged outside consultants to assist in its
customer growth projections. In addition to customer growth through new construction, NJNG's business strategy includes
aggressively pursuing conversions from other fuels, such as oil, electricity and propane. The Company estimates that during fiscal
2015, approximately 50 percent of NJNG's projected customer growth will consist of conversions.
NJNG's business is subject to various risks, such as those associated with adverse economic conditions, which can negatively
impact customer growth, operating and financing costs, fluctuations in commodity prices, which can impact customer usage,
customer conservation efforts, certain regulatory actions and environmental remediation. It is often difficult to predict the impact
of trends associated with these risks. NJNG employs strategies to manage the challenges it faces, including pursuing customer
conversions from other fuel sources and monitoring new construction markets through contact with developers, utilizing incentive
programs through BPU-approved mechanisms to reduce gas costs, pursuing rate and other regulatory strategies designed to stabilize
and decouple gross margin, and working actively with consultants and the NJDEP to manage expectations related to its obligations
associated with its former MGP sites.
Page 4
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New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
ITEM 1. BUSINESS (Continued)
Operating Revenues/Throughput
Firm Transportation and Storage Capacity
For the fiscal year ended September 30, operating revenues and throughput by customer class were as follows:
($ in thousands)
Residential
Commercial and other
Firm transportation
Total residential and commercial
Interruptible
2014
Operating
Revenue
$
469,831
113,354
86,131
669,316
6,770
Bcf
43.1
8.2
17.7
69.0
10.5
2013
Operating
Revenue
$
467,269
102,350
73,745
643,364
6,452
Bcf
38.3
7.5
15.2
61.0
10.9
2012
Operating
Revenue
$
363,780
88,484
60,599
512,863
6,510
Bcf
32.9
6.5
11.2
50.6
10.3
Total system
BGSS incentive programs (1)
Total
(1) Does not include 153.4, 105.5 and 63.5 Bcf for the capacity release program and related amounts of $5.4 million, $3.7 million and $3.4 million, which are
recorded as a reduction of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30, 2014, 2013 and 2012,
respectively.
143,329
649,816
519,373
819,415
138,171
108,340
787,987
627,713
676,086
106.9
107.9
79.5
71.9
60.9
27.4
36.0
36.1
97.0
$
$
$
In fiscal 2014, no single customer represented more than 10 percent of total NJNG operating revenues.
Seasonality of Gas Revenues
Therm sales are significantly affected by weather conditions with customer demand being greatest during the winter months
when natural gas is used for heating purposes. The relative measurement of the impact of weather is in degree-days. Degree-day
data is used to estimate amounts of energy required to maintain comfortable indoor temperature levels based on each day's average
temperature. A degree-day is the measure of the variation in the weather based on the extent to which the average daily temperature
falls below 65 degrees Fahrenheit. Each degree of temperature below 65 degrees Fahrenheit is counted as one heating degree-day.
Normal heating degree-days are based on a twenty-year average, calculated based on three reference areas representative of NJNG's
service territory.
The CIP, a mechanism authorized by the BPU, stabilizes NJNG's utility gross margin, as a result of variations in weather.
In addition, the CIP decouples the link between utility gross margin and customer usage, allowing NJNG to promote energy
conservation measures. Recovery of utility gross margin is subject to additional conditions, including an earnings test and an
evaluation of BGSS-related savings achieved over a 12-month period. In March 2013, NJNG and South Jersey Gas Company
filed a joint petition with the BPU requesting the continuation of the CIP with certain modifications. On May 21, 2014, the BPU
approved the continuation of the CIP program with no expiration date; however, the program will be subject to review in a future
rate filing in 2017.
Concurrent with its annual BGSS filing, NJNG files for an annual review of its CIP, during which time it can request rate
changes, as appropriate. For additional information regarding the CIP, including rate actions and impact to margin, see Note 3.
Regulation in the accompanying Consolidated Financial Statements and Item 7. Management's Discussion and Analysis-Natural
Gas Distribution Segment.
Gas Supply
Firm Natural Gas Supplies
In fiscal 2014, NJNG purchased gas from approximately 93 suppliers under contracts ranging from one day to one year and
purchased over 10 percent of its natural gas from only two suppliers. NJNG believes the loss of these suppliers would not have a
material adverse impact on its results of operations, financial position or cash flows as an adequate number of alternative suppliers
exist. NJNG believes that its supply strategy should adequately meet its expected firm load over the next several years.
Page 6
Page 7
In order to take delivery of firm natural gas supplies, which ensures the ability to reliably service its customers, NJNG
maintains agreements for firm transportation and storage capacity with several interstate pipeline companies. NJNG receives
natural gas at ten citygate stations located in Middlesex, Morris and Passaic counties in New Jersey.
The pipeline companies that provide firm transportation service to NJNG's citygate stations, the maximum daily deliverability
of that capacity for the upcoming winter season, in dths and the contract expiration dates are as follows:
Maximum daily
deliverability (dths) (1)
Expiration
Various dates between 2016 and 2023
Various dates between 2015 and 2019
Various dates between 2015 and 2024
(1) Numbers are shown net of any capacity release contracted amounts.
Iroquois, Dominion Transmission Corporation and Columbia Gulf Transmission Company provide NJNG firm contract
transportation service and supply the above pipelines.
In addition, NJNG has citygate delivered storage contracts that provide additional maximum daily deliverability to NJNG's
citygate stations of 102,941 dths from storage fields in its Northeast market area. The storage suppliers, the maximum daily
deliverability of that storage capacity and the contract expiration dates are as follows:
Maximum daily
deliverability (dths)
Expiration
Pipeline
Texas Eastern Transmission, L.P.
Tennessee Gas Pipeline Co.
Columbia Gas Transmission Corp.
Algonquin Gas Transmission
Transcontinental Gas Pipe Line Corp.
Total
Pipeline
Total
Texas Eastern Transmission, L.P.
Transcontinental Gas Pipe Line Corp.
Company
Dominion Transmission Corporation
Steckman Ridge, L.P.
Central New York Oil & Gas
Total
270,738
25,166
20,000
12,000
3,931
331,835
94,557
8,384
102,941
128,714
38,000
25,337
192,051
2016
2015
2016
2016
2020
2015
NJNG also has upstream storage contracts. The maximum daily deliverability and contract expiration dates as follows:
Maximum daily
deliverability (dths)
Expiration
Various dates between 2016 and 2017
NJNG utilizes its transportation contracts to transport gas from the Dominion Transmission Corporation, Steckman Ridge
and Central New York Oil & Gas storage fields to NJNG's citygates. NJNG has sufficient firm transportation, storage and supply
capacity to fully meet its firm sales contract obligations.
Citygate Supplies from NJRES
NJNG has several citygate supply agreements with NJRES. NJNG can call upon a supply of up to 28,600 dths/day delivered
to NJNG's Transco citygate and a supply of up to 20,000 dths/day delivered to NJNG's Texas Eastern citygate. NJNG and NJRES
have an agreement where NJNG released its Central New York Oil & Gas storage capacity of 1.6 million dths to NJRES for the
period from January 1, 2010 to March 31, 2015. NJRES manages the storage inventory and NJNG can call on that storage supply
as needed at NJNG's Tennessee citygate or storage point. NJNG and NJRES also have agreements where NJNG releases 80,000
dths/day of its Texas Eastern Transmission capacity to NJRES for the period from April 1, 2014 to March 31, 2016, and where
NJNG releases 80,000 dths/day of its Texas Eastern Transmission capacity to NJRES for the period from November 1, 2014 to
October 31, 2015. NJNG can call upon a supply of up to 160,000 dths/day delivered to NJNG's Texas Eastern citygate as needed.
See Note 15. Related Party Transactions in the accompanying Consolidated Financial Statements for additional information
regarding these transactions.
New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
ITEM 1. BUSINESS (Continued)
Peaking Supply
To manage its winter peak day demand, NJNG maintains two LNG facilities with a combined deliverability of approximately
170,000 dths/day, which represents approximately 19 percent of its estimated peak day sendout. See Item 2. Properties-NJNG for
additional information regarding the LNG storage facilities.
BGSS
Wholesale natural gas prices are, by their nature, volatile. NJNG mitigates the impact of volatile price changes on customers
through the use of financial derivative instruments, which are part of its FRM program, its storage incentive program and its BGSS
clause. BGSS is a BPU-approved clause designed to allow for the recovery of natural gas commodity costs on an annual basis.
The clause requires all New Jersey natural gas utilities to make an annual filing by each June 1 for review of BGSS rates and to
request a potential rate change effective the following October 1. The BGSS is also designed to allow each natural gas utility to
provisionally increase residential and small commercial customer BGSS rates on December 1 and February 1 for up to a 5 percent
increase to the average residential heat customer's bill on a self-implementing basis, after proper notice and BPU action on the
June filing. Such increases are subject to subsequent BPU review and final approval. Decreases in the BGSS rate and BGSS
refunds can be implemented with five days notice to the BPU.
The BPU, within the framework of the EDECA, fully opened NJNG's residential markets to competition, including third-
party suppliers, and restructured rates to segregate its BGSS and delivery (i.e., transportation) prices. The state's natural gas utilities
must provide BGSS in the absence of any third-party supplier. On September 30, 2014, NJNG had 46,282 residential and 10,496
commercial and industrial customers utilizing the transportation service.
Energy Services
NJRES provides unregulated physical natural gas services and engages in the business of optimizing natural gas storage
and transportation assets. The rights to these assets are contractually acquired in anticipation of delivering natural gas or performing
asset management activities for customers or in conjunction with identifying arbitrage opportunities that exist in the marketplace.
These arbitrage opportunities occur as a result of price differences between market locations and/or time horizons. NJRES' activities
are conducted in the market areas in which it has expertise and includes primarily the Gulf Coast, Mid-Continent, Appalachian,
Northeastern, and Western market regions of the U.S., as well as Canada. NJRES competes based on price and quality of service
execution. Its competitors include utility companies, natural gas producers and financial institutions that have wholesale marketing
operations. NJRES' portfolio of end-use customers includes natural gas distribution companies, industrial companies, and electric
generators, as well as retail aggregators, wholesale marketers and natural gas producers.
While focusing on maintaining a low-risk operating and counterparty credit profile, NJRES activities specifically consist
In addition to making periodic rate adjustments to reflect changes in commodity prices, NJNG is also permitted to refund or
credit back a portion of the commodity costs to customers when the natural gas commodity costs decrease in comparison to amounts
projected or to amounts previously collected from customers. Rate changes, as well as other regulatory actions related to BGSS,
are discussed further in Note 3. Regulation in the accompanying Consolidated Financial Statements.
of the following elements:
and natural gas producers;
•
Providing natural gas portfolio management services to nonaffiliated and affiliated utilities, electric generation facilities
Future Natural Gas Supplies
NJNG expects to meet the natural gas requirements for existing and projected firm customers into the foreseeable future. If
NJNG's long-term natural gas requirements change, NJNG expects to renegotiate and restructure its contract portfolio components
to better match the changing needs of its customers and changing natural gas supply landscape.
Regulation and Rates
State
NJNG is subject to the jurisdiction of the BPU with respect to a wide range of matters such as base tariff rates and regulatory
rider rates, the issuance of securities, the adequacy of service, the manner of keeping its accounts and records, the sufficiency of
natural gas supply, pipeline safety, environmental issues, compliance with affiliate standards and the sale or encumbrance of its
properties.
See Note 3. Regulation in the accompanying Consolidated Financial Statements for additional information regarding NJNG's
rate proceedings.
Federal
The FERC regulates rates charged by interstate pipeline companies for the transportation and storage of natural gas. This
affects NJNG's agreements with several interstate pipeline companies for the purchase of such services. Costs associated with
these services are currently recoverable through the BGSS.
Competition
Although its franchises are nonexclusive, NJNG is not currently subject to competition from other natural gas distribution
utilities with regard to the transportation of natural gas in its service territory. Due to significant distances between NJNG's current
large industrial customers and the nearest interstate natural gas pipelines, as well as the availability of its transportation tariff,
NJNG currently does not believe it has significant exposure to the risk that its distribution system will be bypassed. Competition
does exist from suppliers of oil, coal, electricity and propane. At the present time, however, natural gas is used in favor of alternate
fuels in over 95 percent of new construction due to its efficiency and reliability. Natural gas prices are a function of market supply
and demand. Although NJNG believes natural gas will remain competitive with alternate fuels, no assurance can be given in this
regard.
• Managing new and existing natural gas transportation and storage assets to position for benefits from changes in prices
due to location or timing differences as a means to generate financial margin (as defined below);
• Leveraging transactions for the delivery of natural gas to customers by aggregating the natural gas commodity costs and
transportation costs to minimize the total cost required to provide and deliver natural gas to NJRES' customers. These
transactions identify the lowest-cost alternative with the natural gas supply, transportation availability and markets to
which NJRES is able to access through its business footprint and contractual asset portfolio; and
• Managing economic hedging programs that are designed to mitigate the impact of adverse market price fluctuations on
its natural gas supply transportation and storage commitments.
Transportation and Storage Transactions
NJRES focuses on creating value from its natural gas assets, which are typically amassed through contractual rights to natural
gas transportation and storage capacity. These assets become more valuable when prices change between these areas and across
time periods. On a forward basis, NJRES may hedge these price differentials through the use of financial instruments. In addition,
NJRES seeks to optimize these assets on a daily basis as market conditions change by evaluating all the natural gas supplies and
transportation to which it has access. This enables NJRES to capture geographic pricing differences across these various regions
as delivered natural gas prices change as a result of market conditions. NJRES initiates positions on which it earns financial margin,
and then enhances that financial margin as prices change across regions or time periods.
NJRES also participates in park-and-loan transactions with pipeline and storage counterparties, where NJRES will park
(store) natural gas to be redelivered to NJRES at a later date or borrow (receive a loan of natural gas) to be returned to the pipeline
or storage field at a later date. In these cases, NJRES evaluates the economics of the transaction to determine if it can capture
pricing differentials in the marketplace to generate financial margin. In evaluating these transactions, NJRES will compare the
fixed fee it will pay to or receive from the counterparty, along with other costs such as time value of money, and the resulting
financial margin it can generate when considering the market price at the beginning and end of the time period of the park or loan.
NJRES evaluates deal attributes such as fixed fees, calendar spread value from deal inception until volumes are scheduled to be
returned and/or repaid, as well as the time value of money. If this evaluation demonstrates that NJRES is able to generate financial
margin, NJRES will enter into the transaction and hedge with natural gas futures contracts, thereby locking in financial margin.
The Company utilizes its transportation and storage capacity to manage various types of activity with these customers. As
a result, the Company is able to capture additional value from this capacity due to the locational and/or time differences inherent
in each transaction.
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New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
ITEM 1. BUSINESS (Continued)
Inventory
NJRES maintains inventory balances to satisfy its existing or anticipated sales of natural gas to its counterparties and/or to
create additional value, as described above. During fiscal 2014 and 2013, NJRES managed and sold 609.3 and 630.7 Bcf of natural
gas, respectively. In addition, as of September 30, 2014 and 2013, NJRES had 56.5 Bcf or $191.3 million of gas in storage and
62.3 Bcf or $209.5 million of gas in storage, respectively.
Weather/Seasonality
NJRES' activities can be seasonal in nature as a result of changes in demand for natural gas. Demand for NJRES' natural
gas is generally strong during the winter months; however, during periods of milder temperatures, demand can decrease. In addition,
demand for natural gas can be high during periods of extreme heat in the summer months, resulting from the need for additional
natural gas supply for gas-fired electricity generation facilities. Accordingly, NJRES can be subject to variations in earnings and
working capital during the year as a result of changes in weather.
Volatility
NJRES' activities are also subject to changes in price volatility or supply/demand dynamics within its wholesale markets,
including in the Northeastern, Appalachian and Mid-continent regions, where shale gas has contributed to an increase in supply.
Changes in the supply of gas can affect capacity values and NJRES' financial margin, described below, that is generated from the
optimization of transportation and storage assets. With its focus on risk management, NJRES continues to diversify its revenue
stream by identifying new growth opportunities in the producer services marketplace. In addition, NJRES has added new
counterparties, as well as strategic storage and transportation assets, to its holdings and continues to expand its geographic footprint,
adding to its existing portfolio, which includes approximately 41 Bcf of firm storage capacity and 1.5 Bcf/day of firm transportation.
Financial Margin
NJRES 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. These derivative instruments are accounted for at fair value with changes in fair
value recognized in earnings as they occur. NJRES views “financial margin” as a key financial metric. NJRES' financial margin,
which is a non-GAAP financial measure, represents revenues earned from the sale of natural gas less costs of natural gas sold
including any transportation and storage costs, and excludes any accounting impact from the change in the fair value of certain
derivative instruments. For additional information regarding financial margin, see Item 7. Management's Discussion and Analysis
- Energy Services Segment.
Risk Management
In conducting its business, NJRES mitigates risk by following formal risk management guidelines, including transaction
limits, segregation of duties, and formal contract and credit review approval processes. NJRES continuously monitors and seeks
to reduce the risk associated with its credit exposures with its various counterparties. Accordingly, NJRES' counterparties are
primarily investment grade companies. The Risk Management Committee of NJR oversees compliance with these established
guidelines.
Clean Energy Ventures
NJRCEV is an unregulated company that invests in, owns and/or operates distributed power projects located in New Jersey,
Montana, Iowa and Kansas. NJRCEV also owns a minority equity interest in OwnEnergy, an onshore wind project developer.
to Long Island, New York; and
NJRCEV invests in, owns and operates residential and commercial solar installations in New Jersey. As of September 30,
2014, NJRCEV has placed solar assets with a capacity of 83.4 MW into service, including a combination of residential and
commercial net-metered and grid-connected solar systems. As part of its solar investment program, NJRCEV operates a residential
lease program, The Sunlight Advantage®, that provides qualifying homeowners with the opportunity to have a solar system
installed at their home with no installation or maintenance expenses. NJRCEV owns, operates and maintains the system over the
life of the lease in exchange for monthly payments. In addition, certain qualified non-profit institutions are served under PPAs.
The program is operated by NJRCEV using a group of qualified contracting partners in addition to strategic supplier relationships
for material standardization and sourcing. The residential solar lease and PPA market is highly competitive with various other
companies operating programs in New Jersey. NJRCEV competes on price, quality and brand reputation, leveraging its partner
network and customer referrals.
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NJRCEV's commercial solar projects are sourced through various channels and include both net-metered and grid-connected
systems. Net-metered projects involve the sale of energy to a host where grid-connected systems sell into the wholesale energy
markets. Project construction is competitively sourced through third parties. New Jersey has the third largest solar market in the
U.S. with a large number of firms competing in all facets of the market including development, financing and construction.
The solar systems are registered with the BPU's Office of Clean Energy and are qualified to produce SRECs. An SREC
represents the renewable attribute associated with one MWh of solar energy generated. NJRCEV sells the SRECs to a variety of
counterparties including electric Load Serving Entities that serve electric customers in New Jersey and are required to comply
with minimum state clean energy generation standards. Solar projects are also currently eligible for federal ITCs in the year that
they are placed into service.
In addition to its solar investments, NJRCEV acquires small to mid-size wind farms that fit its investment profile. On
October 11, 2013, NJRCEV acquired the development rights to the Two Dot onshore wind project in Montana, which was its first
onshore wind project. NJRCEV invested approximately $21.2 million to construct the 9.7 MW project that was completed in June
2014. On February 14, 2014, NJRCEV acquired the development rights to the Carroll Area onshore wind project in Carroll County,
Iowa. NJRCEV expects to complete the $42 million, 20 MW project in fiscal 2015. On October 9, 2014, NJRCEV acquired the
development rights to the $85 million, 48 MW Alexander onshore wind project in Rush County, Kansas that is currently under
construction and expected to be operational in the first quarter of fiscal 2016.
All of the wind projects are eligible for a per-kilowatt-hour PTC for a 10-year period following commencement of operation
and have long-term power purchase agreements in place, through which all energy and renewable attributes will be sold.
During the fourth quarter of fiscal 2014, due to its concerns surrounding the ability of OwnEnergy to fulfill its future obligation
to present qualified projects to NJRCEV for investment, the Company reassessed the value of its investment in OwnEnergy and
determined that it is unlikely that it would be able to recover the carrying value. Accordingly, as of September 30, 2014, NJRCEV
recognized an impairment loss of $6.4 million. See Note 6. Investment in Equity Investees for more information.
NJRCEV is subject to various risks including those associated with adverse federal and state legislation and regulatory
policies, construction delays that can impact the timing or eligibility of tax incentives, technological changes, and the future market
of SRECs. See Item 1A. Risk Factors for additional information regarding these risks.
Midstream
of the following subsidiaries:
Midstream includes investments in FERC-regulated interstate natural gas transportation and storage assets and is composed
• NJR Steckman Ridge Storage Company, which holds the Company's 50 percent equity investment in Steckman Ridge.
Steckman Ridge is a Delaware limited partnership, jointly owned and controlled by subsidiaries of the Company and
subsidiaries of Spectra Energy Corporation, that built, owns and operates a natural gas storage facility with up to 12 Bcf
of working gas capacity in Bedford County, Pennsylvania. The facility has direct access to the Texas Eastern and Dominion
Transmission pipelines and has access to the Northeast and Mid-Atlantic markets;
• NJNR Pipeline Company, which consists of its 5.53 percent equity investment in Iroquois Gas Transmission System,
which is a 416-mile FERC-regulated interstate natural gas pipeline system that runs from the New York-Canadian border
• NJR Pipeline Company, which consists of its 20 percent equity investment in PennEast Pipeline Company, through which
NJR and five other investors expect to construct a 108-mile FERC-regulated interstate natural gas pipeline system that
will extend from northern Pennsylvania to western New Jersey, estimated to be completed and operational by November
2017.
New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
ITEM 1. BUSINESS (Continued)
OTHER BUSINESS OPERATIONS
Home Services and Other (formerly Retail and Other)
Home Services and Other operations consist primarily of the following unregulated affiliates:
AVAILABLE INFORMATION AND CORPORATE GOVERNANCE DOCUMENTS
The following reports and any amendments to those reports are available free of charge on our website at http://
njr360.client.shareholder.com/sec.cfm as soon as reasonably possible after filing or furnishing them with the SEC:
• NJRHS, which provides heating, ventilation and cooling service, sales and installation of appliances to approximately
• Annual reports on Form 10-K;
118,000 service contract customers, as well as installation of solar equipment;
• CR&R, which holds and develops commercial real estate. As of September 30, 2014, CR&R's real estate portfolio
consisted of 52.3 acres of undeveloped land in Atlantic County with a net book value of $2.1 million and a 56,400-square-
foot office building on five acres of land in Monmouth County with a net book value of $8.3 million;
• NJR Investment, which invests in and holds certain energy-related investments, primarily through equity instruments of
public companies;
• NJR Energy, which invests in energy-related ventures; and
• NJR Service, which provides shared administrative and financial services to the Company and all its subsidiaries.
• NJR Code of Conduct; and
ENVIRONMENT
The Company and its subsidiaries are subject to legislation and regulation by federal, state and local authorities with respect
to environmental matters. The Company believes that it is in compliance in all material respects with all applicable environmental
laws and regulations.
NJNG is responsible for the environmental remediation of five MGP sites, which contain contaminated residues from former
gas manufacturing operations that ceased at these sites by the mid-1950s and, in some cases, had been discontinued many years
earlier. NJNG periodically and at least annually performs an environmental review of the MGP sites, including a review of potential
estimated liabilities related to the investigation and remedial action on these sites. Based on this review, NJNG estimated that the
total future expenditures to remediate and monitor the five MGP sites for which it is responsible will range from approximately
$151.3 million to $249.8 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 available information is sufficient to reasonably estimate the amount of the liability,
it is NJNG's policy to accrue the full amount of such estimate. Where the information is sufficient only to establish a range of
possible liability, NJNG accrues the most likely in the range, or 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. As of September 30, 2014, NJNG recorded an MGP remediation liability and
a corresponding regulatory asset of $177 million on the Consolidated Balance Sheets, which represents its most likely of possible
liability; however, actual costs may differ from these estimates. NJNG is currently recovering approximately $18.7 million annually
and will continue to seek recovery of these costs through its remediation rider.
In September 2014, NJNG submitted its SBC filing requesting approval of its MGP expenditures incurred through June 30,
2014, and to recover $8.5 million annually related to the RA.
EMPLOYEE RELATIONS
As of September 30, 2014, the Company and its subsidiaries employed 968 employees compared with 936 employees as of
September 30, 2013. Of the total number of employees, NJNG had 410 and 405 and NJRHS had 113 and 111 Union or “Represented”
employees as of September 30, 2014 and 2013, respectively. NJNG and NJRHS have collective bargaining agreements with the
Union, which is affiliated with the American Federation of Labor and Congress of Industrial Organizations, that expire in December
2018 and April 2019, respectively. The labor agreements cover wage increases and other benefits, including the defined benefit
pension (which was closed to all employees hired on or after January 1, 2012, with the exception of certain rehires who are eligible
to resume active participation), the postemployment benefit plan (which was closed to all employees hired on or after January 1,
2012) and the enhanced 401(k) retirement savings plan. The Company considers its relationship with employees, including those
covered by collective bargaining agreements, to be in good standing.
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In addition, on our website at http://njr360.client.shareholder.com/governance.cfm, the following documents are also
• Quarterly reports on Form 10-Q; and
• Current reports on Form 8-K.
available free of charge:
• Corporate Governance Guidelines;
• Wholesale Trading Code of Conduct;
• Charters of the following Board of Directors Committees: Audit, Leadership Development and Compensation and
Nominating/Corporate Governance.
In Part III of this Form 10-K, we incorporate certain information by reference from our Proxy Statement for our 2015 annual
meeting of shareholders. We expect to file that Proxy Statement with the SEC on or about December 11, 2014, and we will make
it available on our website as soon as reasonably possible following that filing date. Please refer to the Proxy Statement when it
is available.
A printed copy of each is available free of charge to any shareholder who requests it by contacting the Corporate Secretary
at New Jersey Resources Corporation, 1415 Wyckoff Road, Wall, New Jersey 07719.
ITEM 1A. RISK FACTORS
When considering any investment in NJR's securities, investors should consider the following risk factors, as well as the
information contained under the caption “Forward-Looking Statements,” in analyzing the Company's present and future business
performance. While this list is not exhaustive, NJR's management also places no priority or likelihood based on their descriptions
or order of presentation. Unless indicated otherwise or the content requires otherwise, references below to “we,” “us,” and “our”
should be read to refer to NJR and its subsidiaries.
Inability of NJR and/or NJNG to access the financial markets and conditions in the credit markets could affect management's
ability to execute their respective business plans.
We rely on access to both short-term and long-term credit markets as significant sources of liquidity for capital requirements
not satisfied by our cash flow from operations. Any deterioration in our financial condition could hamper our ability to access the
credit markets or otherwise obtain debt financing. Because certain state regulatory approvals may be necessary in order for NJNG
to incur debt, NJNG may not be able to access credit markets on a timely basis.
External events could also increase the cost of borrowing or adversely affect the ability to access the financial markets. Such
external events could include the following:
economic weakness and or political instability in the U.S. or in the regions where we operate;
•
•
•
political conditions, such as a shutdown of the U.S. federal government;
financial difficulties of unrelated energy companies;
New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
ITEM 1A. RISK FACTORS (Continued)
•
capital market conditions generally;
• market prices for natural gas;
•
•
the overall health of the natural gas utility industry; and
fluctuations in interest rates, particularly with respect to NJNG's variable rate debt instruments.
Our ability to secure short-term financing is subject to conditions in the credit markets. A prolonged constriction of credit
availability could affect management's ability to execute our business plan. An inability to access capital may limit the ability to
pursue improvements or acquisitions that we may otherwise rely on for both current operations and future growth.
NJRES and NJNG execute derivative transactions with financial institutions as a part of their economic hedging strategy
and could incur losses associated with the inability of a financial counterparty to meet or perform under its obligations as a result
of adverse conditions in the credit markets or their ability to access capital or post collateral.
NJR is a holding company and depends on its operating subsidiaries to meet its financial obligations.
NJR is a holding company with no significant assets other than possible cash investments and the stock of its operating
subsidiaries. We rely exclusively on dividends from our subsidiaries, on intercompany loans from our non-regulated subsidiaries,
and on the repayments of principal and interest from intercompany loans made to our subsidiaries for our cash flows. Our ability
to pay dividends on our common stock and to pay principal and accrued interest on our outstanding debt depends on the payment
of dividends to us by certain of our subsidiaries or the repayment of loans to us by our principal subsidiaries. The extent to which
our subsidiaries do not pay dividends or repay funds to us may adversely affect our ability to pay dividends to holders of our
common stock and principal and interest to holders of our debt.
Credit rating downgrades could increase financing costs, limit access to the financial markets and negatively affect NJR
and its subsidiaries.
Rating agencies Moody's and S&P currently rate NJNG's debt as investment grade. If such ratings are downgraded below
investment grade, borrowing costs could increase, as will the costs of maintaining certain contractual relationships and obtaining
future financing. Even if ratings are downgraded without falling below investment grade, NJR and NJNG can face increased
borrowing costs under their current credit facilities. Our ability to borrow and costs of borrowing have a direct impact on our
subsidiaries' ability to execute their operating strategies.
If we suffer a reduction in our credit and borrowing capacity or in our ability to issue parental guarantees, the business
prospects of NJRES and NJRCEV, which rely on our creditworthiness, would be adversely affected. NJRES would possibly be
required to comply with various margin or other credit enhancement obligations under its trading and marketing contracts, and it
may be unable to continue to trade or be able to do so only on less favorable terms with certain counterparties. In addition, NJRCEV
would be required to seek alternative financing for its projects. NJRCEV may be unable to obtain such financing or able to do so
only on less favorable terms.
Additionally, lower credit ratings could adversely affect relationships with NJNG's state regulators, who may be unwilling
to allow NJNG to pass along increased costs to its natural gas customers.
Failure by NJR and/or NJNG to comply with debt covenants may impact our financial condition.
Our long-term debt obligations contain financial covenants related to debt-to-capital ratios and an interest coverage ratio in
the case of NJNG. These debt obligations also contain provisions that put certain limitations on our ability to finance future
operations or capital needs or to expand or pursue certain business activities. For example, certain of these agreements contain
provisions that, among other things, put limitations on our ability to make loans or investments, make material changes to the
nature of our businesses, merge, consolidate or engage in asset sales, grant liens or make negative pledges. Furthermore, the debt
obligations contain covenants and other provisions requiring us to make timely delivery of accurate financial statements prepared
in accordance with GAAP. The failure to comply with any of these covenants could result in an event of default, which, if not
cured or waived, could result in the acceleration of outstanding debt obligations and/or the inability to borrow under existing
revolving credit facilities. We have relied, and continue to rely, upon short-term bank borrowings or commercial paper supported
by our revolving credit facilities to finance the execution of a portion of our operating strategies. NJNG is dependent on these
capital sources to purchase its natural gas supply and maintain its properties. The acceleration of our outstanding debt obligations
and our inability to borrow under the existing revolving credit facilities would cause a material adverse change in NJR's and
NJNG's financial condition.
The cost of providing pension and postemployment health care benefits to eligible former employees is subject to changes
in pension fund values, interest rates and changing demographics and may have a material adverse effect on our financial results.
We have two defined benefit pension plans and two OPEB plans for the benefit of eligible full-time employees and qualified
retirees, which were closed to all employees hired on or after January 1, 2012. The cost of providing these benefits to eligible
current and former employees is subject to changes in the market value of the pension and OPEB fund assets, changing discount
rates and changing demographics, including longer life expectancy of beneficiaries, an expected increase in the number of eligible
former employees over the next five years, impacts from healthcare legislation and increases in health care costs.
Significant declines in equity markets and/or reductions in bond yields can have a material adverse effect on the funded
status of our pension and OPEB plans. In these circumstances, we may be required to recognize increased pension and OPEB
expenses and/or be required to make additional cash contributions into the plans.
The funded status of these plans, and the related cost reflected in our financial statements, are affected by various factors
that are subject to an inherent degree of uncertainty. Under the Pension Protection Act of 2006, losses of asset values may necessitate
increased funding of the plans in the future to meet minimum federal government requirements. A significant decrease in the asset
values of these plans can result in funding obligations earlier than we had originally planned, which would have a negative impact
on cash flows from operations, decrease our borrowing capacity and increase our interest expense.
Our economic hedging activities that are designed to protect against commodity and financial market risks, including the
use of derivative contracts in the normal course of NJRES' business may cause fluctuations in reported financial results and
financial losses that negatively impact results of operations and our stock price.
We use derivatives, including futures, forwards, options, swaps and foreign exchange contracts to manage commodity,
financial market and foreign currency risks. The timing of the recognition of gains or losses associated with our economic hedges
in accordance with GAAP used in the U.S. does not always coincide with the gains or losses on the items being hedged. The
difference in accounting can result in volatility in reported results, even though the expected profit margin is essentially unchanged
from the dates the transactions were consummated.
In addition, NJRES could recognize financial losses on these contracts as a result of volatility in the market values of the
underlying commodities or if a counterparty fails to perform under a contract. In the absence of actively quoted market prices and
pricing information from external sources, the valuation of these financial instruments can involve management's judgment or use
of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could adversely affect the
value of the reported fair value of these contracts.
A change in our effective tax rate as a result of a failure to qualify for ITCs and PTCs or being delayed in qualifying for
ITCs due to delays or failures to complete planned solar energy projects and wind projects within the safe harbor period may
have a material impact on our earnings.
GAAP requires NJR to apply an effective tax rate to interim periods that is consistent with our estimated annual effective
tax rate. As a result, quarterly, NJR projects the annual effective tax rate and then adjusts the tax expense recorded in that quarter
to reflect the projected annual effective tax rate. The amount of the quarterly adjustment is based on information and assumptions,
which are subject to change and which may have a material impact on quarterly and annual NFE. Factors we consider in estimating
the probability of projects being completed during the fiscal year include, but are not limited to, Board of Directors approval,
execution of various contracts, including power purchase agreements, construction logistics, permitting and interconnection
completion. If NJR fails to qualify for ITCs or is delayed in qualifying for some ITCs during the fiscal year due to delays or failures
to complete planned solar energy projects as scheduled, our quarterly and annual net income and NFE may be materially impacted.
For a wind facility to be considered a qualified facility for purposes of the PTCs, the construction of the facility must have
begun prior to January 1, 2014. A taxpayer may establish that construction has begun by starting “physical work of a significant
nature.” Only physical work of a significant nature on tangible personal property used as an integral part of the activity performed
by the facility is considered for purposes of determining when construction begins. Alternatively, a taxpayer may establish that
construction has begun by paying or incurring five percent of eligible project costs (the “5 percent safe harbor”).
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New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
ITEM 1A. RISK FACTORS (Continued)
NJNG's operations are subject to certain operating risks incidental to handling, storing, transporting and providing customers
Changes in customer growth may affect earnings and cash flows.
with natural gas.
NJNG's operations are subject to all operating hazards and risks incidental to handling, storing, transporting and providing
customers with natural gas. These risks include explosions, pollution, release of toxic substances, fires, storms and other adverse
weather conditions and hazards, each of which could result in damage to or destruction of facilities or damage to persons and
property. NJNG could suffer substantial losses should any of these events occur. Moreover, as a result, NJNG has been, and likely
will be, a defendant in legal proceedings and litigation arising in the ordinary course of business. Although NJNG maintains
insurance coverage, insurance may not be sufficient to cover all material expenses related to these risks.
Major changes in the supply and price of natural gas may affect financial results.
While NJNG expects to meet the demand for natural gas from its customers for the foreseeable future, factors impacting
suppliers and other third parties, including increased competition, further deregulation, transportation costs, possible climate
change legislation, transportation availability and drilling for new natural gas resources, may impact the supply and price of natural
gas. NJNG actively hedges against the fluctuation in the price of natural gas by entering into forward and financial contracts with
third parties. Should these third parties fail to perform and regulators not allow the pass-through of expended funds to customers,
it may result in a loss that could have a material impact on our financial position, cash flows and statement of operations.
NJNG and NJRES rely on storage, transportation assets and suppliers that they do not own or control to deliver natural gas.
customers, the cash flows and earnings at NJRES, and ultimately NJR, could be adversely impacted.
NJNG and NJRES depend on natural gas pipelines and other storage and transportation facilities owned and operated by
third parties to deliver natural gas to wholesale markets and to provide retail energy services to customers. Their ability to provide
natural gas for their present and projected sales will depend upon their suppliers' ability to obtain and deliver additional supplies
of natural gas, as well as NJNG's ability to acquire supplies directly from new sources. Factors beyond the control of NJNG, its
suppliers and the independent suppliers who have obligations to provide natural gas to certain NJNG customers, may affect NJNG's
ability to deliver such supplies. These factors include other parties' control over the drilling of new wells and the facilities to
transport natural gas to NJNG's citygate stations, competition for the acquisition of natural gas, priority allocations, impact of
severe weather disruptions to natural gas supplies, the regulatory and pricing policies of federal and state regulatory agencies, as
well as the availability of Canadian reserves for export to the United States. Energy deregulation legislation may increase
competition among natural gas utilities and impact the quantities of natural gas requirements needed for sales service. NJRES also
relies on a firm supply source to meet its energy management obligations to its customers. If supply, transportation or storage is
disrupted, including for reasons of force majeure, the ability of NJNG and NJRES to sell and deliver their products and services
may be hindered. As a result, they may be responsible for damages incurred by their customers, such as the additional cost of
acquiring alternative supply at then-current market rates. Particularly for NJRES, these conditions could have a material impact
on its cash flows and statement of operations.
Adverse economic conditions, including inflation, increased natural gas costs, foreclosures and business failures, could
adversely impact NJNG's customer collections and increase our level of indebtedness.
We may be unable to obtain governmental approvals, property rights and/or financing for the construction, development
and operation of our proposed energy investments and projects in a timely manner or at all.
Inflation may cause increases in certain operating and capital costs. We continually review the adequacy of NJNG's tariff
rates in relation to the increasing cost of providing service and the inherent regulatory lag in adjusting those rates. The ability to
control operating expenses is an important factor that will influence future results.
Rapid increases in the price of purchased gas may cause NJNG to experience a significant increase in short-term debt because
it must pay suppliers for gas when it is purchased, which can be significantly in advance of when these costs may be recovered
through the collection of monthly customer bills for gas delivered. Increases in purchased gas costs also slow collection efforts
as customers are more likely to delay the payment of their gas bills, leading to higher-than-normal accounts receivable.
Changes in weather conditions may affect earnings and cash flows.
Weather conditions and other natural phenomena can have an adverse impact on our earnings and cash flows. Severe weather
conditions can impact suppliers and the pipelines that deliver gas to NJNG's distribution system. Extended mild weather, during
either the winter period or summer period, can have a significant impact on demand for and the cost of natural gas. While we
believe the CIP mitigates the impact of weather variations on NJNG's gross margin, severe weather conditions may have an impact
on the ability of suppliers and pipelines to deliver the natural gas to NJNG, which can negatively affect our earnings. The CIP
does not mitigate the impact of severe weather conditions on our cash flows.
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NJNG's ability to increase its utility firm gross margin is dependent upon the new construction housing market, as well as
the conversion of customers to natural gas from other fuel sources. During periods of extended economic downturns, prolonged
weakness in housing markets or slowdowns in the conversion market, there could be an adverse impact on NJNG's utility firm
gross margin, earnings and cash flows. Furthermore, our estimate regarding customer growth has not been verified by any
independent source and is subject to the aforementioned risks and uncertainties, which could cause actual results to materially
deviate from the estimate.
NJRES' earnings and cash flows are dependent upon optimization of its physical assets using financial transactions.
NJRES' earnings and cash flows are based, in part, on its ability to optimize its portfolio of contractual-based natural gas
storage and pipeline assets. The optimization strategy involves utilizing its physical assets to take advantage of differences in
natural gas prices between geographic locations and/or time periods. Any change among various pricing points could affect these
differentials. In addition, significant increases in the supply of natural gas in NJRES' market areas, for example that can occur as
a result of increased production along the Marcellus Shale in the Appalachian basin, can reduce NJRES' ability to find opportunities
going forward. Changes in pricing dynamics and supply could have an adverse impact on NJRES' optimization activities, earnings
and cash flows. NJRES incurs fixed demand fees to acquire its contractual rights to storage and transportation assets. Should
commodity prices at various locations or time periods change in such a way that NJRES is not able to recoup these costs from its
NJRES is exposed to market risk and may incur losses in wholesale services.
The storage and transportation portfolios at NJRES consist of contracts to transport and store natural gas commodities. The
value of NJRES' portfolio could be negatively impacted if the value of these contracts change in a direction or manner that NJRES
does not anticipate. In addition, upon expiration of these storage and transportation contracts, to the extent that they are renewed
or replaced at less favorable terms, our results of operations and cash flows could be negatively impacted.
Investing through partnerships or joint ventures decreases our ability to manage risk.
We have utilized joint ventures for certain midstream investments, including Steckman Ridge, Iroquois, and PennEast.
Although we currently have no specific plans to do so, we may acquire interests in other joint ventures in the future. In these joint
ventures, we may not have the right or power to direct the management and policies of the joint ventures, and other participants
may take action contrary to our instructions or requests and against our policies and objectives. In addition, the other participants
may become bankrupt or have economic or other business interests or goals that are inconsistent with those of NJR and our
subsidiaries. Our financial condition, results of operations or cash flows could be harmed if a joint venture participant acts contrary
to our interests.
Construction, development and operation of energy investments, such as natural gas storage facilities, pipeline transportation
systems, solar energy projects and onshore wind projects, are subject to federal and state regulatory oversight and require certain
property rights, such as easements and rights-of-way from public and private property owners, as well as regulatory approvals,
including permits and licenses for such facilities and systems. We or our joint venture partnerships may be unable to obtain, in a
cost-efficient or timely manner, all such needed property rights, permits and licenses in order to successfully construct and develop
our energy facilities and systems. Successful financing of our energy investments requires participation by willing financial
institutions and lenders, as well as acquisition of capital at favorable interest rates. If we do not obtain the necessary regulatory
approvals, property rights and financing, our equity investments could be impaired, and such impairment could have a materially
adverse effect on our financial condition, results of operations or cash flows.
Our investments in distributed power projects are subject to substantial risks.
Commercial and residential solar energy projects and onshore wind projects, such as those in which we are investing, are
dependent upon current regulatory and tax incentives and there is uncertainty about the extent to which such incentives will be
available in the future. The potential return on investment of these projects is based substantially on our eligibility for ITCs, the
future market for SRECs that are traded in a competitive marketplace in the State of New Jersey. As a result, these projects face
the risk that the current regulatory regimes and tax laws may expire or be adversely modified during the life of the projects.
Furthermore, a sustained decrease in the value of SRECs would negatively impact the return on investment of the solar projects.
Legislative changes or declines in the price of SRECs could also lead to an impairment of the solar project assets.
New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
ITEM 1A. RISK FACTORS (Continued)
In addition, there are risks associated with our ability to develop and manage such projects profitably, including logistical
risks and potential delays related to construction, permitting, regulatory approvals (including any approvals by the BPU required
pursuant to recently enacted solar energy legislation in the State of New Jersey) and electric grid interconnection, as well as the
operational risk that the projects in service will not perform according to expectations due to equipment failure, suboptimal weather
conditions or other factors beyond our control. All of the aforementioned risks could reduce the availability of viable solar energy
projects for development. Furthermore, at the development or acquisition stage, because of the nascent nature of the renewable
energy industry and the limited experience with the relevant technology, our ability to predict actual performance results may be
hindered and the projects may not perform as predicted.
Risks related to the regulation of NJNG could affect the rates it is able to charge, its costs and its profitability.
NJNG is subject to regulation by federal, state and local authorities. These authorities regulate many aspects of NJNG's
distribution operations, including construction and maintenance of facilities, operations, safety, tariff rates that NJNG can charge
customers, rates of return, the authorized cost of capital, recovery of pipeline replacement and environmental remediation costs
and relationships with its affiliates. NJNG's ability to obtain rate increases, including base rate increases, extend its BGSS incentive
and CIP programs and maintain its currently authorized rates of return may be impacted by events, including regulatory or legislative
actions. There can be no assurance that NJNG will be able to obtain rate increases, continue its BGSS incentive, CIP and
SAVEGREEN programs or continue the opportunity to earn its currently authorized rates of return.
Significant regulatory assets recorded by NJNG could be disallowed for recovery from customers in the future.
NJNG records regulatory assets on its financial statements to reflect the ratemaking and regulatory decision-making authority
of the BPU as allowed by current GAAP. The creation of a regulatory asset allows for the deferral of costs which, absent a
mechanism to recover such costs from customers in rates approved by the BPU, would be charged to expense on its income
statement in the period incurred. Primary regulatory assets that are subject to BPU approval include the recovery of BGSS and
USF costs, remediation costs associated with its MGP sites, CIP, NJCEP, economic stimulus plans, certain deferred income tax
and pension and other postemployment benefit plans. If there were to be a change in regulatory positions surrounding the collection
of these deferred costs there could be a material impact on NJNG's financial position, results of operations and cash flows.
We may be adversely impacted by natural disasters, pandemic illness, terrorist activities and other extreme events to which
successfully compete in today's challenging marketplace.
we may not be able to promptly respond.
Local or national natural disasters, pandemic illness, terrorist activities and other extreme events are a threat to our assets
and operations. Companies in our industry and located in our service territory may face a heightened risk due to exposure to acts
of terrorism that could target or impact our natural gas distribution, transmission and storage facilities and result in a disruption
in our operations and ability to meet customer requirements. In addition, the threat of terrorist activities could lead to increased
economic instability and volatility in the price of natural gas that could affect our operations. Natural disasters or actual or threatened
terrorist activities may also disrupt capital markets and our ability to raise capital, or impact our suppliers or our customers directly.
A local disaster or pandemic illness could result in part of our workforce being unable to operate or maintain our infrastructure or
perform other tasks necessary to conduct our business. In addition, these risks could result in loss of human life, significant damage
to property, environmental damage, impairment of our operations and substantial loss to the Company. Our regulators may not
allow us to recover from our customers part or all of the increased cost related to the foregoing events, which could negatively
affect our earnings.
We maintain emergency planning and training programs to remain ready to respond to events that could cause business
interruption. However, a slow or inadequate response to events may have an adverse impact on operations and earnings. We may
not be able to obtain sufficient insurance to cover all risks associated with local and national disasters, pandemic illness, terrorist
activities and other events, which could increase the risk that an event could adversely affect our operations or financial results.
Cyber-attack or failure of information technology systems could adversely affect our business operation, financial condition
and results of operations.
We continue to place greater reliance on technological tools that support our business operations and corporate functions,
including tools that help us manage our natural gas distribution operations and infrastructure. The failure of, or security breaches
related to, these technologies could materially adversely affect our business operations, our financial position, results of operations
and cash flows.
Page 18
Page 19
We rely on information technology to manage our natural gas distribution and other corporate operations, maintain customer,
employee, Company and vendor data, prepare our financial statements and to perform other critical business processes. This
technology may fail due to cyber-attack, physical disruption, design and implementation defects or human error. Disruption or
failure of business operations and information technology systems could harm our facilities or otherwise adversely impact our
ability to safely deliver natural gas to our customers, serve our customers effectively or manage our assets. Additionally, an attack
on or failure of information technology systems could result in the unauthorized release of customer, employee or other confidential
or sensitive data. Any of the foregoing events could adversely affect our business reputation, diminish customer confidence, disrupt
operations, subject us to financial liability or increased regulation, increase our costs and expose us to material legal claims and
liability.
There is no guarantee that redundancies we have built into our networks and technology, or the procedures that we have
implemented to protect against cyber-attack and other unauthorized access to secured data, are adequate to safeguard against all
failures of technology or security breaches.
Failure to attract and retain an appropriately qualified employee workforce could adversely affect operations.
Our ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract
and retain talented professionals and a technically skilled workforce, and being able to transfer the knowledge and expertise of
our workforce to new employees as our aging employees retire. Failure to hire and adequately train replacement employees,
including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability
and cost of contract labor could adversely affect the ability to manage and operate our business. Furthermore, the majority of our
natural gas distribution segment workforce is represented by the Union and is covered by a collective bargaining agreement that
will expire in December 2018. Disputes with the Union over terms and conditions of the agreement could result in instability in
our labor relationship and work stoppages that could impact the timely delivery of gas and other services from our utility, which
could strain relationships with customers and state regulators and cause a loss of revenues that could adversely affect our results
of operations. Our collective bargaining agreement may also increase the cost of employing our natural gas distribution segment
workforce, affect our ability to continue offering market-based salaries and employee benefits, limit our flexibility in dealing with
our workforce, and limit our ability to change work rules and practices and implement other efficiency-related improvements to
We are subject to governmental regulation. Compliance with current and future regulatory requirements and procurement
of necessary approvals, permits and certificates may result in substantial costs to us.
We are subject to substantial regulation from federal, state and local regulatory authorities. We are required to comply with
numerous laws and regulations and to obtain numerous authorizations, permits, approvals and certificates from governmental
agencies. These agencies regulate various aspects of our business, including customer rates, services and natural gas pipeline
operations.
The FERC has regulatory authority over some of our operations, including sales of natural gas in the wholesale market and
the purchase and sale of interstate pipeline and storage capacity. Any Congressional legislation or agency regulation that would
alter these or other similar statutory and regulatory structures in a way to significantly raise costs that could not be recovered in
rates from customers, that would reduce the availability of supply or capacity or that would reduce our competitiveness could
negatively impact our earnings. In addition, the U.S. Senate has passed the Pipeline Transportation Safety Improvement Act and
if enacted will increase federal regulatory oversight and could also increase administrative costs that may not be recovered in rates
from customers, which could have an adverse impact on our earnings.
We cannot predict the impact of any future revisions or changes in interpretations of existing regulations or the adoption of
new laws and applicable regulations. Changes in regulations or the imposition of additional regulations could influence our
operating environment and may result in substantial costs to us.
Our certificate of incorporation and bylaws may delay or prevent a transaction that stockholders would view as favorable.
Our certificate of incorporation and bylaws, as well as New Jersey law, contain provisions that could delay, defer or prevent
an unsolicited change in control of NJR, which may negatively affect the market price of our common stock or the ability of
stockholders to participate in a transaction in which they might otherwise receive a premium for their shares over the then current
market price. These provisions also may prevent changes in management. In addition, our Board of Directors is authorized to
New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
ITEM 2. PROPERTIES (Continued)
issue preferred stock without stockholder approval on such terms as our Board of Directors may determine. Our common
stockholders will be subject to, and may be negatively affected by, the rights of any preferred stock that may be issued in the
future. In addition, we are subject to the New Jersey Shareholders' Protection Act, which could delay or prevent a change of control
of NJR.
We are involved in legal or administrative proceedings before various courts and governmental bodies that could adversely
affect our results of operations, cash flows and financial condition.
We are involved in legal or administrative proceedings before various courts and governmental bodies with respect to general
claims, rates, taxes, environmental issues, gas cost prudence reviews and other matters. Adverse decisions regarding these matters,
to the extent they require us to make payments in excess of amounts provided for in our financial statements, could adversely
affect our results of operations, cash flows and financial condition.
Our costs of compliance with present and future environmental laws are significant and could adversely affect our cash
flows and profitability.
Our operations are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air
quality, water quality, waste management, natural resources and site remediation. Compliance with these laws and regulations
may require us to expend significant financial resources to, among other things, conduct site remediation and perform environmental
monitoring. If we fail to comply with applicable environmental laws and regulations, even if we are unable to do so due to factors
beyond our control, we may be subject to civil liabilities or criminal penalties and may be required to incur significant expenditures
to come into compliance. Additionally, any alleged violations of environmental laws and regulations may require us to expend
significant resources in our defense against alleged violations.
Furthermore, the U.S. Congress has for some time been considering various forms of climate change legislation. There is a
possibility that, when and if enacted, the final form of such legislation could impact our costs and put upward pressure on wholesale
natural gas prices. Higher cost levels could impact the competitive position of natural gas and negatively affect our growth
opportunities, cash flows and earnings.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
As of September 30, 2014, NJRES leases office space in Wall Township, New Jersey, as well as Houston, Texas and Charlotte,
Energy Services Segment
North Carolina for its business activities.
Clean Energy Ventures Segment
NJRCEV has various solar contracts, including lease agreements and easements, allowing the installation, operation and
maintenance of solar equipment and access to the various properties, including commercial and residential rooftops with a total
of 83.4 MW of solar capacity. In addition to the lease agreement and easements, NJRCEV owns 79.5 acres of land for its Vineland
solar project.
NJRCEV is also party to various land lease agreements and easements, which allow for the installation, operation and
maintenance of wind turbines, associated electric collection facilities, substations, operation and maintenance buildings and access
to the various properties. The Two Dot wind project in Two Dot, Montana is a 9.7 MW onshore wind project, which was completed
in June 2014. The Carroll Area wind project located in Carroll County, Iowa is a 20 MW project and is currently under construction.
In addition to the lease agreement and easements, NJRCEV owns 1.8 acres of land for its Carroll wind project.
On October 22, 2014, NJRCEV purchased 7.14 acres of land in Rush County, Kansas for its 48 MW Alexander wind project.
Midstream Segment
As of September 30, 2014, the Steckman Ridge partnership owned and/or leased storage rights on approximately 6,300 acres
of land in Bedford County, Pennsylvania, with a FERC-regulated natural gas storage facility with up to 12 Bcf of working gas
capacity. Equipment on the property includes a compressor station, gathering pipelines and pipeline interconnections.
As of September 30, 2014, Iroquois Gas Transmission System owned a 416-mile FERC-regulated interstate natural gas
pipeline system with approximately 1.5 Bcf per day of capacity, which runs from the New York-Canadian border to Long Island,
New York.
All Other Business Operations
As of September 30, 2014, CR&R's real estate portfolio consisted of 52.3 acres of undeveloped land in Atlantic County with
a net book value of $2.1 million and a 56,400-square-foot office building on five acres of land in Monmouth County with a net
book value of $8.3 million.
ITEM 2. PROPERTIES
NJRHS leases service centers in Dover, Morris County and Wall, Monmouth County, New Jersey.
Natural Gas Distribution Segment (All properties are located in New Jersey)
Capital Expenditure Program
NJNG owns approximately 7,060 miles of distribution main, 7,168 miles of service main, 226 miles of transmission main
and approximately 526,000 meters. Mains are primarily located under public roads. Where mains are located under private property,
NJNG has obtained easements from the owners of record.
Additionally, NJNG owns and operates two LNG storage plants in Stafford Township, Ocean County; and Howell Township,
Monmouth County. The two LNG plants have an aggregate estimated maximum capacity of approximately 170,000 dths per day
and 1 Bcf of total capacity. These facilities are used for peaking natural gas supply and emergencies.
NJNG owns four service centers located in Rockaway Township, Morris County; Atlantic Highlands and Wall Township,
Monmouth County; and Lakewood, Ocean County. These service centers house storerooms, garages, gas distribution and
administrative offices. NJNG leases its headquarters and customer service facilities in Wall Township, Monmouth County, a
customer service office in Asbury Park, Monmouth County and a service center in Manahawkin, Ocean County. These customer
service offices support customer contact, marketing, economic development and other functions.
Substantially all of NJNG's properties, not expressly excepted or duly released, are subject to the lien of the New Mortgage
Indenture, dated as of September 1, 2014, as security for NJNG's mortgage bonds, which totaled $432.8 million as of September 30,
2014. In addition, under the terms of the Indenture, NJNG could have issued up to $841.2 million of additional first mortgage
bonds as of September 30, 2014.
See Item 7. Management Discussion and Analysis for a discussion of anticipated fiscal 2015 and 2016 capital expenditures
as applicable to NJR's business segments and business operations.
ITEM 3. LEGAL PROCEEDINGS
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of five MGP sites, dating back to gas operations in the late 1800s and early
1900s, which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in
administrative proceedings with the NJDEP, as well as participating in various studies and investigations by outside consultants
to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action,
where warranted, under Administrative Consent Orders or Memoranda of Agreement with the NJDEP.
NJNG may recover its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RA
approved by the BPU. In February 2012, NJNG filed its 2011 SBC filing, requesting approval of its MGP expenditures incurred
through June 30, 2011, which would continue its existing overall SBC rate and recovery at approximately $20 million. In July
2013, NJNG requested approval of its MGP expenditures incurred through June 2013 as well as a reduction in the RA factor to
Page 20
Page 21
New Jersey Resources Corporation
Part I
New Jersey Resources Corporation
Part II
ITEM 3. LEGAL PROCEEDINGS (Continued)
$18.7 million annually. The petition was provisionally approved by the BPU on November 22, 2013, with rates effective
December 1, 2013, and was approved on a final basis in July 2014. In September 2014, NJNG requested approval of its MGP
expenditures incurred through June 2014 to recover $8.5 million annually related to the SBC RA factor. As of September 30, 2014,
$30.9 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 periodically and at least annually performs an environmental review of the MGP sites, including a review of potential
liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures
to remediate and monitor the five MGP sites for which it is responsible, including potential liabilities for Natural Resource Damages
that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range
from approximately $151.3 million to $249.8 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. However, NJNG expects actual costs to
differ from these estimates. Where it is probable that costs will be incurred, and the information is sufficient to reasonably estimate
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, 2014, NJNG recorded an
MGP remediation liability and a corresponding regulatory asset of $177 million on the Consolidated Balance Sheets, based on our
most likely amount of possible liability. 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 RA. If any future regulatory position indicates that
the recovery of such costs is not probable, the related cost would be charged to income in the period of such determination. However,
because recovery of such costs is subject to BPU approval, there can be no assurance as to the ultimate recovery through the RA
or the impact on the Company's results of operations, financial position or cash flows, which could be material.
General
The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In
the Company's opinion, other than as disclosed in this Item 3, the ultimate disposition of these matters will not have a material
effect on its financial condition, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The Company's Executive Officers and their age, position and business experience during the past five years are set forth
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
NJR's Common Stock is traded on the New York Stock Exchange under the ticker symbol NJR. As of September 30, 2014,
NJR had 42,252 holders of record of its common stock.
NJR's common stock high and low sales prices and dividends paid per share were as follows:
Fiscal Quarter
First
Second
Third
Fourth
2014
2013
Dividends Paid
High
Low
High
Low
2014
2013
$46.95
$50.47
$57.68
$57.79
$42.54
$43.75
$47.70
$48.63
$46.28
$45.63
$47.60
$46.00
$38.51
$39.06
$40.97
$40.60
$0.42
$0.42
$0.42
$0.42
$0.40
$0.40
$0.40
$0.40
In 1996, the Board of Directors authorized the Company to implement a share repurchase program, which has been expanded
seven times since the inception of the program. In July 2013, the Board of Directors approved an increase in the number of shares
of NJR common stock authorized for repurchase under NJR's Share Repurchase Plan by one million shares to a total of 9.75
million shares. The Share Repurchase Plan allows the Company to purchase its shares on the open market or in negotiated
transactions, based on market and other conditions. The Company is not required to purchase any specific number of shares and
may discontinue or suspend the program at any time. The Share Repurchase Plan will expire when we have repurchased all shares
authorized for repurchase thereunder, unless it is earlier terminated by action of our Board of Directors or additional shares are
authorized for repurchase.
The following table sets forth NJR's repurchase activity for the quarter ended September 30, 2014:
Period
07/01/14 - 07/31/14
08/01/14 - 08/31/14
09/01/14 - 09/30/14
Total
Total Number
of Shares
(or Units)
Purchased
Average
Price Paid
per Share
(or Unit)
Total Number of Shares (or
Units) Purchased as Part of
Publicly Announced Plans
Maximum Number (or Approximate
Dollar Value) of Shares (or Units) That
May Yet Be Purchased Under the
or Programs
Plans or Programs
—
—
46,700
46,700
$
$
$
$
—
—
50.60
50.60
—
—
46,700
46,700
1,552,127
1,552,127
1,505,427
1,505,427
below.
Name
Laurence M. Downes
Age
57
Kathleen T. Ellis
Glenn C. Lockwood
Mariellen Dugan
Stephen Westhoven
61
53
48
46
2004
1990
2005
2004
Stanley M. Kosierowski
62
2008
Officer
since Office held during last five years
1986 Chairman of the Board (September 1996 - present)
President and Chief Executive Officer (July 1995 - present)
Executive Vice President and Chief Operating Officer, NJNG (February 2008 - present)
Senior Vice President, Corporate Affairs (December 2004 - present)
Executive Vice President (January 2011 - present)
Chief Financial Officer (September 1995 - present)
Senior Vice President (January 1996 - December 2010)
Senior Vice President and General Counsel (February 2008 - present)
Senior Vice President, NJRES (May 2010 - present)
Vice President of Energy Trading, NJRES (January 2004 - May 2010)
President, NJRCEV and NJRHS (May 2010 - present)
Vice President, Strategy and Operations (July 2009 - May 2010)
Vice President, NJRCEV (September 2008 - April 2010)
Deborah G. Zilai
61
1996 Vice President, Corporate Services, NJR Service (June 2005 - present)
Page 22
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New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA (Continued)
CONSOLIDATED FINANCIAL STATISTICS
(Thousands, except per share data)
Fiscal Years Ended September 30,
SELECTED FINANCIAL DATA
Operating revenues
Operating expenses
Gas purchases
Operation and maintenance
Regulatory rider expenses
Depreciation and amortization
Energy and other taxes
Total operating expenses
Operating income
Other income, net
Interest expense, net of capitalized interest
Income before income taxes
Income tax provision
Equity in earnings of affiliates
Net income
Total assets
CAPITALIZATION
Common stock equity
Long-term debt
Total capitalization
COMMON STOCK DATA
Earnings per share-Basic
Earnings per share-Diluted
Dividends declared per share
2014
2013
2012
2011
2010
$ 3,738,145 $ 3,198,068 $ 2,248,923 $ 3,009,209 $ 2,639,304
3,139,525
215,180
72,164
52,742
57,344
3,536,955
201,190
7,551
25,463
183,278
51,840
10,532
141,970 $
2,167,558
148,565
45,966
32,267
56,823
2,451,179
188,125
5,258
21,251
172,132
64,692
10,017
$
117,457
$ 3,158,804 $ 3,004,783 $ 2,770,005 $ 2,649,444 $ 2,563,133
2,550,571
163,111
51,246
34,370
66,910
2,866,208
143,001
3,747
19,623
127,125
37,665
11,839
101,299 $
1,841,408
171,045
40,350
41,643
45,787
2,140,233
108,690
2,128
20,844
89,974
7,729
10,634
92,879 $
2,712,223
173,473
48,417
47,310
57,414
3,038,837
159,231
4,783
23,979
140,035
35,575
10,349
114,809 $
$
966,166 $
598,209
725,483
428,925
$ 1,564,375 $ 1,400,270 $ 1,339,034 $ 1,203,054 $ 1,154,408
887,384 $
512,886
813,865 $
525,169
776,257 $
426,797
$3.37
$3.34
$1.71
$2.76
$2.75
$1.62
$2.24
$2.23
$1.54
$2.45
$2.44
$1.44
$2.84
$2.82
$1.36
NON-GAAP RECONCILIATION
Net income
Add:
Consolidated unrealized loss (gain) on derivative
instruments
Effects of economic hedging related to natural gas
inventory
Tax adjustments
Net financial earnings (1)
$
141,970 $
114,809 $
92,879 $
101,299 $
117,457
28,534
(9,418)
35,790
36,875
(27,446)
26,639
(20,286)
176,857 $
7,635
655
113,681 $
(4,891)
(11,361)
112,417 $
(28,604)
(3,037)
106,533 $
3,469
8,284
101,764
$
Net financial earnings per share-Basic (1)
Net financial earnings per share-Diluted (1)
$4.20
$4.17
$2.73
$2.72
$2.71
$2.70
$2.58
$2.56
$2.46
$2.44
(1) NFE is a financial measure not calculated in accordance with GAAP. NFE eliminates the timing differences surrounding the recognition of certain gains or
losses, to effectively match the earnings effects of economic hedges associated with the physical sale or purchase of gas and, therefore, eliminates the impact
of volatility to GAAP earnings associated with the related derivative instruments. For further discussion of this financial measure, see the Energy Services
segment in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Page 24
Page 25
NJNG OPERATING STATISTICS
Fiscal Years Ended September 30,
Operating revenues ($ in thousands)
Residential
Commercial, industrial and other
Firm transportation
Total residential and commercial
Interruptible
Total system
BGSS incentive programs
Total operating revenues
Throughput (Bcf)
Residential
Commercial, industrial and other
Firm transportation
Total residential and commercial
Interruptible
Total system
BGSS incentive programs
Total throughput
Customers at year-end
Residential
Commercial, industrial and other
Firm transportation
Total residential and commercial
Interruptible
BGSS incentive programs
Total customers at year-end
Interest coverage ratio (1)
Average therm use per customer
Residential
Commercial, industrial and other
Degree days
Weather as a percent of normal (2)
Number of employees
2014
2013
2012
2011
2010
$ 469,831
$ 467,269
$ 363,780
$ 579,038
$ 471,056
$ 819,415
$ 787,987
$ 627,713
$ 971,724
$ 945,480
102,350
73,745
643,364
6,452
649,816
138,171
38.3
7.5
15.2
61.0
10.9
71.9
141.5
213.4
408,399
24,302
64,652
497,353
40
38
88,484
60,599
512,863
6,510
519,373
108,340
116,043
57,126
752,207
7,029
759,236
212,488
112,582
45,616
629,254
8,454
637,708
307,772
32.9
6.5
11.2
50.6
10.3
60.9
99.6
42.3
8.3
12.2
62.8
8.3
71.1
107
40.3
8.2
10.1
58.6
7.7
66.3
83.9
160.5
178.1
150.2
423,871
24,985
51,214
500,070
41
32
428,694
25,666
40,523
494,883
41
40
438,274
26,312
25,724
490,310
43
40
113,354
86,131
669,316
6,770
676,086
143,329
43.1
8.2
17.7
69.0
10.5
79.5
180.8
260.3
422,742
24,684
56,778
504,204
36
34
504,274
10.24
497,431
10.82
500,143
10.85
494,964
10.73
490,393
9.43
1,020
4,466
5,080
109.6%
626
937
3,773
4,664
99.9%
611
775
3,675
3,698
77.9%
611
986
4,350
4,686
99.3%
590
919
4,986
4,341
91.4%
582
(1)
(2)
NJNG's income from operations divided by interest expense.
Normal heating degree days are based on a twenty-year average, calculated based upon three reference areas representative of NJNG's service territory.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Forward-looking and Cautionary Statements
From time to time, we may make statements that may constitute “forward-looking statements” within the meaning of the
“safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company's
then-current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially
from those addressed in the forward-looking statements. Information concerning forward-looking statements is set forth on page
3 of this annual report and is incorporated herein. A detailed discussion of risk and uncertainties that could cause actual results to
differ materially from such forward-looking statements is included in Item 1A. Risk Factors and are incorporated herein. We
undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future
events or otherwise.
Critical Accounting Policies
We prepare our financial statements in accordance with GAAP. Application of these accounting principles requires the use
of estimates and assumptions that affect the reported amounts of liabilities, revenues and expenses, and related disclosures of
contingencies during the reporting period. We regularly evaluate our estimates, including those related to the calculation of the
fair value of derivative instruments, unbilled revenues, provisions for depreciation and amortization, regulatory assets, income
taxes, pension and postemployment benefits other than pensions and contingencies related to environmental matters and litigation.
We base our estimates 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. In the normal course of business, estimated amounts are subsequently adjusted to actual
results that may differ from estimates.
Regulatory Accounting
NJNG maintains its accounts in accordance with the FERC Uniform System of Accounts as prescribed by the BPU and
recognizes the impact of regulatory decisions on its financial statements. As a result of the ratemaking process, NJNG is required
to apply the accounting principles in ASC 980, Regulated Operations, which differ in certain respects from those applied by
unregulated businesses. Specifically, NJNG records assets when it is probable that certain operating costs will be recoverable from
customers in future periods and records liabilities associated with probable future obligations to customers.
NJNG's BGSS requires it to project its annual natural gas costs and provides the ability, subject to BPU approval, to recover
or refund the difference, if any, of such actual costs compared with the projected costs included in prices through a BGSS charge
to customers. Any underrecovery or overrecovery is recorded as a regulatory asset or liability on the Consolidated Balance Sheets
and reflected in the BGSS charge to customers in subsequent years.
As recovery of regulatory assets is subject to BPU approval, if there are any changes in future regulatory positions that
indicate recovery of all or a portion of a regulatory asset is not probable, the related cost would be charged to income in the period
of such determination.
Derivative Instruments
We record our derivative instruments held as assets and liabilities at fair value on the Consolidated Balance Sheets. In
addition, since we choose not to designate any of our physical and financial commodity derivatives as accounting hedges, changes
in the fair value of NJRES' commodity derivatives are recognized in earnings, as they occur, as a component of operating revenues
or gas purchases on the Consolidated Statements of Operations. Changes in the fair value of foreign exchange contracts that NJRES
utilizes as cash flow hedges are recorded to OCI, a component of stockholders' equity, and reclassified to gas purchases on the
Consolidated Statements of Operations when they settle.
The fair value of derivative instruments is determined by reference to quoted market prices of listed exchange-traded contracts,
published price quotations, pipeline tariff information and/or a combination of those items. NJRES' portfolio is valued using the
most current and reasonable market information. If the price underlying a physical commodity transaction does not represent a
visible and liquid market, NJRES may utilize additional published pipeline tariff information and/or other services to determine
an equivalent market price. As of September 30, 2014, fair value of its derivative assets and liabilities reported on the Consolidated
Balance Sheets that is based on such pricing is immaterial.
Should there be a significant change in the underlying market prices or pricing assumptions, NJRES may experience a
significant impact on its financial position, results of operations and cash flows. Refer to Item 7A. Quantitative and Qualitative
Disclosures About Market Risks for sensitivity analysis related to the impact to derivative fair values resulting from changes in
commodity prices. The valuation methods NJR uses to determine fair values remained consistent for fiscal 2014, 2013 and 2012.
NJR applies a discount to its derivative assets to factor in an adjustment associated with the credit risk of its physical natural gas
counterparties and to its derivative liabilities to factor in an adjustment associated with its own credit risk. NJR determines this
amount by using historical default probabilities corresponding to the appropriate S&P issuer ratings. Since the majority of NJR's
counterparties are rated investment grade, this results in an immaterial credit risk adjustment.
Gains and losses associated with derivatives utilized by NJNG to manage the price risk inherent in its natural gas purchasing
activities are recoverable through its BGSS, subject to BPU approval. Accordingly, the offset to the change in fair value of these
derivatives is recorded as either a regulatory asset or liability on the Consolidated Balance Sheets.
NJRCEV hedges certain of its expected production of SRECs through the sale of forward and futures contracts. Accounting
guidance permits companies to apply an exception for certain contracts intended for NPNS for which physical delivery is probable.
NJRCEV intends to physically deliver all SRECs it sells and therefore applies NPNS accounting treatment to the contracts and
recognizes SREC revenue as operating revenue on the Consolidated Statements of Operations upon delivery of the underlying
SREC.
Income Taxes and Credits
We have not designated any derivatives as fair value hedges as of September 30, 2014 and 2013.
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation
and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and
taxable items. We use the asset and liability method to determine and record deferred tax assets, representing future tax benefits,
and deferred tax liabilities, representing future taxes payable, resulting from the differences between the financial reporting amount
and the corresponding tax basis of the assets and liabilities using the enacted rates expected to be in effect at the time the differences
are settled. An offsetting valuation allowance is recorded when it is more likely than not some or all of the deferred income tax
assets won't be realized. NJR had net deferred tax liabilities of $382 million and $362.7 million and a valuation allowance of
$212,000 and $262,000 related to certain deferred state tax assets as of September 30, 2014 and 2013, respectively. Any significant
changes to the estimates and judgments with respect to the interpretations, timing or deductibility could result in a material change
on earnings and cash flows.
For state income tax and other taxes, estimates and judgments are also required with respect to the apportionment among
the various jurisdictions. In addition, we operate within multiple tax jurisdictions and are subject to audits in these jurisdictions.
These audits can involve complex issues, which may require an extended period of time to resolve. We maintain a liability for the
estimate of potential income tax exposure and, in our opinion, adequate provisions for income taxes have been made for all years
reported. Any significant changes to the estimates and judgments with respect to the apportionment factor could result in a material
change on earnings and cash flows.
Accounting guidance also requires that we establish reserves for uncertain tax positions when it is more likely than not that
the positions will not be sustained when challenged by taxing authorities. We have no reason to believe that we have any future
obligations associated with unrecognized tax benefits, therefore, as of September 30, 2014 and 2013, we have not recorded any
liabilities related to uncertain tax positions. Any significant changes to the estimates and judgments with respect to the
interpretations, timing or deductibility could result in a material change on earnings and cash flows.
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. For our unregulated subsidiaries, we recognize ITCs as a reduction
to income tax expense when the property is placed in service. Changes in the federal statutes related to the ITC could have a
negative impact on earnings and cash flows.
To the extent that the Company invests in property that qualifies for PTCs, the PTC is recognized as a reduction to current
federal income tax expense as the PTCs are generated through the production activities of the assets. Changes to the federal statutes
related to PTCs could have a negative impact on earnings and cash flows.
Page 26
Page 27
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Increase/(Decrease) on PBO
Increase/(Decrease) to Expense
Other Postemployment Benefits
Actuarial Assumptions
Discount rate
Discount rate
Rate of return on plan assets
Rate of return on plan assets
Actuarial Assumptions
Health care cost trend rate
Health care cost trend rate
Increase/
(Decrease)
1.00 %
(1.00) %
1.00 %
(1.00) %
Increase/
(Decrease)
1.00 %
(1.00) %
Estimated
(Thousands)
$(18,053)
$ 22,891
n/a
n/a
Estimated
(Thousands)
$ 20,965
$(16,932)
Estimated
(Thousands)
$ (1,701)
$
$
$
2,094
(487)
491
Estimated
(Thousands)
$
3,199
$ (2,561)
Increase/(Decrease) on PBO
Increase/(Decrease) to Expense
Recently Issued Accounting Standards
Refer to Note 2. Summary of Significant Accounting Policies in the accompanying Consolidated Financial Statements for
discussion of recently issued accounting standards.
Management's Overview
Consolidated
NJR is an energy services holding company providing retail natural gas service in New Jersey and wholesale natural gas
and related energy services to customers primarily in the Gulf Coast, Mid-Continent, Appalachian, Northeastern and Western
market areas of the U.S., as well as Canada, through its subsidiaries NJNG and NJRES. In addition, NJR invests in distributed
power projects, midstream assets and provides various repair, sales and installations services. A more detailed description of NJR's
organizational structure can be found in Item 1. Business.
Business Segments
NJR has four primary business segments as presented in the chart below:
Environmental Costs
At the end of each fiscal year, NJNG updates the environmental review of its MGP sites, including a review of its potential
liability for investigation and remedial action, based on assistance from an independent external consulting firm. From this review,
NJNG estimates expenditures necessary to remediate and monitor these MGP sites. As of September 30, 2014, NJNG estimated
these expenditures will range from approximately $151.3 million to $249.8 million. NJNG's estimate of these liabilities is developed
from then currently available facts, existing technology and current laws and regulations.
In accordance with accounting standards for contingencies, NJNG's policy is to record a liability when it is probable that
the cost will be incurred and can be reasonably estimated. NJNG will determine a range of liabilities and will record the most
likely amount. If no point within the range is more likely than any other, NJNG will accrue the lower end of the range. Since we
believe that recovery of these expenditures, as well as related litigation costs, is possible through the regulatory process, we have
recorded a regulatory asset corresponding to the related accrued liability. Accordingly, NJNG recorded an MGP remediation
liability and a corresponding regulatory asset of $177 million on the Consolidated Balance Sheets, which is based on the most
likely amount.
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, as well as the
potential impact of any litigation and any insurance recoveries. As of September 30, 2014 and 2013, $30.9 million and $47 million
of previously incurred remediation costs, net of recoveries from customers and insurance proceeds received, are included in
regulatory assets on the Consolidated Balance Sheets, respectively.
If there are changes in the regulatory position surrounding these costs, or should actual expenditures vary significantly from
estimates in that these costs are disallowed for recovery by the BPU, such costs would be charged to income in the period of such
determination.
Postemployment Employee Benefits
NJR's costs of providing postemployment employee benefits are dependent upon numerous factors including actual plan
experience and assumptions of future experience. Postemployment employee benefit costs are impacted by actual employee
demographics including age, compensation levels and employment periods, the level of contributions made to the plans, changes
in long-term interest rates and the return on plan assets. Changes made to the provisions of the plans or healthcare legislation may
also impact current and future postemployment employee benefit costs. Postemployment employee benefit costs may also be
significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets, health care cost
trends and discount rates used in determining the PBO. In determining the PBO and cost amounts, assumptions can change from
period to period and could result in material changes to net postemployment employee benefit periodic costs and the related liability
recognized by NJR.
NJR's postemployment employee benefit plan assets consist primarily of U.S. equity securities, international equity securities
and fixed-income investments, with a targeted allocation of 40 percent, 20 percent and 40 percent, respectively. Fluctuations in
actual market returns, as well as changes in interest rates, may result in increased or decreased postemployment employee benefit
costs in future periods. Postemployment employee benefit expenses are included in O&M expense on the Consolidated Statements
of Operations.
The following is a summary of a sensitivity analysis for each actuarial assumption:
Pension Plans
Actuarial Assumptions
Discount rate
Discount rate
Rate of return on plan assets
Rate of return on plan assets
Increase/
(Decrease)
1.00 %
(1.00) %
1.00 %
(1.00) %
Estimated
Increase/(Decrease) on PBO
(Thousands)
$(29,403)
$ 36,855
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (2,964)
$
3,332
$ (1,877)
1,876
$
Page 28
Page 29
Net Income
$
$
141,970 $ 3,158,804 $
114,809 $ 3,004,783 $
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
Assets
Net Income
Assets
Net Income
Assets
74,204 $ 2,143,684 $
44,394
12,654
7,498
2,798
422
457,080
380,707
153,891
82,413
(58,971)
73,846 $ 2,094,940 $
20,725
10,060
7,199
3,292
(313)
468,096
253,663
153,536
85,293
(50,745)
73,238 $ 2,005,520
347,406
(8,605)
223,247
19,452
157,779
6,749
73,298
2,366
(37,245)
(321)
92,879 $ 2,770,005
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Home Services and Other
Intercompany (1)
Total
(1)
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In addition to the four business segments, NJR has other non-utility operations that either provide corporate support services
or do not meet management's criteria to be treated as a separate business segment. These operations, which comprise Home Services
and Other (formerly Retail and Other), include: appliance repair services, sales and installations at NJRHS; energy-related ventures
at NJR Energy and commercial real estate holdings at CR&R.
A summary of the company's consolidated results in net income and assets by business segment and operations at for the
fiscal years ended September 30, is as follows:
($ in thousands)
2014
2013
2012
NFE by business segment and other operations for the fiscal years ended September 30, discussed in more detail within the
operating results sections of each segment, is summarized as follows:
(Thousands)
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Home Services and Other
Eliminations (1)
Total
Natural Gas Distribution Segment
Overview
(1) Consists of transactions between subsidiaries that are eliminated in consolidation.
$
42% $
65% $
2014
74,204
79,735
12,654
7,498
2,798
45
7
4
2
2013
73,846
19,311
10,060
7,199
3,292
17
9
6
3
2012
73,238
10,791
19,452
6,749
2,366
65%
10
17
6
2
(32) —
(27) —
(179) —
$ 176,857 100% $ 113,681 100% $ 112,417 100%
Our Natural Gas Distribution segment is comprised of NJNG, a natural gas utility that provides regulated retail natural gas
service in central and northern New Jersey and also participates in the off-system sales and capacity release markets. As a regulated
company, NJNG is required to recognize the impact of regulatory decisions on its financial statements. See Note 3. Regulation in
the accompanying Consolidated Financial Statements for a more detailed discussion on regulatory actions, including filings related
to programs and associated expenditures as well as rate requests related to recovery of costs.
Our Natural Gas Distribution segment has approximately 504,300 residential and commercial customers in its service
territory. The business is subject to various risks, such as those associated with adverse economic conditions, that can negatively
impact customer growth, operating and financing costs, fluctuations in commodity prices and customer conservation efforts, which
can impact customer usage, certain regulatory actions, environmental remediation and severe weather conditions. It is often difficult
to predict the impact of events or trends associated with these risks.
In addition, NJNG's business is seasonal by nature, as weather conditions directly influence the volume of natural gas
delivered. Specifically, customer demand substantially increases during the winter months when natural gas is used for heating
purposes. As a result, NJNG receives most of its gas distribution revenues during the first and second fiscal quarters and is subject
to variations in earnings and working capital during the year.
NJNG's operations are managed with the goal of providing safe and reliable service, growing its customer base, diversifying
its margin, promoting clean energy programs and mitigating the risks discussed above, through several key initiatives including:
• Earning a reasonable rate of return on the investments in its natural gas distribution and transmission systems, as well as
timely recovery of all prudently incurred costs in order to provide safe and reliable service throughout NJNG's territory:
- NJNG is required by the BPU to file a base rate case no later than November 15, 2015;
• Continuing to invest in the safety and integrity of its infrastructure;
• Managing its customer growth rate, which NJNG expects to be approximately 1.5 percent annually over the next two
• Maintaining a collaborative relationship with the BPU on regulatory initiatives, including:
- planning and authorization of infrastructure investments;
- pursuing rate and regulatory strategies to stabilize and decouple margin, including CIP;
years;
-
and
The primary drivers of the changes noted above, which are described in more detail in the individual segment discussions,
are as follows:
The increase in net income during fiscal 2014, compared with fiscal 2013, was primarily driven by:
•
•
increases at NJRES due primarily to higher gross margin due to increased demand caused by the extreme cold weather;
increases at NJRCEV due to the receipt of a credit support payment related to a change in ownership at the site of one
of NJRCEV's commercial solar projects along with ITCs associated with solar projects; and
The increase in net income during fiscal 2013, compared with fiscal 2012, was primarily driven by:
•
•
increases at NJRES due primarily to changes in realized and unrealized derivative gains; partially offset by
decreases in ITCs associated with a reduction in solar projects placed in service at NJRCEV.
The increase in assets during fiscal 2014 and 2013, included additional utility plant expenditures at our Natural Gas
Distribution segment and solar and wind expenditures at Clean Energy Ventures. In addition, higher commodity prices contributed
to the increase in gas in storage and accounts receivable at Energy Services during fiscal 2013.
Management of the Company uses NFE, a non-GAAP financial measure, when evaluating the operating results of its Energy
Services segment, related to financial derivative instruments that have settled and are designed to economically hedge natural gas
still in inventory. NFE is a measure of the earnings based on eliminating timing differences surrounding the recognition of certain
gains or losses, to effectively match the earnings effects of the economic hedges with the physical sale of gas and, therefore,
eliminates the impact of volatility to GAAP earnings associated with the derivative instruments. Non-GAAP financial measures
are not in accordance with, or an alternative to GAAP, and should be considered in addition to, and not as a substitute for, the
comparable GAAP measure.
The following is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to NFE:
(Thousands)
Net income
Add:
Consolidated unrealized loss (gain) on derivative instruments
Effects of economic hedging related to natural gas inventory
Tax adjustments
NFE
Basic earnings per share
Basic NFE per share
2014
2013
$ 141,970 $ 114,809 $
2012
92,879
28,534
26,639
(20,286)
35,790
(4,891)
(11,361)
$ 176,857 $ 113,681 $ 112,417
(9,418)
7,635
655
$
$
3.37 $
4.20 $
2.76 $
2.73 $
2.24
2.71
utilizing BGSS incentive programs through BPU-approved mechanisms to reduce gas costs and generate earnings;
Page 30
Page 31
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
- administering and promoting NJNG's BPU-approved SAVEGREEN project;
• Managing the volatility of wholesale natural gas prices through a hedging program designed to keep customers' BGSS
of its service territory, referred to as the Southern Reliability Link.
rates as stable as possible; and
NJNG is exploring additional system enhancements that are designed to support improved reliability in the southern portion
Below is a summary of NJNG's capital expenditures, including estimates for expected investments over the next two fiscal
• Working to manage its financial obligations related to remediation activities associated with its MGP sites.
Infrastructure projects
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.
AIP and SAFE
NJNG has implemented BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG's gas
distribution system, including AIP and SAFE. As of September 30, 2014, NJNG has received regulatory approval to recover
approximately $15.3 million annually through its base tariff rates related to AIP.
On October 23, 2012, the BPU approved a stipulation allowing NJNG to implement the SAFE program whereby NJNG is
replacing portions of its gas distribution unprotected steel and cast iron infrastructure over a four-year period. NJNG will seek to
recover $130 million, plus a weighted average cost of capital of 6.9 percent, with a return on equity of 9.75 percent, in its next
base rate case to be filed no later than November 15, 2015.
NGV Advantage
On June 18, 2012, the BPU approved a pilot program for NJNG to invest up to $10 million to build NGV refueling stations
in Monmouth, Ocean and Morris counties. As of September 30, 2013, NJNG has begun development of three NGV stations. On
April 23, 2014, the BPU approved NJNG's request to include the cost recovery of its NGV capital investments in its next base
rate case to be filed no later than November 15, 2015. In addition, the BPU approved a deferred accounting methodology related
to the NGV investment costs consistent with NJNG's SAFE Program. The NGV program was authorized by the BPU to earn an
overall weighted average cost of capital of 7.1 percent, including a return on equity of 10.3 percent. A portion of the proceeds
from the utilization of the compressed natural gas equipment, along with any available federal and state incentives, will be credited
back to ratepayers to help offset the cost of this investment.
NJ RISE
NJNG filed a petition with the BPU on September 3, 2013, seeking approval of NJ RISE, which consists of six capital
investment projects estimated to cost $102.5 million, excluding AFUDC, for gas distribution storm hardening and mitigation
projects, along with associated O&M expenses. The submission was made in response to a March 2013 BPU order, initiating a
proceeding to investigate prudent, cost efficient and effective opportunities to protect New Jersey's utility infrastructure from
future major storm events. These system enhancements are intended to minimize service impacts during extreme weather events
to customers that live in the most storm prone areas of NJNG's service territory. In the filing, NJNG proposed the recovery of its
capital costs associated with NJ RISE through an annual adjustment to its base rate. On July 23, 2014, the BPU approved a
Stipulation of Settlement related to the recovery of the proposed NJ RISE capital infrastructure program to include a May 2015
filing to recover costs through July 31, 2015, through an adjustment to base rates as of November 1, 2015. Additional capital and
O&M cost recovery will be included in NJNG's next base rate case scheduled to be filed no later than November 15, 2015.
Liquefaction
NJNG is in the design and procurement phase of its Liquefaction project, which when completed, will allow NJNG to convert
natural gas into LNG, which will then be used to fill NJNG's existing LNG storage tanks. Capital cost recovery will be included
in NJNG's next base rate case scheduled to be filed no later than November 15, 2015.
Page 32
Page 33
Other
System maintenance and other
years:
(Millions)
Customer growth
AIP/SAFE
Superstorm Sandy
NGV Advantage
NJ RISE
Liquefaction/LNG
Southern Reliability
Total
Customer growth
2013
2014
2015
2016
$
24.5 $
30.1 $
26.8 $
42.5
45.3
26.1
1.0
—
—
—
61.8
40.3
9.8
4.8
—
10.1
—
66.9
41.2
5.0
4.2
7.0
11.9
19.3
26.9
54.4
39.0
—
—
14.7
11.8
86.9
$ 139.4 $ 156.9 $ 182.3 $ 233.7
Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory
oversight, environmental regulations, unforeseen events and the ability to access capital.
In conducting NJNG's business, management focuses on factors it believes may have significant influence on its future
financial results. NJNG's policy is to work with all stakeholders, including customers, regulators and policymakers, to achieve
favorable results. These factors include the rate of NJNG's customer growth in its service territory, which can be influenced by
political and regulatory policies, the delivered cost of natural gas compared with competing fuels, interest rates and general
economic and business conditions.
During fiscal 2014, NJNG added 7,599 new customers, which represents a customer growth rate of approximately 1.5
percent. During that same time period, NJNG converted 627 existing customers to natural gas heat and other services. This customer
growth represents an estimated increase of approximately $4.3 million annually to utility gross margin assuming normal weather
and usage. In addition, NJNG currently expects to add approximately 15,000 to 17,000 new customers during the two-year period
of fiscal 2015 and 2016. Based on information from municipalities and developers, as well as external industry analysts and
management's experience, NJNG estimates that approximately 50 percent of the growth will come from new construction markets
and another 50 percent from customer conversions to natural gas from other fuel sources. This new customer and conversion
growth would increase utility gross margin under NJNG's base rates by approximately $4.1 million annually, as calculated under
NJNG's CIP tariff. See the Natural Gas Distribution Operating Results section that follows for a definition and further discussion
of utility gross margin.
SAVEGREEN
SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, that are
designed to encourage the installation of high efficiency heating and cooling equipment and other energy efficiency upgrades.
Depending on the specific incentive or approval, NJNG recovers costs associated with the programs over a two to 10-year period
through a tariff rider mechanism. The recovery includes a weighted average cost of capital that ranges from 6.9 percent, with a
return on equity of 9.75 percent, to 7.76 percent, with a return on equity of 10.3 percent.
On June 21, 2013, the BPU approved NJNG's 2012 request to extend and expand the current SAVEGREEN program through
June 30, 2015, with certain modifications, resulting in grants, incentives and financing investments of more than $85 million,
earning a weighted average return of 6.9 percent. Since inception, the BPU has approved total SAVEGREEN investments of
approximately $149.5 million, of which $91.6 million in grants, rebates and loans has been provided to customers, with a total
annual recovery of approximately $20 million.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Conservation Incentive Program
The CIP facilitates normalizing NJNG's utility gross margin for variances not only due to weather but also for other factors
affecting usage, such as conservation and energy efficiency. Recovery of utility gross margin for the non-weather variance through
the CIP is limited to the amount of certain gas supply cost savings achieved and is subject to an annual earnings test. An annual
review of the CIP must be filed by June 1, coincident with NJNG's annual BGSS filing, during which NJNG can request rate
changes to CIP. In March 2013, NJNG and South Jersey Gas Company filed a joint petition with the BPU requesting the continuation
of the CIP with certain modifications. On May 21, 2014, the BPU approved the continuation of the CIP program with no expiration
date; however, it will be subject to review in a 2017 rate filing. On June 2, 2014, NJNG filed for reductions to its CIP rates, resulting
in a 4.3 percent reduction to the average residential heat customer's bill. On September 30, 2014, the BPU provisionally approved
these rates to be effective October 1, 2014.
NJNG's total utility firm gross margin includes the following adjustments related to the CIP mechanism:
(Thousands)
Weather (1)
Usage
Total
(1)
2014
2013
2012
$
$
(10,396) $
6,580
(3,816) $
4,463 $
11,284
15,747 $
30,243
14,745
44,988
Compared with the CIP 20-year average, weather was 9.6 percent colder-than-normal during fiscal 2014 and .1 percent and 22.1 percent warmer-than-
normal during fiscal 2013 and 2012, respectively.
As of September 30, 2014 and 2013, NJNG has $5.8 million in regulatory liabilities and $18.9 million in regulatory assets
on the Consolidated Balance Sheets related to CIP to be returned to or recovered from customers, respectively, in future periods.
Commodity prices
Our Natural Gas Distribution segment is affected by the price of natural gas, which can have a significant impact on our
cash flows, short-term financing costs, the price of natural gas charged to our customers through the BGSS clause, our ability to
collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other
fuel sources. Natural gas commodity prices may experience high volatility as shown in the graph below, which illustrates the daily
natural gas prices(1) in the northeast market region, also known as Tetco M-3:
(1) Data source from Platts, a division of McGraw Hill Financial.
Page 34
Page 35
The maximum daily price was $81.30, $11.59 and $5.12 and the minimum daily price was $1.61, $3.11 and $1.98 for the
fiscal years ended September 30, 2014, 2013 and 2012, respectively. The volatility and increase in commodity prices during the
second quarter of fiscal 2014 was due primarily to a significant increase in the demand for natural gas as a result of extreme cold
weather in the northeast. A more detailed discussion of the impacts of the price of natural gas on operating revenues, gas purchases
and cash flows can be found in the Results of Operations and Cash Flow sections of Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
BGSS
Recovery of natural gas costs
NJNG's cost of gas is passed through to our customers, without markup, by applying NJNG's authorized BGSS tariff rate
to actual therms delivered. There is no utility gross margin associated with BGSS costs; therefore, changes in such costs do not
impact NJNG's earnings. NJNG monitors its actual gas costs in comparison to its tariff rates to manage its cash flows associated
with its allowed recovery of gas costs, which is facilitated through BPU-approved deferred accounting and the BGSS pricing
mechanism. Accordingly, NJNG occasionally adjusts its periodic BGSS tariff rates or can issue credits or refunds, as appropriate,
for its residential and small commercial customers when the commodity cost varies from the existing BGSS tariff rate. BGSS
tariff rates for its large commercial customers are adjusted monthly based on NYMEX prices.
During fiscal 2012, NJNG issued bill credits of $85.9 million to residential and small commercial customers as a result of
the decline in the wholesale price of natural gas and a change in the methodology used to develop estimates of unaccounted-for
gas. There were no bill credits during fiscal 2013 and 2014. NJNG reduced its BGSS tariff rate in fiscal 2012, resulting in a 3.6
percent decrease to the average residential heat customer's bill, which was approved by the BPU on a final basis in June 2013. In
addition, NJNG reduced its BGSS tariff rate in fiscal 2013, resulting in 5.2 percent decrease to the average residential heat customer's
bill and reduced its BGSS tariff rate in fiscal 2014, resulting in a 6 percent decrease to the average residential heat customer's bill
effective December 1, 2013. On July 23, 2014, the BPU approved the fiscal 2013 and 2014 rates on a final basis. NJNG filed its
fiscal 2015 BGSS/CIP filing on June 2, 2014 with no change to the current BGSS tariff rate.
On October 1, 2014, NJNG implemented a decrease to its BGSS rate for residential sales and general service small sales
customers resulting in a 5 percent decrease to the average residential heat customer's bill. Refer to Note 3. Regulation in the
accompanying Consolidated Financial Statements, for a discussion of BGSS rate actions and or bill credits.
BGSS Incentive Programs
NJNG is eligible to receive financial incentives through October 2015, for reducing BGSS costs through a series of utility
gross margin-sharing programs that include off-system sales, capacity release, storage incentive and FRM programs that are
designed to encourage better utilization and hedging of its natural gas supply, transportation and storage assets. Depending on the
program, NJNG shares 80 or 85 percent of utility gross margin generated by these programs with firm customers. Should
performance of the existing incentives or market conditions warrant, NJNG is permitted to propose a process to re-evaluate and
discuss alternative incentive programs annually.
Utility gross margin from incentive programs was $16 million, $8.8 million and $9.4 million during the fiscal years ended
September 30, 2014, 2013 and 2012, respectively. A more detailed discussion of the impacts on utility gross margin can be found
in the Natural Gas Distribution Operating Results section that follows.
Hedging
In order to provide relative price stability to its natural gas supply portfolio, NJNG employs a hedging strategy with the goal
of having at least 75 percent of the Company's projected winter gas purchase volumes hedged by each November 1 and at least
25 percent of the gas purchase requirements hedged for the following April through March period. This is accomplished with the
use of various financial instruments including futures, swaps and options used in conjunction with commodity and/or weather-
related hedging activity.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Environmental remediation
NJNG's operating results for the fiscal years ended September 30, are as follows:
NJNG is responsible for the environmental remediation of five MGP sites, which contain contaminated residues from former
gas manufacturing operations that ceased operating at these sites by the mid-1950s and, in some cases, had been discontinued
many years earlier. Actual MGP remediation costs may vary from management's estimates due to the developing nature of
remediation requirements, regulatory decisions by the NJDEP and related litigation. NJNG reviews these costs at the end of each
fiscal year and adjusts its liability and corresponding regulatory asset as necessary to reflect its expected future remediation
obligation. Accordingly, NJNG recognized a regulatory asset and an obligation of $177 million as of September 30, 2014, a
decrease of $6.6 million, compared with the prior fiscal year.
NJNG is currently authorized to recover remediation costs of approximately $18.7 million annually, which is based on
expenditures incurred through June 30, 2013.
In September 2014, NJNG submitted its SBC filing requesting approval of its MGP expenditures incurred through June 30,
2014, and to recover $8.5 million annually related to the RA and $16.3 million related to NJCEP, resulting in a 3 percent reduction
to the average residential heat customer's bill.
Superstorm Sandy
In November 2012, NJNG filed a petition with the BPU requesting deferral accounting for uninsured incremental O&M
costs associated with Superstorm Sandy, which was subsequently approved in May 2013. In addition, NJNG requested that the
review of and the appropriate recovery period for such deferred expenses be addressed in NJNG's next base rate case. As of
September 30, 2014, NJNG has deferred $15.2 million of these costs as a regulatory asset. On October 22, 2014, the BPU approved,
as prudent and reasonable, the deferred O&M storm costs to be recovered in NJNG's next base rate case to be filed no later than
November 15, 2015.
Interest Rate Risk
Due to the capital-intensive nature of NJNG's operations and the seasonal nature of its working capital requirements,
significant changes in interest rates can also impact NJNG's results. A more detailed discussion can be found in the Liquidity and
Capital Resources and Cash Flow sections of Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Operating Results
Utility Gross Margin
The EDECA, which was enacted in 1999, provides the framework for New Jersey's retail energy markets, which are open
to competition from other electric and natural gas suppliers. NJNG's residential and commercial markets are currently open to
competition, and its rates are segregated between BGSS (i.e., natural gas commodity) and delivery (i.e., transportation) components.
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 and, therefore, is not negatively affected by customers who use its transportation service
and purchase natural gas from another supplier. Under an existing order from the BPU, BGSS can be provided by suppliers other
than the state's natural gas utilities, however, all customers who purchase natural gas from another supplier continue to use NJNG
for transportation service.
NJNG's utility gross margin is a non-GAAP financial measure defined as natural gas revenues less natural gas purchases,
sales tax, and regulatory rider expenses, and may not be comparable to the definition of gross margin used by others in the natural
gas distribution business and other industries. Management believes that utility gross margin provides a more meaningful basis
than revenue for evaluating utility operations since natural gas costs, sales tax and regulatory rider expenses are included in
operating revenue and passed through to customers and, therefore, have no effect on utility gross margin. Non-GAAP financial
measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute
for, the comparable GAAP measure.
(Thousands)
Utility gross margin
Operating revenues
Less:
Gas purchases (1)
Energy and other taxes (2)
Regulatory rider expense (3)
Total utility gross margin
Operation and maintenance expenses
Depreciation and amortization
Other taxes not reflected in utility gross margin
Interest expense, net of capitalized interest
Operating income
Other income
Income tax provision
Net income
(1)
(2)
(3)
by January 2014.
(Millions)
Firm sales
Average BGSS rates (1)
CIP adjustments
SAVEGREEN
Fiscal 2012 BGSS bill credits
Off-system sales
AIP
Other
2014
2013
2012
$ 819,415 $ 787,987 $ 627,713
402,552
414,594
274,370
47,440
72,164
297,259
124,717
40,540
4,573
2,832
16,683
39,374
48,037
48,417
276,939
113,174
37,999
4,373
2,847
14,995
35,399
37,241
40,350
275,752
111,998
35,247
3,899
1,655
14,890
38,135
127,429
121,393
124,608
$
74,204 $
73,846 $
73,238
2014 v. 2013
2013 v. 2012
Operating
revenue
Gas
purchases
Operating
revenue
Gas
purchases
$
65.5 $
$
91.9 $
(47.4)
(19.6)
14.2
—
7.7
6.5
4.5
33.1
(44.4)
—
—
—
7.0
—
(7.7)
(12.0)
(10.9)
(29.2)
2.4
85.9
28.8
0.6
(9.2)
44.3
(10.2)
—
—
80.2
29.9
—
(3.7)
Includes the purchased cost of the natural gas, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and hedging
transactions. These expenses are passed through to customers and offset by corresponding revenues.
Consists primarily of sales taxes and TEFA, both of which are passed through to customers and offset by corresponding revenues. TEFA was phased out
Consists of expenses associated with state-mandated programs, the RA and energy efficiency programs and are calculated on a per-therm basis. These
expenses are passed through to customers and offset by corresponding revenues.
Operating revenues increased 4 percent during fiscal 2014 and increased 25.5 percent during fiscal 2013. Gas purchases
decreased 2.9 percent during fiscal 2014 and increased 51.1 percent during fiscal 2013. A description of the factors contributing
to the increases (decreases) in operating revenues and gas purchases during fiscal 2014 and 2013, are as follows:
Total increase (decrease)
$
31.4 $
$
160.3 $
140.5
(1) Operating revenue includes changes in sales tax of $3 million and $700,000 during fiscal 2014 and 2013, respectively.
Fiscal 2014 compared with fiscal 2013
An increase in usage related primarily to weather being 8.9 percent colder, based on degree days, during fiscal 2014 than
fiscal 2013, contributed to increases in operating revenues associated with firm sales, along with higher off-system sales, due
primarily to a 36.8 percent increase in the average price of gas sold, offset by a 23.2 percent reduction in volumes. These increases
were partially offset by lower BGSS rates during fiscal 2014 and a decrease in CIP adjustments of $14.9 million related to the
colder weather and $4.7 million related to usage. The decrease in gas purchases was due primarily to lower BGSS rates as discussed
above. Other, in the above table, includes increases in rider rates, including those related to NJCEP, impacts from BGSS incentive
programs and Superstorm Sandy.
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Page 37
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Fiscal 2013 compared with fiscal 2012
NJNG's total customers as of September 30, include the following:
An increase in usage related primarily to weather being 26.1 percent colder, based on degree days, during fiscal 2013 than
fiscal 2012, contributed to increases in operating revenues and gas purchases associated with firm sales, partially offset by decrease
in CIP adjustments of $25.7 million related to weather and $3.5 million related to usage. Also factoring into the overall increase
in operating revenues and gas purchases were BGSS bill credits issued to customers during fiscal 2012 that did not recur during
fiscal 2013 and higher off-system revenue driven by a 21.1 percent increase in the average price of gas sold. These increases were
partially offset by lower BGSS rates during fiscal 2013 and decreases related to the temporary disruption of service to customers
that were impacted by Superstorm Sandy.
The following provides more information on the components of Utility Gross Margin and associated throughput (Bcf) of
Firm customers
Residential
Commercial, industrial & other
Residential transport
Commercial transport
Total firm customers
Other
Total customers
natural gas delivered to customers:
($ in thousands)
Utility gross margin/throughput
Residential
Commercial, industrial and other
Firm transportation
Total utility firm gross margin/throughput
BGSS incentive programs
Interruptible
2014
2013
2012
Margin
Bcf
Margin
Bcf
Margin
Bcf
$ 173,879
45,971
60,811
280,661
43.1
8.2
17.7
69.0
15,957
180.8
641
10.5
$ 167,530
44,896
55,169
267,595
38.3
7.5
15.2
61.0
8,777
141.5
567
10.9
$ 173,451
45,673
46,773
265,897
9,385
470
32.9
6.5
11.2
50.6
99.6
10.3
Total utility gross margin/throughput
$ 297,259
260.3
$ 276,939
213.4
$ 275,752
160.5
Utility Firm Gross Margin
Utility firm gross margin is earned from residential and commercial customers who receive natural gas service from NJNG
through either sales tariffs, which include a commodity and delivery component, or transportation tariffs, which include a delivery
component only. The transfer of customers between sales and throughput has no impact on NJNG's total utility firm gross margin
since distribution tariff rates are the same for these customer classes.
A description of the factors contributing to the increases (decreases) in utility firm gross margin during fiscal 2014 and 2013,
are as follows:
(Thousands)
AIP
Customer growth
SAVEGREEN
Superstorm Sandy
Total increase
2014 v. 2013
2013 v. 2012
$
6,103
4,253
1,883
827
$ 13,066
$
$
586
3,456
1,018
(3,362)
1,698
The increase in utility firm gross margin during both fiscal 2014 and 2013, was due primarily to increases in revenue related
to infrastructure investments along with customer growth. Partially offsetting the increase in utility firm gross margin during fiscal
2013, was the impact of temporarily suspending service to the areas within NJNG's distribution territory that were affected by
Superstorm Sandy.
Page 38
Page 39
(1)
Excludes customers whose service was impacted by the effects of Superstorm Sandy.
NJNG added 7,599, 7,456 and 6,704 new customers and converted 627, 619 and 539 existing customers to natural gas heat
and other services during the fiscal years ended September 30, 2014, 2013 and 2012, respectively. The customer growth during
fiscal 2014 represents an estimated annual increase of approximately 1 Bcf in sales to firm customers, which, assuming normal
weather and usage, would contribute approximately $4.3 million annually to utility gross margin.
A description of the factors contributing to the increases (decreases) in utility gross margin generated by NJNG's BGSS
incentive programs during fiscal 2014 and 2013, are as follows:
Lower natural gas prices, as well as timing of storage injections, increased the storage incentive program margin. NJNG's
capacity release margins also increased due primarily to an increase in the amount of volumes released and the value of capacity
An increase in gas supply in the northeast region resulting in lower volatility contributed to a decrease in transport capacity
values and reduced margins in off-system sales, partially offset by a combination of lower pricing at storage injection points and
an increase in volume in the capacity release program, which factored into the increase in margin from our storage incentive and
A summary and description of the factors contributing to the increases (decreases) in O&M during fiscal 2014 and 2013,
BGSS Incentive Programs
(Thousands)
Storage
Capacity release
Off-system sales
FRM
Total increase (decrease)
Fiscal 2014 compared with fiscal 2013
as a result of increased market area volatility.
Fiscal 2013 compared with fiscal 2012
capacity release programs.
Operation and Maintenance Expense
are as follows:
(Thousands)
Compensation and benefits
Consulting
Maintenance and repairs
Shared corporate costs
Bad debt
Other
Total increase
2014
2013 (1)
2012
422,742
24,684
46,282
10,496
504,204
70
408,399
24,302
54,253
10,399
497,353
78
423,871
24,985
41,820
9,394
500,070
73
504,274
497,431
500,143
2014 v. 2013
2013 v. 2012
$ 4,602
1,681
637
260
$ 7,180
$
$
300
294
(1,159)
(43)
(608)
2014 v. 2013
2013 v. 2012
$ 6,698
$ 2,172
2,718
1,783
6
(180)
518
$ 11,543
264
593
(99)
112
(1,866)
$ 1,176
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Fiscal 2014 compared with fiscal 2013
The increase in O&M during fiscal 2014 was due primarily to increased compensation and benefits as a result of higher
labor costs related to additional overtime and incentives along with additional expenses related to a voluntary early retirement
program, partially offset by lower pension benefit costs due to an increase in the discount rate used to calculate costs. In addition,
there was an increase in consulting expenses due to additional tax, customer service and technical consulting along with an increase
in maintenance and repairs, including additional repairs and snow removal, related to the extreme cold weather that occurred
during the second fiscal quarter, and increased software maintenance contracts.
Fiscal 2013 compared with fiscal 2012
The increase in O&M during fiscal 2013 was due primarily to increases in compensation and benefits, which were driven
primarily by an increase in the number of employees and increased pension and health benefit costs resulting from a lower discount
rate, partially offset by lower incentive compensation accruals and various other O&M expenses.
New Jersey Resources Corporation
Part II
date, all of which were contemplated as part of an entire forecasted transaction. The financial derivative contracts serve to protect
the cash flows of the transaction from volatility in commodity prices and primarily include exchange-traded futures, options, and
swap contracts. Typically, periods of increased price volatility provide NJRES with additional arbitrage opportunities to generate
margin by improving the respective time or locational spreads on a forward basis. See Item 1. Business for more detailed discussion
of operations at Energy Services.
Predominantly all of NJRES' physical purchases and sales of natural gas result in the physical delivery of natural gas. NJRES
accounts for its physical commodity contracts and its financial derivative instruments at fair value on the Consolidated Balance
Sheets. Changes in the fair value of these contracts are included in earnings as a component of operating revenue or gas purchases,
as appropriate, on the Consolidated Statements of Operations.Volatility in reported net income at NJRES can occur over periods
of time due to changes in the fair value of derivatives, as well as timing differences related to certain transactions. Unrealized gains
and losses can fluctuate as a result of changes in the price of natural gas from the original hedge price compared with the market
price of natural gas at each reporting date. Volatility in earnings also occurs as a result of timing differences between the settlement
of financial derivatives and the sale of the corresponding physical natural gas that was economically hedged. When a financial
instrument settles and the natural gas is placed in inventory, the realized gains and losses associated with the financial instrument
are recognized in earnings. However, the gains and losses associated with the economically hedged natural gas are not recognized
in earnings until the natural gas inventory is sold, at which time NJRES realizes the entire margin on the transaction.
Depreciation Expense
Operating Results
Depreciation expense increased $2.5 million and $2.8 million in fiscal 2014 and 2013, respectively, as a result of additional
NJRES' financial results for the fiscal years ended September 30, are summarized as follows:
utility plant being placed into service.
Operating Income
Operating income increased $6 million, or 5 percent, in fiscal 2014, compared with fiscal 2013, due primarily to the increase
in total utility gross margin of $20.3 million, as previously discussed, partially offset by the increases in O&M and depreciation
expense, as previously discussed. Operating income decreased $3.2 million or 2.6 percent, in fiscal 2013, compared with fiscal
2012, due primarily to an increase in O&M and depreciation expense, partially offset by an increase in total utility gross margin
of $1.2 million, as previously discussed.
Net Income
Net income increased $358,000 to $74.2 million in fiscal 2014, compared with fiscal 2013, due primarily to the factors
discussed above, partially offset by an increase in the income tax provision due to a higher effective tax rate as a result of a lower
cost of retiring assets placed in service before 1981, an increase in interest expense associated with new long-term debt issued in
March 2014 and April 2013, and a decrease in other income due to lower AFUDC interest earned on AIP and SAFE.
In addition to the factors discussed above, net income increased $608,000, or 1 percent, to $73.8 million in fiscal 2013,
compared with fiscal 2012, due partially to an increase in other income related to AFUDC interest earned on AIP and SAFE and
a lower effective tax rate. Contributing to the decrease in the effective tax rate during fiscal 2013 compared with fiscal 2012 was
an increase in costs associated with the removal of distribution main that was placed into service prior to 1981, for which the tax
benefit is passed on to customers in base rates.
Energy Services Segment
Overview
NJRES is a non-regulated provider of physical natural gas services and customized energy solutions. The market areas in
which it operates include the Gulf Coast, Mid-Continent, Appalachian, Northeastern and Western regions in the U.S., as well as
Canada.
NJRES focuses on creating value from its natural gas assets, which are typically amassed through contractual rights to natural
gas transportation and storage capacity within the regions that encompass its market area. Through the use of its capacity contracts,
NJRES is able to take advantage of pricing differences between geographic locations, commonly referred to as “locational” or
“basis” spreads in addition to pricing differences over specific periods of time commonly referred to as “time spreads.” To monetize
these differences, NJRES may enter into contracts that call for the future delivery and/or sale of physical natural gas and
simultaneously enters into financial derivative contracts to establish an initial financial margin for each of its forecasted physical
commodity transactions. Financial instruments are utilized to economically hedge natural gas inventory that will be sold at a future
Page 40
(Thousands)
Operating revenues
Gas purchases (including demand charges (1))
Gross margin
Operation and maintenance expenses
Depreciation and amortization
Other taxes
Operating income (loss)
Other income
Interest expense, net
Income tax provision (benefit)
Net income (loss)
2014
2013
2012
$ 2,930,817 $ 2,356,578 $ 1,580,611
2,814,300
2,307,072
1,574,246
116,517
42,607
59
1,496
72,355
222
1,725
26,458
49,506
14,390
44
1,298
33,774
1
2,534
10,516
$
44,394 $
20,725 $
6,365
17,759
59
1,043
(12,496)
37
1,096
(4,950)
(8,605)
(1) Costs associated with pipeline and storage capacity that are expensed over the term of the related contracts, which vary from less than one year to 10 years.
As of September 30, 2014, NJRES' portfolio of financial derivative instruments was composed of:
As of September 30, 2013, NJRES' portfolio of financial derivative instruments was composed of:
62.1 Bcf of net short futures contracts, and
1.2 Bcf of net long options.
64.2 Bcf of net short futures contracts, and
1.5 Bcf of net long options.
•
•
•
•
•
•
As of September 30, 2012, NJRES' portfolio of financial derivative instruments was composed of:
42.5 Bcf of net short futures contracts and fixed swap positions, and
27.1 Bcf of net long basis swap positions.
Page 41
Operating Revenues and Gas Purchases
New Jersey Resources Corporation
Part II
During fiscal 2014, operating revenues increased $574.2 million and gas purchases increased $507.2 million, due primarily
to the sustained extreme cold weather across the U.S., especially in the Midwest, which contributed to an increase in natural gas
demand and market volatility resulting in opportunities for NJRES to capture increased sales volume and higher pricing through
optimization of NJRES' transportation and storage assets across North America. During fiscal 2013, operating revenues and gas
purchases increased $776 million and $732.8 million, respectively, compared with fiscal 2012, due primarily to higher average
prices as well as increases in volumes.
Gross Margin
Gross margin during fiscal 2014 was higher by approximately $67 million, compared with fiscal 2013, due primarily to the
increased prices and volumes as described above, partially offset by a decrease of $58.1 million related to changes in the value of
financial hedges during fiscal 2014, compared with fiscal 2013. Gross margin during fiscal 2013 was higher by approximately
$43.1 million, compared with fiscal 2012, due primarily to an increase of $32.9 million related to changes in the value of financial
hedges during fiscal 2013, compared with fiscal 2012. Changes in the value of financial hedges impact gross margin and are related
to changes in prices of natural gas at various market locations.
Operation and Maintenance Expense
O&M increased $28.2 million, or 196 percent, during fiscal 2014, compared with fiscal 2013, due primarily to increases in
incentive compensation costs and shared services costs. O&M decreased $3.4 million, or 19 percent, during fiscal 2013, compared
with fiscal 2012, due primarily to the $1.4 million bad debt reserve that was made in fiscal 2012 relating to the bankruptcy of
NJRES' clearing broker and a $1 million decrease in charitable contributions, as well as decreases in shared corporate service costs
and legal fees.
Non-GAAP financial measures
Management uses non-GAAP financial measures, noted as “financial margin” and “NFE,” when evaluating the operating
results of NJRES. Financial margin and NFE are measures of margin and earnings based on eliminating timing differences associated
with certain derivative instruments, as discussed above. Management views these measures as more representative of the overall
expected economic result and uses these measures to compare NJRES' results against established benchmarks and earnings targets
as these measures eliminate the impact of volatility on GAAP earnings as a result of timing differences associated with these
derivative instruments. To the extent that there are unanticipated changes in the markets or to the effectiveness of the economic
hedges, NJRES' non-GAAP results can differ from what was originally planned at the beginning of the transaction. Non-GAAP
financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a
substitute for, the comparable GAAP measure.
When NJRES reconciles the most directly comparable GAAP measure to both financial margin and NFE, the current period
unrealized gains and losses on the derivatives are excluded as a reconciling item. Financial margin and NFE also exclude the
effects of economic hedging of the value of our natural gas in storage and, therefore, only include 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 the
related physical gas flows.
Financial Margin
operating income.
The following table is a computation of NJRES' financial margin for the fiscal years ended September 30:
(Thousands)
Operating revenues
Less: Gas purchases
Add:
2014
2013
$ 2,930,817 $ 2,356,578 $ 1,580,611
1,574,246
2,307,072
2,814,300
2012
Unrealized loss (gain) on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Financial margin
29,251
26,639
172,407 $
$
(9,872)
7,635
47,269 $
35,566
(4,891)
37,040
Page 42
Page 43
New Jersey Resources Corporation
Part II
A reconciliation of operating income, the most directly comparable GAAP financial measurement to NJRES' financial margin,
is as follows for the fiscal years ended September 30:
(Thousands)
Operating income (loss)
Add:
Operation and maintenance expense
Depreciation and amortization
Other taxes
Subtotal - Gross margin
Add:
Unrealized loss (gain) on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Financial margin
2014
2013
2012
$
72,355 $
33,774 $ (12,496)
42,607
59
1,496
116,517
14,390
17,759
44
1,298
49,506
59
1,043
6,365
29,251
26,639
(9,872)
7,635
35,566
(4,891)
$ 172,407 $
47,269 $
37,040
Financial margin increased $125.1 million during fiscal 2014, compared with fiscal 2013, due primarily to the sustained
extreme cold weather across the U.S., especially in the Midwest that contributed to an increase in natural gas demand and market
volatility resulting in higher prices and opportunities for NJRES to effectively utilize its strategically located assets across North
America to generate additional financial margin during the second fiscal quarter, as well as the increases in gross margin discussed
above.
Financial margin increased $10.2 million during fiscal 2013, compared with fiscal 2012, due primarily to higher financial
margin from storage assets, offset by the timing of certain transactions related to storage and narrower price spreads resulting in
lower financial margin from transportation assets.
Net Financial Earnings
A reconciliation of NJRES' net income (loss), the most directly comparable GAAP financial measurement to NFE, is as
follows for the fiscal years ended September 30:
(Thousands)
Net income (loss)
Add:
Tax adjustments
Net financial earnings
Unrealized loss (gain) from derivative instruments and related transactions (1)
Effects of economic hedging related to natural gas inventory
2014
2013
2012
$ 44,394 $ 20,725 $ (8,605)
29,251
26,639
(9,872)
35,566
7,635
(4,891)
(20,549)
823
(11,279)
$ 79,735 $ 19,311 $ 10,791
(1)
Includes unrealized losses related to an intercompany transaction between NJNG and NJRES that have been eliminated in consolidation of approximately
$(454,000), $286,000 and $142,000 for the fiscal years ended September 30, 2014, 2013 and 2012, respectively.
NFE increased $60.4 million during fiscal 2014, compared with fiscal 2013, due primarily to an increase in financial margin
of $125.1 million as discussed above, offset by higher O&M, as previously discussed and higher taxes related to the increase in
NFE increased $8.5 million during fiscal 2013, compared with fiscal 2012, due primarily to an increase in financial margin
of $10.2 million, and lower O&M, as previously discussed, along with a refund of $1.1 million related to the completion of tax
audits conducted by the State of New Jersey for fiscal 2008 through fiscal 2010.
Future results are subject to NJRES' ability to expand its wholesale marketing activities and are contingent upon many other
factors, including an adequate number of appropriate and credit qualified counterparties, volatility in the natural gas market,
availability of transportation and storage arbitrage opportunities, sufficient liquidity in the overall energy trading market, supply
and demand for natural gas and continued access to liquidity in the capital markets.
Represents the portion of capital expenditures eligible for ITCs.
($ in Thousands)
Placed in service
Net-metered:
Commercial
Residential
Grid-connected
Total placed in service
(1)
2013
Projects MW Costs(1) Projects MW Costs(1) Projects MW Costs(1)
2012
2014
1
1,049
3
1,053
995
0.3 $
32,002
10.4
16.7
42,459
27.4 $ 75,456
3
959
1
963
4.8 $ 13,693
28,693
8.6
6.7
19,407
20.1 $ 61,793
2
778
2
782
6,780
1.3 $
20,506
5.9
18.9
86,512
26.1 $ 113,798
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Clean Energy Ventures Segment
Overview
Our Clean Energy Ventures segment actively pursues opportunities in the clean energy markets, including solar, wind and
combined heat and power. Clean Energy Ventures has entered into various agreements to install solar equipment involving net-
metered residential and commercial projects, as well as grid-connected projects. In addition, Clean Energy Ventures has entered
various PPAs to supply energy from wind projects.
Solar
Solar projects placed in service and related ITC eligible expenditures for the fiscal years ended September 30, are as follows:
All of the wind projects are eligible for a per-kilowatt-hour PTC for a 10-year period following commencement of operation
and have power purchase agreements of various terms in place, through which all energy and renewable attributes will be sold to
the customer.
During the fourth quarter of fiscal 2014, due to its concerns surrounding the ability of OwnEnergy to fulfill its future obligation
to present qualified projects to NJRCEV for investment, the Company reassessed the value of its investment and determined that
it was unlikely that it would be able to recover the carrying value. As a result, NJRCEV recognized an impairment loss of $6.4
million, which is included in other income, net on the Consolidated Statements of Operations.
Clean Energy Ventures' investments are subject to a variety of factors, such as timing of construction schedules, the permitting
and regulatory process, delays related to electric grid interconnection, which can affect our ability to commence operations on a
timely basis or, at all, economic trends, the ability to access capital or allocation of capital to other investments or business
opportunities and other unforeseen events. Solar projects not placed in service, as originally planned prior to the end of a reporting
period, would result in a failure to qualify for ITCs and changes in SREC values and could have a significant adverse impact on
that period's annual earnings. Wind projects for which physical work of a significant nature has not begun, or have not qualified
for the “safe harbor”, would result in a failure to qualify for PTCs, and could have a significant adverse impact on ten years of
annual earnings. In addition, since the primary contributors toward the value of qualifying distributed power projects are tax
incentives and SRECs, changes in the federal statutes related to the ITC or PTC or in the markets surrounding clean energy credits,
which can be traded or sold to load serving entities that need to comply with state clean energy standards, could also significantly
NJRCEV's financial results for the fiscal years ended September 30, are summarized as follows:
affect earnings.
Operating Results
(Thousands)
Operating revenues
Operation and maintenance expenses
Depreciation and amortization
Other taxes
Operating (loss)
Other income, net
Interest expense, net
Income tax (benefit)
Net income
(Thousands)
SREC sales
Electricity sales and other
Sunlight Advantage
Total operating revenues
Operating revenues for the fiscal years ended September 30, consisted of the following:
2014
2013
2012
$
14,575 $
11,988 $
10,668
11,295
285
(7,673)
3,690
5,300
8,831
8,477
153
1,209
3,387
(5,473)
(12,201)
2,257
8,505
5,680
273
—
854
(21,937)
(17,711)
(32,507)
$
12,654 $
10,060 $
19,452
2014
2013
2012
9,608 $
9,506 $
1,137
2,479
2,488
1,388
1,094
728
392
14,575 $
11,988 $
2,257
$
$
Since its inception, Clean Energy Ventures has placed a total of 83.4 MW of solar capacity into service and as of September 30,
2014, has 16.7 commercial and .6 residential MW under construction. The Company estimates solar-related capital expenditures
for projects placed in service during fiscal 2015 to be between $100 million and $110 million. As part of its solar investment
program, NJRCEV operates a residential solar program, The Sunlight Advantage®, that provides qualifying homeowners the
opportunity to have a solar system installed at their home with no installation or maintenance expenses. NJRCEV owns, operates
and maintains the system over the life of the contract in exchange for monthly payments.
Once a solar installation commences operations and is properly registered, each MWh of electricity produced creates an
SREC that represents the renewable attribute of the solar-electricity generated and is sold to counterparties, including certain
electric utilities that are required to comply with New Jersey's renewable portfolio standards. In addition, under current federal
tax guidelines, projects that are placed in service up through December 31, 2016, qualify for a 30 percent federal ITC.
SREC activity for the fiscal years ended September 30, is as follows:
Beginning balance as of October 1,
SRECs generated
SRECs sold
Ending balance as of September 30,
2014
2013
2012
11,351
81,668
63,049
29,970
28,358
57,231
74,238
11,351
595
35,126
7,363
28,358
NJRCEV economically hedges a portion of its expected SREC production through forward sale contracts. As of
September 30, 2014, NJRCEV has hedged approximately 64 percent and 21 percent of its SREC inventory and projected SREC
production related to its existing commercial assets for fiscal years 2015 and 2016, respectively.
Wind
Clean Energy Ventures has also invested in small to mid-size wind projects that fit its investment profile, including the
following as of September 30, 2014:
The average SREC sales price was $152 in fiscal 2014, $128 in fiscal 2013 and $154 in fiscal 2012.
•
•
a $21.2 million, 9.7 MW project in Two Dot, Montana that was completed in June 2014; and
a $42 million, 20 MW project in Carroll County, Iowa that is currently under construction and that NJRCEV expects
to be operational in the second quarter of fiscal 2015.
panel maintenance and various fees.
There are no production costs associated with the revenue generation by our solar assets. All related costs are included as a
component of operation and maintenance expenses in the Consolidated Statements of Operations, including such expenses as solar
On October 9, 2014, NJRCEV also acquired the development rights to a $85 million, 48 MW wind project in Rush County,
Kansas that is currently under construction and expected to commence commercial operation in the first quarter of fiscal 2016.
Page 44
Page 45
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operation and Maintenance Expense
Operating Results
O&M increased during fiscal 2014, compared with fiscal 2013, due primarily to increases in compensation and incentives,
as well as increased software maintenance and administrative costs relating to solar project support for projects placed in service,
and additional lease, insurance and support costs for wind projects placed in service and under construction. O&M increased
during fiscal 2013, as compared with fiscal 2012, due primarily to increases in compensation, shared corporate services costs and
other administrative expenses.
Depreciation Expense
Depreciation expense increased $2.8 million for both fiscal 2014 and 2013, as a result of additional solar projects being
placed into service.
Income Tax Provision (Benefit)
Income tax benefit during fiscal 2014, 2013 and 2012 includes $22.6 million, $18.5 million and $34.1 million, respectively,
of ITCs associated with solar projects that were completed and placed into service during the corresponding fiscal year. NJRCEV
recognized $18 million related to tax credits, net of deferred taxes related to the 15 percent basis adjustments taken on the ITC
eligible projects, during fiscal 2014, compared with $14.7 million, net of deferred taxes, recognized during fiscal 2013.
Net Income
Net income in fiscal 2014 increased $2.6 million, compared with fiscal 2013, due primarily to an increase in ITCs and an
increase in other income, net. The increase in ITCs was due primarily to an increase in capital expenditures placed into service
and the increase in other income, net, was due primarily to the receipt of a credit support payment related to a change in ownership
at the site of one of NJRCEV's commercial solar projects, partially offset by the write-off of its investment in OwnEnergy. The
increases were partially offset by increased costs related to depreciation and O&M, as previously discussed, along with an increase
in interest expense due to higher debt associated with its capital expenditures.
Net income during fiscal 2013 decreased $9.4 million, compared with fiscal 2012, due primarily to a decrease in ITCs during
fiscal 2013. A delay in the regulatory approval process for grid-connected projects slowed construction on two of NJRCEV's
planned solar projects with a total capacity of 15.3 MW and ITC-eligible expenditures of approximately $37.7 million. As a result,
these grid-connected projects were not completed until fiscal 2014.
Higher interest and depreciation expenses, partially offset by an increase in revenue from SREC sales and other income also
contributed to the decrease in net income during fiscal 2013. The increase in interest expense was due primarily to the issuance
of additional fixed-rate long-term debt during the fourth quarter of fiscal 2012, in addition to a higher overall weighted average
interest rate during fiscal 2013 compared with fiscal 2012. Other income during fiscal 2013 includes $1 million related to the
settlement of a legal claim, as well as an insurance recovery of $997,000, which represents the replacement value of solar assets
that were damaged by Superstorm Sandy, offset by the loss of $766,000 NJRCEV recognized upon disposal of the damaged
equipment.
Midstream Segment
Overview
Our Midstream segment invests in natural gas assets, such as natural gas transportation and storage facilities. NJR believes
that acquiring, owning and developing these midstream assets, which operate under a tariff structure that has either regulated or
market-based rates, can provide a growth opportunity for the Company. To that end, NJR has a 50 percent ownership interest in
Steckman Ridge, a storage facility that operates under market-based rates, a 5.53 percent ownership interest in Iroquois, a natural
gas pipeline operating with regulated rates and a 20 percent ownership interest in PennEast, a natural gas pipeline, which the
Company estimates will be completed and operational by November 2017. NJR is pursuing other potential opportunities that meet
its investment and development criteria.
As of September 30, 2014, NJR's net investments in Steckman Ridge and Iroquois were $128.4 million and $24 million,
respectively.
The financial results of Midstream for the fiscal years ended September 30, are summarized as follows:
(Thousands)
Equity in earnings of affiliates
Operation and maintenance expenses
Interest expense, net
Income tax provision
Net income
(Thousands)
Steckman Ridge
Iroquois
Total equity in earnings of affiliates
2014
2013
2012
14,078 $
13,868 $
14,308
860 $
446 $
5,227 $
7,498 $
547 $
897 $
4,993 $
7,199 $
1,008
1,567
4,978
6,749
2014
2013
2012
9,250 $
8,671 $
4,828
5,197
9,294
5,014
14,078 $
13,868 $
14,308
$
$
$
$
$
$
$
Equity in earnings of affiliates, which is driven primarily by storage revenues generated by Steckman Ridge and transportation
revenues generated by Iroquois, is as follows for the fiscal years ended September 30:
Equity in earnings of affiliates increased $210,000 during fiscal 2014, compared with 2013 due primarily to increases in
storage service revenue and demand for hub services at Steckman Ridge during fiscal 2014. Equity in earnings of affiliates decreased
$440,000 during fiscal 2013, compared with 2012, due to lower earnings at Steckman Ridge due primarily to lower demand for
storage services and competing market dynamics in the geographic locations of the facility.
O&M increased $313,000 during fiscal 2014, compared with fiscal 2013, due primarily to increased shared services costs.
O&M decreased $461,000 during fiscal 2013, compared with fiscal 2012, due primarily to decreased shared services costs as well
as decreased charitable contributions.
Interest expense, net decreased $451,000 and $670,000 during fiscal 2014 and 2013, respectively, compared with the prior
fiscal years due primarily to cash flow generated by the investments being used for reducing debt.
Net income in fiscal 2014 increased $299,000, compared with fiscal 2013, due to the increase in equity in earnings of
affiliates and the decrease in interest expense, offset by the increase in O&M. Net income in fiscal 2013 increased $450,000
compared with fiscal 2012 due to the decreases in O&M and interest expense, offset by the decrease in equity in earnings of
Home Services and Other Operations (formerly Retail and Other Operations)
affiliates.
Overview
The financial results of Home Services and Other consist primarily of NJRHS, CR&R and NJR Energy operating results.
NJRHS provides service, sales and installation of appliances to approximately 118,000 service contract customers and has been
focused on growing its installation business and expanding its service contract customer base. CR&R seeks additional opportunities
to enhance the value of its building and undeveloped land. NJR Energy invests in other energy-related ventures. Home Services
and Other also includes organizational expenses incurred at NJR.
Page 46
Page 47
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Results
Debt
The consolidated financial results of Home Services and Other for the fiscal years ended September 30, are summarized as
follows:
(Thousands)
Operating revenues
Operation and maintenance expense
Energy and other taxes
Income tax provision
Net income
2014
2013
2012
$
$
$
$
$
46,687 $
37,522 $
3,508 $
2,460 $
2,798 $
47,954 $
37,443 $
3,508 $
2,550 $
3,292 $
42,195
32,655
3,331
2,178
2,366
Operating revenue decreased $1.3 million during fiscal 2014, compared with fiscal 2013, due primarily to the increase in the
demand for equipment installations following Superstorm Sandy, which generated higher revenue in fiscal 2013.
Operating revenue increased $5.8 million during fiscal 2013, compared with fiscal 2012, due primarily to increased NJRHS
installations primarily as a result of an increase in demand for generators and other equipment following Superstorm Sandy.
Taxes remained relatively flat during fiscal 2014, compared with fiscal 2013 and fiscal 2012.
O&M remained relatively flat during fiscal 2014, compared with fiscal 2013. O&M increased by $4.8 million during fiscal
2013, compared with fiscal 2012, due primarily to higher equipment and labor costs corresponding to the increase in installations
following Superstorm Sandy, as discussed above.
Net income during fiscal 2014, decreased $494,000, compared with fiscal 2013, due primarily to decreased revenues, as
discussed above, partially offset by a gain after taxes of $186,000 during fiscal 2014 associated with the sale of 25.4 acres of
undeveloped land at CR&R. Net income during fiscal 2013 increased $926,000, compared with fiscal 2012, due primarily to the
factors noted above.
Liquidity and Capital Resources
NJR's objective is to maintain an efficient consolidated capital structure that reflects the different characteristics of each
business segment and business operations and provides adequate financial flexibility for accessing capital markets as required.
Short-term borrowings were as follows:
NJR's consolidated capital structure at September 30, was as follows:
Common stock equity
Long-term debt
Short-term debt
Total
Common stock equity
2014
51%
31
18
100%
2013
48%
28
24
100%
NJR satisfies its external common equity requirements, if any, through issuances of its common stock, including the proceeds
from stock issuances under its DRP and proceeds from the exercise of options issued under the Company's long-term incentive
program. The DRP allows NJR, at its option, to use treasury shares or newly issued shares to raise capital. NJR raised $14.1
million and $13.7 million of equity through the DRP by issuing 292,000 and 319,000 shares of treasury stock during fiscal 2014
and 2013, respectively. During fiscal 2013, NJR also raised approximately $23.8 million of equity through the DRP by issuing
571,000 new shares. NJR issued no new shares during fiscal 2014.
In 1996, the Board of Directors authorized the Company to implement a share repurchase program, which was expanded
seven times since the inception of the program. In July 2013, the Board of Directors approved an increase in the number of shares
of NJR common stock authorized for repurchase under NJR's Share Repurchase Plan by one million shares to a total of 9.75
million shares. As of September 30, 2014, the Company repurchased a total of 8.2 million of those shares and may repurchase
an additional 1.51 million shares under the approved program. There were 144,300 shares repurchased during fiscal 2014.
Page 48
Page 49
NJR and its unregulated subsidiaries generally rely on cash flows generated from operating activities and the utilization of
committed credit facilities to provide liquidity to meet working capital and short-term debt financing requirements. NJNG also
relies on the issuance of commercial paper for short-term funding. NJR and NJNG periodically access the capital markets to fund
long-life assets through the issuance of long-term debt securities.
NJR believes that its existing borrowing availability and cash flow from operations will be sufficient to satisfy its and its
subsidiaries' working capital, capital expenditures and dividend requirements for the next 12 months. NJR, NJNG, NJRCEV and
NJRES currently anticipate that each of their financing requirements for the next 12 months will be met primarily through the
issuance of short and long-term debt, meter sale-leasebacks and proceeds from the Company's DRP.
NJR believes that as of September 30, 2014, NJR and NJNG were, and currently are, in compliance with all existing debt
covenants, both financial and non-financial.
Short-Term Debt
NJR uses its short-term borrowings primarily to finance its share repurchases, NJRES' short-term liquidity needs and, on
an initial basis, NJRCEV's investments. NJRES' use of high volume storage facilities and anticipated pipeline park-and-loan
arrangements, combined with related economic hedging activities in the volatile wholesale natural gas market, create significant
short-term cash requirements.
NJNG satisfies its debt needs by issuing short- and long-term debt based upon its financial profile. The seasonal nature of
NJNG's operations creates large short-term cash requirements, primarily to finance natural gas purchases and customer accounts
receivable. NJNG obtains working capital for these requirements, and for the temporary financing of construction and MGP
remediation expenditures and energy tax payments, based on its financial profile, through the issuance of commercial paper
supported by the NJNG Credit Facility or through short-term bank loans under the NJNG Credit Facility.
As of September 30, 2014, NJR and NJNG had revolving credit facilities totaling $425 million and $250 million,
respectively, as described below, with $256.5 million and $96.3 million, respectively, available under the facilities. Due to the
seasonal nature of natural gas prices and demand, NJR and NJNG's short-term borrowings tend to peak in the winter months.
($ in thousands)
NJR
Notes Payable to banks:
Balance at end of period
Weighted average interest rate at end of period
Average balance for the period
Weighted average interest rate for average balance
Month end maximum for the period
NJNG
Commercial Paper and Notes Payable to banks:
Balance at end of period
Weighted average interest rate at end of period
Average balance for the period
Weighted average interest rate for average balance
Month end maximum for the period
NJR
Three Months
Twelve Months
Ended
Ended
September 30, 2014
$
$
$
$
$
$
148,000
1.08%
97,412
1.08%
148,000
153,000
0.12%
116,903
0.12%
153,000
$
$
$
$
$
$
148,000
1.08%
161,092
1.04%
324,900
153,000
0.12%
118,227
0.13%
204,500
In August 2012, NJR, entered into a $325 million Amended and Restated Credit Agreement, that terminates on August 22,
2017. Effective January 31, 2014, NJR utilized the accordion option available under the NJR Credit Facility to increase the amount
of credit available from $325 million to $425 million, primarily to provide additional working capital to NJRES to meet any
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
potential margin calls that may arise in NJRES' normal course of business. Borrowings under the NJR Credit Facility bear interest,
at NJR's option at (i) a rate per annum equal to the greatest of (A) PNC Bank N.A.'s prime rate, (B) the Federal Funds Open Rate,
plus .5 percent, or (C) the Daily LIBOR Rate (as defined in the agreement) plus 1 percent, plus in the case of (A), (B) and (C),
an applicable margin between 0 percent and .625 percent, depending upon the credit rating of NJNG, or (ii) a rate per annum
equal to the Daily LIBOR Rate plus an applicable margin of .875 percent to 1.625 percent, depending on NJNG's credit rating.
As of September 30, 2014, the Commitment Fee Rate was .1 percent, the applicable margin for loans described in (i) above was
0 percent and the applicable margin for loans described in (ii) above was .875 percent. Certain of NJR's unregulated subsidiaries
have guaranteed to the lenders all of NJR's obligations under the credit facility.
The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of
credit. As of September 30, 2014, the consolidated total indebtedness to total capitalization ratio, as defined in the NJR Credit
Facility, was 50 percent after adjustments for the fair value of derivative assets and liabilities and standby letters of credit.
As of September 30, 2014, NJR had $148 million outstanding under the NJR Credit Facility. Neither NJNG nor its assets
ensure payment of principal and interest. This credit facility was no longer needed due to the recent change in interest rate mode
are obligated or pledged to support the NJR Credit Facility.
of the EDA Bonds and was terminated on September 26, 2014.
During fiscal 2014, NJR's average interest rate under the NJR Credit Facility was 1.04 percent, resulting in interest expense
of $1.6 million. Based on average borrowings under the facilities of $161.1 million during the period, a 100 basis point change
in the underlying average interest rate would have caused a change in interest expense of approximately $1.6 million during fiscal
2014.
As of September 30, 2014, NJR has six letters of credit outstanding totaling $20.5 million. One letter of credit for $15
million is on behalf of NJRES and five letters of credit are on behalf of NJRCEV totaling $5.5 million. 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.
NJRES' letter of credit is used for margin requirements for natural gas transactions and expires on December 31, 2014.
NJRCEV's letters of credit are used to secure construction of ground-mounted solar projects and to secure obligations pursuant
to an Interconnection Services Agreement; they expire on dates ranging from November 27, 2014 to August 21, 2015.
On September 13, 2013, NJR entered into a $100 million Term Loan Credit Agreement, with JPMorgan Chase Bank, N.A.,
as a Lender and Administrative Agent, which expired on September 15, 2014, and was not renewed.
On June 5, 2013, NJR entered into an agreement with Santander Bank, N.A. permitting the issuance of stand-alone letters
of credit for up to $10 million, which expired on June 5, 2014.
On October 24, 2014, NJR entered into a $100 million uncommitted Line of Credit Agreement, with Santander Bank, N.A.,
expiring on October 23, 2015. Loans under the Line of Credit Agreement are made at the discretion of the Lender and, when
made, will bear interest at the Eurodollar Rate (as defined in the Agreement) plus an applicable margin to be determined at the
time a borrowing is requested.
NJNG
NJNG's commercial paper is sold through several commercial banks under an issuing and paying agency agreement and
is supported by the NJNG Credit Facility. On May 15, 2014, NJNG entered into a $250 million, five-year, revolving, unsecured
credit facility expiring in May 2019, which replaced an existing $250 million credit facility that was scheduled to expire in August
2014. The new NJNG Credit Facility permits the borrowing of revolving loans and swing loans, as well as the issuance of letters
of credit. It also permits an increase to the facility, from time to time, with the existing or new lenders, in a minimum of $15
million increments up to a maximum of $50 million at the lending banks' discretion. The commitment fee for the NJNG Credit
Facility may range from .075 percent to .20 percent, depending upon NJNG's credit rating. As of September 30, 2014, the
commitment fee was .075 percent. Depending on borrowing levels and credit ratings, NJNG's interest rate can either be, at its
discretion, based upon Prime Rate, the Federal Funds Open Rate or the Daily LIBOR Rate, in each case, plus an applicable spread
and facility fee. In addition, borrowings under NJNG's credit facility are conditioned upon compliance with a maximum leverage
ratio (consolidated total indebtedness to consolidated total capitalization as defined in the NJNG Credit Facility) of not more
than .65 to 1.00 at any time. As of September 30, 2014, the consolidated total indebtedness to total capitalization ratio was 47
percent and the applicable margin for loans described above was zero. As of September 30, 2014, the unused amount available
Page 50
under the NJNG Credit Facility, including amounts allocated to the backstop under the commercial paper program and the issuance
of letters of credit, was $96.3 million. During fiscal 2014, NJNG's weighted average interest rate on outstanding commercial
paper was .13 percent, resulting in interest expense of $162,000. Based on average borrowings under the facility of $118.2 million
during the period, a 100 basis point change in the underlying average interest rate would have caused a change in interest expense
of approximately $1.2 million during fiscal 2014.
As of September 30, 2014, NJNG has two letters of credit outstanding for $731,000. 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 counterparties. These letters of credit are used as collateral for soil remediation systems and
expire on August 11, 2015.
NJNG entered into a $100 million, four-year credit facility with JPMorgan Chase Bank, N.A., in August 2011. The JPMC
Facility was available to the Company to provide liquidity support in the event of a failed remarketing of the EDA Bonds and to
Short-Term Debt Covenants
Borrowings under the NJR Credit Facility and NJNG Credit Facility are conditioned upon compliance with a maximum
leverage ratio (consolidated total indebtedness to consolidated total capitalization as defined in the applicable agreements), of
not more than .65 to 1.00 at any time. These revolving credit facilities contain customary representations and warranties for
transactions of this type. They also contain customary events of default and certain covenants that will limit NJR or NJNG's
ability beyond agreed upon thresholds, to, among other things:
•
incur additional debt;
•
incur liens and encumbrances;
• make dispositions of assets;
• enter into transactions with affiliates; and
• merge, consolidate, transfer, sell or lease all or substantially all of the borrower's or guarantors' assets.
These covenants are subject to a number of exceptions and qualifications set forth in the applicable agreements.
Default Provisions
The agreements governing our long-term and short-term debt obligations include provisions that, if not complied with,
could require early payment or similar actions. Default events include, but are not limited to, the following:
• defaults for non-payment;
• defaults for breach of representations and warranties;
• defaults for insolvency;
• defaults for non-performance of covenants;
• cross-defaults to other debt obligations of the borrower; and
• guarantor defaults.
The occurrence of an event of default under these agreements could result in all loans and other obligations of the borrower
becoming immediately due and payable and the termination of the credit facilities or term loan.
Page 51
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Long-Term Debt
NJR
As of September 30, 2014, NJNG's long-term debt consisted of $335.8 million in fixed-rate debt issuances secured by the
New Mortgage Indenture, with maturities ranging from 2018 to 2044, $97 million in secured variable rate debt with maturities
ranging from 2027 to 2041 and $40.4 million in capital leases with various maturities ranging from 2015 to 2021.
NJR has $50 million of 6.05 percent senior unsecured notes, issued through the private placement market, maturing in
On May 27, 2014, NJNG redeemed the $12 million, 5 percent Series HH bonds, which were callable as of December 1,
September 2017.
2013.
On September 26, 2013, NJR entered into an unsecured, uncommitted $100 million private placement shelf note agreement
with MetLife. The MetLife Facility, subject to the terms and conditions set forth therein, allows NJR to issue senior notes to
MetLife or certain of MetLife's affiliates from time to time during a three-year issuance period ending September 26, 2016, on
terms and conditions, including interest rates and maturity dates, to be agreed upon in connection with each note issuance. Any
notes issued under the MetLife Facility will be guaranteed by certain unregulated subsidiaries of NJR. As of September 30, 2014,
$100 million remains available for borrowing under the MetLife Facility.
NJR has outstanding $25 million of 1.94 percent senior notes due September 15, 2015, and $25 million of 2.51 percent
entered into on February 7, 2014. The notes are secured by an equal principal amount of NJNG's FMBs (Series QQ and RR,
senior notes due September 15, 2018, which were issued under a now-expired facility with MetLife.
In June 2011, NJR entered into an unsecured, uncommitted $75 million private placement shelf note agreement with
Prudential, which was amended effective July 25, 2014, by the First Amendment to the Prudential Facility, as discussed below.
The Prudential Facility, subject to the terms and conditions set forth therein, allows NJR to issue senior notes to Prudential or
certain of Prudential's affiliates from time to time during a three-year issuance period that ended on June 30, 2014, on terms and
conditions, including interest rates and maturity dates, to be agreed upon in connection with each note issuance. In September
2012, NJR issued $50 million of 3.25 percent senior notes due September 17, 2022. The notes issued under the Prudential Facility
are guaranteed by certain unregulated subsidiaries of NJR.
Effective July 25, 2014, NJR entered into a First Amendment to the Prudential Facility allowing the issuance of up to an
additional $100 million in notes. On November 7, 2014, NJR issued $100 million in 3.48 percent senior notes due November 7,
2024
NJNG
NJNG and Trustee, entered into the New Mortgage Indenture, dated September 1, 2014, which amends and restates the Old
Mortgage Indenture in its entirety and names the Trustee, by virtue of an Omnibus Agreement dated as of September 24, 2014,
by and among the Former Trustee, U.S. Bank National Association, the holders of more than 66-2/3 percent in aggregate principal
amount of the outstanding bonds under the Old Mortgage Indenture, the collateral agents for the holders of certain of NJNG's
senior notes, the owner of the EDA Bonds and the EDA Bond Trustee.
The New Mortgage Indenture secures all of the outstanding FMBs issued under the Old Mortgage Indenture. The New
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 New 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.
The New Mortgage Indenture provides that additional FMBs may be issued, subject to the provisions of the New Mortgage
Indenture, in principal amounts equal to (1) 70 percent of the Net Amount of Property Additions (as defined in the New Mortgage
Indenture and described below); (2) the amount of cash deposited with the Trustee for the purpose of obtaining the authentication
of such additional FMBs; or (3) the aggregate principal amount of FMBs delivered to the Trustee by NJNG or otherwise to be
retired, and which have not previously been used by NJNG for any purpose under the New Mortgage Indenture.
The New Mortgage Indenture permits the release of mortgaged property upon compliance with certain conditions. One
alternative basis for the release of mortgaged property is if the value of the Trust Estate (as defined in the New Mortgage Indenture)
exceeds ten-sevenths (10/7) of the outstanding principal amount of the FMBs. This ability to release mortgaged property is subject
to the release not materially adversely affecting NJNG's business nor impairing the security of the FMBs.
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Page 53
On April 23, 2014, the BPU approved a petition filed by NJNG requesting authorization over a three-year period to issue
up to $300 million of medium-term notes with a maturity of not more than 30 years, renew its revolving credit facility expiring
August 2014 for up to five years, enter into interest rate risk management transactions related to debt securities and redeem,
refinance or defease any of NJNG's outstanding long-term debt securities.
On March 13, 2014, NJNG issued $70 million of 3.58 percent senior secured notes due March 13, 2024, and $55 million
of 4.61 percent senior secured notes due March 13, 2044, in the private placement market pursuant to a note purchase agreement
respectively) issued under NJNG's Mortgage Indenture. The proceeds from the notes were used to pay down short-term debt and
redeem its $60 million, 4.77 percent private placement bonds. The notes are subject to required prepayments upon the occurrence
of certain events and NJNG may at any time prepay all or a portion of the notes at a make-whole prepayment price.
On April 15, 2013, NJNG issued $50 million of 3.15 percent senior secured notes (3.15 percent notes) due April 15, 2028,
in the private placement market pursuant to a note purchase agreement entered into on February 8, 2013. The 3.15 percent notes
are secured by an equal principal amount of NJNG's FMBs (Series PP) issued under NJNG's Mortgage Indenture. The proceeds
from the 3.15 percent notes were used to refinance short-term debt and to fund capital expenditure requirements. The 3.15 percent
notes are subject to required prepayments upon the occurrence of certain events. NJNG may at any time prepay all or a portion
of the 3.15 percent notes at a make-whole prepayment price.
NJR is not obligated directly or contingently with respect to the notes or the FMBs.
Long-Term Debt Covenants and Default Provisions
The NJR and NJNG long-term debt instruments contain customary representations and warranties for transaction of their
type. They also contain customary events of default and certain covenants that will limit NJR or NJNG's ability beyond agreed
upon thresholds to, among other things:
•
Incur additional debt (including a covenant that limits the amount of consolidated total debt of the borrower at the end
of a fiscal quarter to 65 percent of the consolidated total capitalization of the borrower, as those terms are defined in the
applicable agreements, and a covenant limiting priority debt to 20 percent of the borrower's consolidated total capitalization,
as those terms are defined in the applicable agreements);
•
Incur liens and encumbrances;
• Make loans and investments;
• Make dispositions of assets;
• Make dividends or restricted payments;
• Enter into transactions with affiliates; and
• Merge, consolidate, transfer, sell or lease substantially all of the borrower's assets.
The aforementioned covenants are subject to a number of important exceptions and qualifications set forth in the
applicable note purchase agreements.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In addition, the FMBs issued by NJNG under the New Mortgage Indenture are subject to certain default provisions. Events
of Default, as defined in the New Mortgage Indenture, consist mainly of (1) failure for 30 days to pay interest when due; (2)
failure to pay principal or premium when due and payable; (3) failure to make sinking fund payments when due; (4) failure to
comply with any other covenants of the New Mortgage Indenture after 30 days' written notice from the Trustee; (5) failure to
pay or provide for judgments in excess of $30,000,000 in aggregate amount within 60 days of the entry thereof; or (6) certain
events that are or could be the basis of a bankruptcy, reorganization, insolvency or receivership proceeding. Upon the occurrence
and continuance of such an Event of Default, the New Mortgage Indenture, subject to any provisions of law applicable thereto,
provides that the Trustee may take possession and conduct the business of the NJNG, may sell the trust estate, or proceed to
foreclose the lien of the New Mortgage Indenture. The interest rate on defaulted principal and interest, to the extent permitted
by law, on the FMBs issued under the New Mortgage Indenture is the rate stated in the applicable supplement or, if no such rate
is stated, six percent per annum.
NJNG Variable-Rate Long-Term Debt
In August 2011, NJNG completed a refunding of its outstanding Auction-Rate Securities whereby the EDA issued a total
of $97 million of Natural Gas Facilities Refunding Revenue Bonds (New Jersey Natural Gas Company Project) composed of
three series of bonds: the $9.5 million principal amount Series 2011A Bonds (Non-AMT) due September 1, 2027, the $41 million
principal amount Series 2011B Bonds (AMT) due August 1, 2035 and the $46.5 million principal amount Series 2011C Bonds
(AMT) due August 1, 2041. EDA Bonds are special, limited obligations of the EDA payable solely from payments made by
NJNG pursuant to a Loan Agreement between the EDA and the Company, and are secured by the pledge of $97 million principal
amount First Mortgage Bonds issued by the Company. Prior to September 24, 2014, each series of the EDA Bonds accrued interest
at a daily interest rate.
On September 24, 2014, NJNG completed a change in interest rate mode for all of the EDA Bonds. In connection with the
change in interest rate mode, NJNG entered into a CCA dated as of September 24, 2014 with Wells Fargo, pursuant to which
Wells Fargo agreed to buy the EDA Bonds. Each series of EDA Bonds is expected to accrue interest for five years at a variable
rate determined monthly, which rate is initially calculated as .55 percent plus 70 percent of one month LIBOR, subject to earlier
redemption or conversion to another interest rate mode. The maximum interest rate on the EDA Bonds is 12 percent per annum.
NJNG's obligations under the Loan Agreement (and its corresponding obligations under the FMBs) match the respective principal
amounts, interest rates and maturity dates of the EDA Bonds. The EDA Bonds are not subject to optional tender while they bear
interest at a LIBOR index rate. The weighted average interest rate as of September 30, 2014, on the EDA Bonds was .66 percent.
The interest rate on the EDA Bonds may vary based upon market conditions. Sudden increases in the interest rate could cause a
change in interest expense and cash flow for NJNG in the future.
The CCA also contains representations, warranties, covenants and defaults consistent with those contained in similar NJNG
loan agreements, including but not limited to: (a) a maximum leverage ratio (consolidated total indebtedness to consolidated total
capitalization as defined in the CCA) of not more than 0.65 to 1.00 at any time; (b) limitations on liens and incurrence of debt,
investments, and mergers and asset dispositions, and the use of the proceeds of the CCA; (c) requirements to preserve corporate
existence and comply with laws; and (d) default provisions, including defaults for non-payment, defaults for breach of
representations and warranties, defaults for insolvency, defaults for non-performance of covenants, cross-defaults and guarantor
defaults.
As a result of the change in the interest rate mode on the EDA Bonds from a daily rate, on September 26, 2014, NJNG
terminated the $100 million four-year credit facility with JPMorgan Chase Bank, N.A., dated August 29, 2011, which had
previously provided additional liquidity for its obligations under the Loan Agreement.
Sale-Leaseback
NJNG received $7.6 million, $7.1 million and $6.5 million in fiscal 2014, 2013 and 2012, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2014, 2013 and 2012, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $956,000, $752,000 and $1 million, respectively. NJNG expects
to continue this sale-leaseback program on an annual basis, subject to market conditions.
Contractual Obligations
The following table is a summary of NJR, NJNG and NJRES contractual cash obligations and financial commitments and
their applicable payment due dates as of September 30, 2014:
(Thousands)
Long-term debt (1)
Capital lease obligations (1)
Operating leases (1)
Short-term debt
New Jersey Clean Energy Program (1)
Construction obligations
Remediation expenditures (2)
Natural gas supply purchase obligations-NJNG
Demand fee commitments-NJNG
Natural gas supply purchase obligations-NJRES
Demand fee commitments-NJRES
Total contractual cash obligations
(1)
(2)
Expenditures are estimated.
Up to
1 Year
2-3
Years
4-5
Years
After
5 Years
$
795,522 $
46,683 $
92,378 $
176,105 $
480,356
Total
57,963
32,351
301,000
14,285
55,144
177,000
105,580
1,248,842
316,965
219,955
11,897
2,616
301,000
14,285
54,327
13,000
100,218
78,337
298,563
104,406
23,124
4,073
—
—
817
47,000
5,362
114,122
18,402
79,670
15,354
2,877
7,588
22,785
—
—
—
—
—
15,000
102,000
191,523
864,860
26,420
9,459
—
—
—
—
—
These obligations include an interest component, as defined under the related governing agreements or in accordance with the applicable tax statute.
$ 3,324,607 $ 1,025,332 $
384,948 $
427,279 $ 1,487,048
NJR does not expect to be required to make additional contributions to fund its pension plans over the next three 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.
In addition, as in the past, NJR may elect to make contributions to the plans in excess of the minimum required amount. NJR
made no discretionary contributions to the pension plans in fiscal 2014, and made a discretionary contribution of $20 million in
fiscal 2013. This contribution brought the plan to the Transition Target Funding level under the Pension Protection Act. 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. NJR anticipates that the annual funding level to the OPEB plans will range from $4 million
to $6 million annually over the next five years subject to review in NJNG's next base rate case to be filed no later than November 15,
2015. Additional contributions may vary based on market conditions and various assumptions.
As of September 30, 2014, there were NJR guarantees covering approximately $323.6 million of natural gas purchases and
demand fee commitments of NJRES and NJNG included in natural gas supply purchase obligations above, not yet reflected in
Accounts payable on the Consolidated Balance Sheets.
NJNG's incurs significant capital expenditures consisting primarily of its construction program to support customer growth,
maintenance of its distribution and transmission system and replacement needed under pipeline safety regulations. During fiscal
2014, committed and spent capital expenditures totaled $156.9 million, of which $40.3 million was related to SAFE and
approximately $9.8 million was related to restoration of storm damages.
In fiscal 2015 and 2016, NJNG's total capital expenditures are projected to be $182.3 million and $233.7 million, respectively,
and include estimated SAFE costs of $41.2 million and $39 million, respectively. In November 2012, NJNG filed a petition with
the BPU requesting deferral accounting for incurred uninsured incremental O&M costs associated with Superstorm Sandy. As
of September 30, 2014, NJNG has deferred $15.2 million in regulatory assets for future recovery. On October 22, 2014, the BPU
approved the deferred assets as prudent and reasonable for recovery with the appropriate amortization period for such deferred
expenses to be addressed in the Company's next base rate case to be filed no later than November 15, 2015. However, there can
be no assurances that such recovery mechanisms will be available or, if available, no assurances can be given relative to the
timing or amount of such recovery.
NJNG expects to fund its obligations with a combination of cash flow from operations, cash on hand, issuance of commercial
paper, available capacity under its revolving credit facility, the issuance of long-term debt and contributions from NJR.
As of September 30, 2014, NJNG's future MGP expenditures are estimated to total $177 million. For a more detailed
description of MGP see Note 13. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
Page 54
Page 55
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory
The increase of $242.8 million during fiscal 2014, compared with fiscal 2013, was due primarily to unusually cold weather
constraints, environmental regulations, unforeseen events and the ability to access capital.
NJRCEV's expenditures include distributed power projects that support NJR's goal to promote clean energy. Accordingly,
NJRCEV enters into agreements to install solar equipment involving both residential and commercial projects. During fiscal
2014, capital expenditures spent related to the purchase and installation of the solar equipment were $95.8 million and an additional
$33.1 million has been committed or accrued for solar projects to be placed into service during fiscal 2015 and beyond. The
Company estimates solar-related capital expenditures placed in service in fiscal 2015 to be between $100 million and $110 million.
On October 11, 2013, NJRCEV acquired the development rights of the Two Dot wind project in Montana, which was its
first onshore wind project. NJRCEV invested approximately $21.2 million to construct the 9.7 MW wind project that was completed
in June 2014. In the second fiscal quarter of 2014, NJRCEV acquired the development rights to its second wind project, a $42
million, 20 MW wind farm currently under construction in Carroll County, Iowa and on October 9, 2014, NJRCEV acquired the
development rights to an $85 million, 48 MW wind project in Rush County, Kansas that is currently under construction. During
fiscal 2014, $39.7 million has been spent and, as of September 30, 2014, an additional $19.3 million has been committed or
accrued for these wind projects. In fiscal 2015, NJRCEV estimates that its wind-related capital expenditures will range between
$90 million and $110 million.
Capital expenditures related to distributed power projects are subject to change due to a variety of factors that may affect
our ability to commence operations at these projects on a timely basis or, at all, including logistics associated with the start-up
of residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any
delays related to electric grid interconnection, economic trends, unforeseen events and the ability to access capital or allocation
of capital to other investments or business opportunities.
NJRES does not currently anticipate any significant capital expenditures in fiscal 2015 and 2016.
Off-Balance-Sheet Arrangements
The Company does not have any off-balance-sheet arrangements, with the exception of guarantees covering approximately
$323.6 million of natural gas purchases and demand fee commitments, see Note 13. Commitments and Contingent Liabilities,
and eight outstanding letters of credit totaling $21.2 million, that secures operational activities at certain unregulated subsidiaries,
see Note 8. Debt.
Cash Flow
Operating Activities
Operating cash flows are primarily affected by variations in working capital, which can be impacted by several factors,
totaled $135.5 million and $59.1 million, respectively.
including:
•
•
•
•
•
•
•
•
•
seasonality of NJR's business;
fluctuations in wholesale natural gas prices, including changes in derivative asset and liability values;
timing of storage injections and withdrawals;
the deferral and recovery of gas costs;
changes in contractual assets utilized to optimize margins related to natural gas transactions;
broker margin requirements;
timing of the collections of receivables and payments of current liabilities;
volumes of natural gas purchased and sold; and
timing of SREC deliveries.
Page 56
Page 57
during fiscal 2014, which resulted in a significant increase in sales of natural gas out of storage at NJRES, as well as an increase
in volatility and natural gas prices that factored into the overall profitability and positive changes in working capital at NJRES.
The increase in operating cash flows also consisted of lower contributions to the postemployment benefit plans, partially offset
by a decrease of $34 million in broker margin balances due primarily to a decrease in the value of open positions and related
increase in cash requirements.
The $62.9 million increase in cash generated from operations during fiscal 2013, compared with fiscal 2012, was impacted by:
•
credits of $85.9 million issued to NJNG's customers during the first quarter of fiscal 2012 for overrecovered gas costs
•
cash received totaling $17.9 million due to the sale of NJRES' MF Global bankruptcy claim and related distributions;
•
additional expenditures of approximately $15.2 million related to Superstorm Sandy restoration efforts at NJNG that
that did not recur during fiscal 2013;
partially offset by
have been deferred as a regulatory asset.
Investing Activities
Cash flows used in investing activities totaled $282.6 million during fiscal 2014, compared with $193.6 million during fiscal
2013. The increase of $89 million was due primarily to an increase in capital expenditures of $39.7 million related to wind projects,
$36.7 million related to solar projects at NJRCEV and $15.5 million related to utility plant, including cost of removal at NJNG,
partially offset by proceeds of $6 million from the sale of land at CR&R.
Cash flow used in investing activities totaled $193.6 million during fiscal 2013, compared with $217.1 million during fiscal
2012. The decrease was due primarily to lower solar equipment expenditures at NJRCEV, partially offset by higher utility plant
asset expenditures at NJNG. NJR also received a distribution, in excess of its equity in earnings, of $3.1 million from Steckman
Ridge and received proceeds of $482,000 from the sale of available for sale shares during fiscal 2013.
NJNG's capital expenditures result primarily from the need for services, mains and meters to support its continued customer
growth, mandated pipeline safety rulemaking, general system improvements and approved infrastructure programs. During fiscal
2014 and fiscal 2013, NJNG's capital expenditures, including cost of removal, totaled $152.6 million and $137.1 million,
respectively, including $40.3 million and $33.4 million related to SAFE. Fiscal 2013 also included expenditures of $11.9 million
related to AIP.
The Company entered into various agreements to install solar equipment involving both residential and commercial projects
and to build , operate and maintain wind projects. During fiscal 2014 and fiscal 2013, capital expenditures spent on these projects,
Home Services and Other capital expenditures in past years have been made primarily in connection with investments made
to preserve the value of real estate holdings. As of September 30, 2014, CR&R owned 52 acres of undeveloped land and a 56,400
square-foot office building on five acres of land. On October 22, 2013, CR&R sold approximately 25.4 acres of its undeveloped
land for $6 million, generating a pre-tax gain of $313,000, after closing costs.
Financing Activities
Financing cash flows generally are seasonal in nature and are impacted by the volatility in pricing in the natural gas markets.
NJNG's inventory levels are built up during its natural gas injection season (April through October) and reduced during withdrawal
season (November through March) in response to the supply requirements of its customers. Changes in financing cash flows can
also be impacted by gas management and marketing activities at NJRES and distributed power investments at NJRCEV.
Cash flows (used in) financing activities during fiscal 2014 totaled $(75) million, compared with $78.1 million generated
during fiscal 2013. The decrease of $153.1 million was due primarily to a decrease in short-term borrowings at NJR and NJNG.
NJNG also issued $125 million in senior notes during fiscal 2014, which was used to reduce short-term borrowings and
redeem $60 million, 4.77 percent private placement bonds that matured in March 2014 and $12 million Series HH bonds, which
were callable as of December 1, 2013 and redeemed in May 2014.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Cash from financing activities decreased $85 million during fiscal 2013, from $163.1 million during fiscal 2012, due primarily
to a combination of lower proceeds received from the issuance of long- and short-term debt, partially offset by an increase in
proceeds from the issuance of common shares.
NJNG received $7.6 million, $7.1 million and $6.5 million for fiscal 2014, 2013 and 2012, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2014, 2013 and 2012, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $956,000, $752,000 and $1 million, respectively. This sale-leaseback
program is expected to continue on an annual basis.
Credit Ratings
On January 30, 2014, Moody's upgraded NJNG's senior secured rating from Aa3 to Aa2, while maintaining a stable outlook.
The rating upgrade was driven primarily by the overall credit supportiveness of the regulatory environment under which NJNG
operates. In its review of NJNG's credit rating, Moody's considered the BPU's continued support of NJNG's rate mechanisms,
which allows for timely recovery of costs, including those associated with NJNG's BGSS and CIP. In addition, the favorable
recovery of investments related to NJNG's infrastructure and energy efficiency programs factored into the rating upgrade.
(Thousands)
NJNG
NJRES
Total
This table summarizes NJNG's credit ratings, issued by two rating entities, S&P and Moody's, as of September 30, 2014:
There were no changes in methods of valuations during the year ended September 30, 2014.
Corporate Rating
Commercial Paper
Senior Secured
Ratings Outlook
S&P
A
A-1
A+
Stable
Moody's
N/A
P-1
Aa2
Stable
NJNG's S&P and Moody's ratings are investment-grade ratings. NJR is not a rated entity.
Although NJNG is not party to any lending agreements that would accelerate the maturity date of any obligation caused by
a failure to maintain any specific credit rating, if such ratings are downgraded below investment grade, borrowing costs could
increase, as would the costs of maintaining certain contractual relationships and future financing and reduce our access to capital
markets. Even if ratings are downgraded without falling below investment grade, NJR and NJNG could face increased borrowing
costs under their credit facilities. A rating set forth above is not a recommendation to buy, sell or hold the Company's or NJNG's
securities and may be subject to revision or withdrawal at any time. Each rating set forth above should be evaluated independently
of any other rating.
The timing and mix of any external financings will target a common equity ratio that is consistent with maintaining the
Company's current short-term and long-term credit ratings.
(1) Million Metric British thermal unit
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table reflects the changes in the fair market value of physical commodity contracts from September 30, 2013
Financial Risk Management
Commodity Market Risks
Natural gas is a nationally traded commodity. Its prices are determined effectively by the NYMEX and over-the-counter
markets. The prices on the NYMEX/CME, ICE and over-the-counter markets generally reflect the national balance of natural gas
supply and demand, but are also significantly influenced from time to time by other events.
Foreign Currency Market Risks
The regulated and deregulated natural gas businesses of NJR and its subsidiaries are subject to market risk due to fluctuations
in the price of natural gas. To economically hedge against such fluctuations, NJR and its subsidiaries have entered into forwards,
futures, options and swap agreements. To manage these derivative instruments, NJR has well-defined risk management policies
and procedures that include daily monitoring of volumetric limits and monetary guidelines. NJR's natural gas businesses are
conducted through three of its operating subsidiaries. NJNG is a regulated utility that uses futures, options and swaps to economically
hedge against price fluctuations, and its recovery of natural gas costs is governed by the BPU. NJRES uses futures, options, swaps
Page 58
The following table reflects the changes in the fair market value of financial derivatives related to foreign currency hedges
from September 30, 2013 to September 30, 2014:
Balance
Increase
September 30,
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2014
(432)
(266)
$
(155)
2013
$
11
Page 59
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
and physical contracts to economically hedge purchases and sales of natural gas. Financial derivatives have historically been
transacted on an exchange and cleared through an FCM, thus requiring daily cash margining for a majority of NJRES' and NJNG's
positions. As a result of the Dodd-Frank Act, certain NJRES' and NJNG's other transactions that were previously executed in the
over-the-counter markets are now cleared through an FCM, resulting in increased margin requirements. The related cash flow
impact from the increased requirements is expected to be minimal. Non-financial (i.e., physical) derivatives utilized by the Company
have received statutory exclusion from similar Dodd-Frank provisions due to the element of physical settlement.
The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and
sales from September 30, 2013 to September 30, 2014:
Balance
Increase
September 30,
(Decrease) in Fair
2013
Market Value
Less
Amounts
Settled
Balance
September 30,
2014
$
1,438
14,563
$ 16,001
$
10,815
$
11,876
$
377
(135,711)
(119,734)
(1,414)
$ (124,896) $ (107,858)
$ (1,037)
The following is a summary of fair market value of financial derivatives as of September 30, 2014, excluding foreign
exchange contracts discussed below, by method of valuation and by maturity for each fiscal year period:
(Thousands)
Price based on NYMEX/CME
Price based on ICE
Total
2015
2016
2017 - 2019 After 2019
$
$
(431) $
334
(97) $
(87)
(809)
(896)
$
$
18
(62)
(44)
$ —
—
$ —
Total
Fair Value
$
(500)
(537)
$ (1,037)
The following is a summary of financial derivatives by type as of September 30, 2014:
Volume
Bcf
Price per
MMBtu (1)
Futures
Futures
Options
17.3
$2.92 - $4.78
(62.1)
$2.19 - $8.85
1.2
$0.24 - $0.24
Amounts included
in Derivatives
(Thousands)
$
$
377
(1,431)
17
$ (1,037)
NJRES - Prices based on other external data
$ (2,772)
(90,330)
(77,618)
$ (15,484)
Balance
Increase
September 30,
(Decrease) in Fair
2013
Market Value
Less
Amounts
Settled
Balance
September 30,
2014
NJNG
NJRES
Total
to September 30, 2014:
(Thousands)
(Thousands)
NJRES
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
There were no changes in methods of valuations during the fiscal year ended September 30, 2014.
Unregulated counterparty credit exposure as of September 30, 2014, is as follows:
The following is a summary of fair market value of financial derivatives related to foreign currency hedges at September 30,
2014, by method of valuation and by maturity for each fiscal year period:
(Thousands)
2015
2016
2017 - 2019 After 2019
Total
Fair Value
Prices based on other external data
$
(155)
—
—
—
$
(155)
The Company's market price risk is predominately related to changes in the price of natural gas at Henry Hub, which is the
delivery point for the NYMEX natural gas futures contracts. As the fair value of futures and fixed price swaps is derived from
this location, the price sensitivity analysis below has been prepared for all open Henry Hub natural gas futures and fixed swap
positions. Based on this, an illustrative 10 percent movement in Henry Hub natural gas futures contract prices, for example,
increases (decreases) the reported derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed swap
positions by approximately $25 million. This analysis does not include potential changes to reported credit adjustments embedded
in the $7.9 million reported fair value.
Derivative Fair Value Sensitivity Analysis
(Thousands)
Henry Hub Futures and Fixed Price Swaps
Percent increase in NYMEX natural gas futures prices
0%
5%
10%
15%
20%
Estimated change in derivative fair value
Ending derivative fair value
Percent decrease in NYMEX natural gas futures prices
Estimated change in derivative fair value
Ending derivative fair value
Wholesale Credit Risk
$
$
$
$
— $ (12,486) $ (24,972) $ (37,458) $ (49,945)
(4,621) $ (17,107) $ (29,593) $ (42,080)
7,865 $
0%
(5)%
(10)%
(15)%
(20)%
— $
12,486 $
24,972 $
37,458 $
49,945
7,865 $
20,351 $
32,837 $
45,323 $
57,810
NJNG and NJRES engage in wholesale marketing activities and NJRCEV engages in SREC sales. NJR monitors and manages
the credit risk of its operations through credit policies and procedures that management believes reduce overall credit risk. These
policies include a review and evaluation of prospective counterparties' financial statements and/or credit ratings, daily monitoring
of counterparties' credit limits, daily communication with traders regarding credit status and the use of credit mitigation measures,
such as minimum margin requirements, collateral requirements and netting agreements. Examples of collateral include letters of
credit and cash received for either prepayment or margin deposit.
The Company's Risk Management Committee continuously monitors NJR's credit risk management policies and procedures
and is composed of individuals from NJR-affiliated companies. The Risk Management Committee meets twice a month and,
among other things, evaluates the effectiveness of existing credit policies and procedures, reviews material transactions and
discusses emerging issues.
The following is a summary of gross and net credit exposures, grouped by investment and noninvestment grade counterparties,
as of September 30, 2014. Gross credit exposure is defined as the unrealized fair value of derivative and energy trading 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. Net credit exposure is defined as gross credit exposure reduced by
collateral received from counterparties and/or payables, where netting agreements exist. The amounts presented below exclude
accounts receivable for NJNG retail natural gas sales and services.
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
NJNG's counterparty credit exposure as of September 30, 2014, is as follows:
Gross Credit
Exposure
Net Credit
Exposure
$ 138,308
$ 102,348
5,971
9,256
9,271
814
3,000
2,526
$ 162,806
$ 108,688
Gross Credit
Exposure
Net Credit
Exposure
$
4,762
$
4,225
491
78
95
—
51
67
$
5,426
$
4,343
Due to the inherent volatility in the prices of natural gas commodities and derivatives, the market value of contractual
positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a
counterparty failed to perform the obligations under its contract (for example, failed to deliver or pay for natural gas), the Company
could sustain a loss. This loss would comprise the loss on natural gas delivered but not paid for and/or the cost of replacing natural
gas not delivered or received at a price that is unfavorable to the price in the original contract. Any such loss could have a material
impact on the Company's financial condition, results of operations or cash flows.
Interest Rate Risk
As of September 30, 2014, NJNG is obligated to make principal and interest payments under a loan agreement securing $97
million of variable rate debt issued by the EDA. The bonds are in a LIBOR-based monthly interest rate mode and will accrue
interest for five years at a variable rate determined monthly, which was initially calculated at .55 percent plus 70 percent of one-
month LIBOR. As of September 30, 2014, the EDA Bonds had a weighted average interest rate of .66 percent. The EDA Bonds
are subject to changes in market conditions for tax-exempt bonds and there can be no assurance that the interest rate will remain
stable and not increase significantly due to market conditions, which could adversely affect NJNG's borrowing costs. A 100 basis
point change in the EDA Bonds' average interest rate would have caused a change in interest expense for these variable rate bonds
by approximately $679,000 during fiscal 2014, assuming that they were outstanding for the entire year.
At September 30, 2014, the Company, excluding NJNG, had no variable-rate long-term debt.
For more information regarding the interest rate risk related to our short-term debt, please see the Liquidity and Capital
Resources - Debt section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Effects of Inflation
Although inflation rates have been relatively low to moderate in recent years, including the three most recent fiscal years,
any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of the Company's
utility subsidiary. The Company attempts to minimize the effects of inflation through cost control, productivity improvements and
regulatory actions when appropriate.
Page 60
Page 61
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of New Jersey Resources Corporation is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Securities and Exchange Act of 1934, as amended. The
Company's internal control over financial reporting is a process designed to provide reasonable assurance to the Company's
Management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and includes policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company's assets that could have a material effect on the financial statements.
Under the supervision and with the participation of the Company's management, including its principal executive officer
and principal financial officer, management conducted an evaluation of the effectiveness of the Company's internal control over
financial reporting as of September 30, 2014. In making this assessment, management used the criteria for effective internal control
over financial reporting described in the Internal Control-Integrated Framework (1992) set forth by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of September 30, 2014,
the Company's internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the Unites States of America.
The conclusion of the Company's principal executive officer and principal financial officer is based on the recognition that
there are inherent limitations in all systems of internal control over financial reporting. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements, errors or fraud. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
The Company's independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on the
effectiveness of the Company's internal control over financial reporting as of September 30, 2014, which appears herein.
November 25, 2014
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
New Jersey Resources Corporation:
We have audited the accompanying consolidated balance sheets of New Jersey Resources Corporation and subsidiaries (the
“Company”) as of September 30, 2014 and 2013, and the related consolidated statements of operations, comprehensive income,
common stock equity, and cash flows for each of the three years in the period ended September 30, 2014. Our audits also included
the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of September 30, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2014, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company's internal control over financial reporting as of September 30, 2014, based on the criteria established in Internal
Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated November 25, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 25, 2014
Page 62
Page 63
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED STATEMENTS OF OPERATIONS
To the Board of Directors and Stockholders
of New Jersey Resources Corporation
We have audited the internal control over financial reporting of New Jersey Resources Corporation and subsidiaries (the
“Company”) as of September 30, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board
of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements and financial statement schedules as of and for the year ended September 30, 2014 of the
Company and our report dated November 25, 2014 expressed an unqualified opinion on those financial statements and financial
statement schedules.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 25, 2014
Page 64
(Thousands, except per share data)
Fiscal years ended September 30,
OPERATING REVENUES
Utility
Nonutility
Total operating revenues
OPERATING EXPENSES
Gas purchases:
Utility
Nonutility
Related parties
Operation and maintenance
Regulatory rider expenses
Depreciation and amortization
Energy and other taxes
Total operating expenses
OPERATING INCOME
Other income, net
AFFILIATES
Income tax provision
Equity in earnings of affiliates
NET INCOME
Interest expense, net of capitalized interest
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF
EARNINGS PER COMMON SHARE
DIVIDENDS DECLARED PER COMMON SHARE
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic
Diluted
Basic
Diluted
2014
2013
2012
$
819,415 $
787,987 $
627,713
2,918,730
3,738,145
2,410,081
3,198,068
1,621,210
2,248,923
319,897
400,307
262,858
2,807,008
2,299,974
1,566,396
3,536,955
3,038,837
2,140,233
12,620
215,180
72,164
52,742
57,344
201,190
7,551
25,463
11,942
173,473
48,417
47,310
57,414
159,231
4,783
23,979
183,278
140,035
51,840
10,532
35,575
10,349
$
141,970 $
114,809 $
12,154
171,045
40,350
41,643
45,787
108,690
2,128
20,844
89,974
7,729
10,634
92,879
$3.37
$3.34
$1.71
$2.76
$2.75
$1.62
$2.24
$2.23
$1.54
42,099
42,461
41,658
41,814
41,527
41,632
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
Net income
Fiscal years ended September 30,
Other comprehensive income, net of tax
Unrealized (loss) gain on available for sale securities, net of tax of $426, $(330) and
$(270), respectively (1)
Net unrealized (loss) on derivatives, net of tax of $61, $23 and $71, respectively
Adjustment to postemployment benefit obligation, net of tax of $2,162, $(5,934) and
$345, respectively
Other comprehensive (loss) income
Comprehensive income
(1) Available for sale securities are included in other noncurrent assets on the Consolidated Balance Sheets.
2014
2013
2012
$ 141,970 $ 114,809 $
92,879
(618)
(105)
(3,250)
(3,973)
479
(39)
8,710
9,150
391
(122)
(436)
(167)
$ 137,997 $ 123,959 $
92,712
See Notes to Consolidated Financial Statements
Page 65
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Fiscal years ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash flows from operating activities
Unrealized loss (gain) on derivative instruments
Depreciation and amortization
Impairment loss on investment
Allowance for equity used during construction
Allowance for bad debt expense
Deferred income taxes
Manufactured gas plant remediation costs
Equity in earnings of equity investees, net of distributions received
Cost of removal - asset retirement obligations
Contributions to postemployment benefit plans
Changes in:
Components of working capital
Other noncurrent assets
Other noncurrent liabilities
Cash flows from operating activities
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Expenditures for:
Utility plant
Solar and wind equipment
Real estate properties and other
Cost of removal
Investments in equity investees
Distribution from equity investees in excess of equity in earnings
Withdrawal from restricted cash construction fund
Proceeds from sale of asset
Proceeds from sale of available for sale securities
Cash flows (used in) investing activities
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock
Tax benefit from stock options exercised
Proceeds from sale-leaseback transaction
Proceeds from long-term debt
Payments of long-term debt
Purchases of treasury stock
Payments of common stock dividends
Net proceeds from short-term debt
Cash flows (used in) from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables
Inventories
Recovery of gas costs
Gas purchases payable
Gas purchases payable - related parties
Prepaid and accrued taxes
Accounts payable and other
Restricted broker margin accounts
Customers' credit balances and deposits
Other current assets
Total
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Interest (net of amounts capitalized)
Income taxes
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Accrued capital expenditures
See Notes to Consolidated Financial Statements
Page 66
2014
2013
2012
$ 141,970
$ 114,809
$
92,879
ASSETS
(Thousands)
September 30,
CONSOLIDATED BALANCE SHEETS
28,534
52,742
6,351
(1,562)
2,504
18,421
(4,396)
2,589
(1,153)
(4,953)
85,480
10,484
19,775
356,786
(128,254)
(135,543)
(1,179)
(24,312)
(555)
1,150
88
6,010
—
(282,595)
15,373
414
7,576
125,000
(82,586)
(5,522)
(70,664)
(64,600)
(75,009)
(818)
2,969
2,151
48,032
43,130
13,015
(47,528)
14
21,133
34,716
(20,758)
(2,058)
(4,216)
85,480
(9,417)
47,310
—
(2,037)
2,627
41,075
(6,166)
3,299
(1,697)
(26,028)
(60,316)
9,496
1,039
113,994
(110,482)
(59,125)
(1,042)
(26,601)
—
3,079
56
—
482
(193,633)
37,839
173
7,076
50,000
(8,953)
(26,606)
(67,230)
85,800
78,099
(1,540)
4,509
2,969
$
35,789
41,643
—
(638)
3,932
(5,323)
(7,965)
6,799
(1,196)
(25,874)
(95,357)
(20,539)
26,931
51,081
(104,277)
(89,726)
(1,334)
(12,178)
(8,800)
—
(802)
—
—
(217,117)
13,834
780
6,522
100,000
(8,025)
(8,768)
(61,688)
120,450
163,105
(2,931)
7,440
4,509
$
$ (72,244)
(55,755)
6,100
72,415
(16)
(8,182)
726
15,348
(24,059)
5,351
$ (60,316)
$
36,670
28,814
(11,686)
(70,216)
(61)
23,036
(3,418)
666
(65,324)
(33,838)
$ (95,357)
22,458
22,447
9,655
$
$
$
20,414
12,039
(7,103)
$
$
$
16,670
10,053
8,257
$
$
$
$
$
$
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost
Construction work in progress
Solar and wind equipment, real estate properties and other, at cost
Construction work in progress
Total property, plant and equipment
Accumulated depreciation and amortization, utility plant
Accumulated depreciation and amortization, solar and wind equipment, real estate
properties and other
Property, plant and equipment, net
CURRENT ASSETS
Cash and cash equivalents
Customer accounts receivable
Billed
Unbilled revenues
Allowance for doubtful accounts
Regulatory assets
Gas in storage, at average cost
Materials and supplies, at average cost
Prepaid and accrued taxes
Derivatives, at fair value
Restricted broker margin accounts
Deferred taxes
Asset held for sale
Other current assets
Total current assets
NONCURRENT ASSETS
Investments in equity investees
Regulatory assets
Derivatives, at fair value
Prepaid pension asset
Other noncurrent assets
Total noncurrent assets
Total assets
See Notes to Consolidated Financial Statements
Page 67
2014
2013
$
1,791,009 $
1,681,585
139,624
347,285
55,625
114,961
249,516
9,093
2,333,543
2,055,155
(409,135)
(383,895)
(40,298)
(28,144)
1,884,110
1,643,116
2,151
2,969
189,970
240,281
7,231
(5,357)
26,862
7,429
(5,330)
34,372
277,516
314,477
8,165
22,269
64,223
27,339
36,451
—
25,911
682,731
153,010
377,575
5,654
—
55,724
591,963
14,334
42,645
53,327
6,581
8,432
5,428
20,953
745,898
161,591
402,202
2,761
6,287
42,928
615,769
$
3,158,804 $
3,004,783
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CAPITALIZATION AND LIABILITIES
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
Balance at September 30, 2011
41,422 $ 110,258 $ 265,524
$ (10,604)
$ (117,683) $ 528,762 $ 776,257
Number
of
Shares
Premium
Accumulated
on
Other
Common
Common
Stock
Stock
Comprehensive
(Loss) Income
Treasury
Stock And
Other
Retained
Earnings
Total
(Thousands)
Net income
Other comprehensive (loss)
Common stock issued under stock plans
445
698
11,681
Balance at September 30, 2012
41,620
110,956
272,566
(10,771)
(116,551)
557,665
813,865
Common stock issued under stock plans
958
1,607
12,934
Tax benefits from stock plans
Cash dividend declared ($1.54 per share)
Treasury stock and other
(247)
Net income
Other comprehensive income
Tax benefits from stock plans
Cash dividend declared ($1.62 per share)
Treasury stock and other
(616)
Net income
Other comprehensive income
Tax benefits from stock plans
Cash dividend declared ($1.71 per share)
Treasury stock and other
(165)
Balance at September 30, 2013
41,962
112,563
300,196
(1,621)
(128,638)
604,884
887,384
Common stock issued under stock plans
381
214
12,050
Balance at September 30, 2014
42,178 $ 112,777 $ 305,185
$
(5,594)
$ (121,031) $ 674,829 $ 966,166
See Notes to Consolidated Financial Statements
(167)
9,150
6,262
780
25,455
2,175
(3,973)
5,173
(184)
92,879
92,879
(63,976)
(63,976)
(10,549)
(10,549)
114,809
114,809
(67,590)
(67,590)
(25,021)
(25,021)
141,970
141,970
(167)
18,641
780
9,150
39,996
2,175
(3,973)
17,437
(184)
(72,025)
(72,025)
(4,443)
(4,443)
(Thousands)
September 30,
CAPITALIZATION
Common stock, $2.50 par value; authorized 75,000,000 shares;
outstanding 2014 — 42,178,156; 2013 — 41,961,534
Premium on common stock
Accumulated other comprehensive (loss), net of tax
Treasury stock at cost and other; shares 2014 — 2,932,775; 2013 — 3,060,356
Retained earnings
Common stock equity
Long-term debt
Total capitalization
CURRENT LIABILITIES
Current maturities of long-term debt
Short-term debt
Gas purchases payable
Gas purchases payable to related parties
Accounts payable and other
Dividends payable
Deferred and accrued taxes
Regulatory liabilities
New Jersey clean energy program
Derivatives, at fair value
Customers' credit balances and deposits
Total current liabilities
NONCURRENT LIABILITIES
Deferred income taxes
Deferred investment tax credits
Deferred revenue
Derivatives, at fair value
Manufactured gas plant remediation
Postemployment employee benefit liability
Regulatory liabilities
Asset retirement obligation
Other noncurrent liabilities
Total noncurrent liabilities
Commitments and contingent liabilities (Note 13)
Total capitalization and liabilities
2014
2013
$
112,777 $
305,185
(5,594)
(121,031)
674,829
966,166
598,209
112,563
300,196
(1,621)
(128,638)
604,884
887,384
512,886
1,564,375
1,400,270
34,505
301,000
205,901
1,398
104,005
19,001
2,721
6,072
14,285
79,863
22,335
68,643
365,600
253,429
1,384
60,342
17,624
4,040
1,456
14,532
40,390
24,393
791,086
851,833
423,213
372,773
5,262
4,042
6,690
5,584
4,763
2,458
177,000
183,600
86,674
61,326
30,495
8,641
67,897
79,647
28,711
7,247
803,343
752,680
$
3,158,804 $
3,004,783
See Notes to Consolidated Financial Statements
Page 68
Page 69
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
1. NATURE OF THE BUSINESS
New Jersey Resources Corporation provides regulated gas distribution services and operates certain non-regulated businesses
primarily through the following subsidiaries:
New Jersey Natural Gas Company provides natural gas utility service to approximately 504,300 retail customers in central
and northern New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment;
NJR Energy Services Company comprises the Energy Services segment that maintains and transacts around a portfolio of
natural gas storage and transportation capacity contracts and provides wholesale energy and energy management services;
NJR Clean Energy Ventures Corporation, the Company's unregulated distributed power subsidiary, comprises the Clean
Energy Ventures segment and consists of the Company's capital investments in distributed power projects, including commercial
and residential solar projects and onshore wind investments;
NJR Midstream Holdings Corporation invests in energy-related ventures through its subsidiaries, NJR Steckman Ridge
Storage Company, which holds the Company's 50 percent combined interest in Steckman Ridge, NJNR Pipeline Company, which
holds the Company's 5.53 percent ownership interest in Iroquois Gas Transmission L.P. and NJR Pipeline Company, which holds
the Company's 20 percent ownership interest in PennEast. Steckman Ridge, Iroquois and PennEast comprise the Midstream
segment. On November 7, 2013, NJR Energy Holdings Corporation changed its name to NJR Midstream Holdings Corporation;
and
NJR Retail Holdings Corporation has two principal subsidiaries, NJR Home Services Company and Commercial Realty &
Resources Corporation. Retail Holdings and NJR Energy Corporation are included in Home Services and Other operations (formerly
Retail and Other operations).
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
NJRES expenses demand charges ratably over the term of the contract.
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 NJR to determine if it has the power to direct business activities and,
therefore, would be considered a controlling interest that NJR 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, 2014, 2013 and 2012.
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.
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.
NJNG maintains its accounts in accordance with the FERC Uniform System of Accounts as prescribed by the BPU and in
accordance with the Regulated Operations Topic of the FASB ASC. As a result of the impact of the ratemaking process and
regulatory actions of the BPU, NJNG is required to recognize the economic effects of rate regulation. Accordingly, NJNG capitalizes
or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations
representing probable future expenditures as regulatory liabilities on the Consolidated Balance Sheets. See Note 3. Regulation,
for a more detailed description of NJNG's regulatory assets and liabilities.
Page 70
Page 71
Gas in Storage
($ in thousands)
NJRES
NJNG
Total
Demand Fees
(Millions)
NJRES
NJNG
Total
Gas in storage is reflected at average cost on the Consolidated Balance Sheets, and represents natural gas and LNG that will
be utilized in the ordinary course of business.
The following table summarizes gas in storage by company as of September 30:
2014
2013
Gas in Storage Bcf
Gas in Storage Bcf
$ 191,250
$
86,266
$ 277,516
56.5
21.3
77.8
$ 209,498
$ 104,979
$ 314,477
62.3
20.4
82.7
For the purpose of securing adequate storage and pipeline capacity, NJRES and NJNG enter into storage and pipeline capacity
contracts, which require the payment of certain demand charges 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 based on established rates
as regulated by FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right
to store and transport 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 gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30:
2014
2013
2012
$
$
122.0 $
123.0 $
129.8
92.0
92.1
86.7
214.0 $
215.1 $
216.5
NJNG's costs associated with demand charges are included in its weighted average cost of gas. The demand charges are
expensed based on NJNG's BGSS sales and recovered as part of its gas commodity component of its BGSS tariff.
Derivative Instruments
NJR accounts for its financial instruments, such as futures, options, foreign exchange contracts and swaps, as well as its
physical commodity contracts related to the purchase and sale of natural gas at NJRES, as derivatives, and therefore recognizes
them at fair value on the Consolidated Balance Sheets. NJR's unregulated subsidiaries record changes in the fair value of their
financial commodity derivatives and physical forward contracts in gas purchases or operating revenues, as appropriate, on the
Consolidated Statements of Operations. NJRES designates its foreign exchange contracts as cash flow hedges of Canadian dollar
dominated gas purchases. Changes in the fair value of the effective portion of these hedges are recorded to OCI, a component of
stockholders' equity, and reclassified to gas purchases on the Consolidated Statements of Operations when they settle. Ineffective
portions of the cash flow hedges are recognized immediately in earnings. NJR did not have derivatives designated as fair value
hedges during fiscal 2013 and 2014.
The Derivatives and Hedging Topic of the ASC also provides for a normal scope exception for qualifying physical commodity
contracts that are intended for purchases and sales during the normal course of business and for which physical delivery is probable.
NJR applies this normal scope exception to physical commodity contracts at NJNG and forward contracts at NJRCEV, and therefore
does not record changes in the fair value of these contracts until the contract settles and the related underlying natural gas or SREC
is delivered. NJNG's derivatives used to economically hedge its natural gas purchasing activities 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 4. Derivative Instruments for additional details regarding natural gas trading and hedging activities.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Fair values of exchange-traded instruments, including futures, swaps, foreign exchange contracts and certain options, are
based on actively quoted market prices. Fair values are subject to change in the near term and reflect management's best estimate
based on various factors. In establishing the fair value of commodity contracts that do not have quoted prices, such as physical
contracts, over-the-counter options and swaps and certain embedded derivatives, management uses available market data and
pricing models to estimate fair values. Estimating fair values of instruments that do not have quoted market prices requires
management's judgment in determining amounts that could reasonably be expected to be received from, or paid to, a third party
in settlement of the instruments. These amounts could be materially different from amounts that might be realized in an actual
sale transaction.
Revenues
Revenues from the sale of natural gas to customers of NJNG are recognized in the period that 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 NJNG recognizes
unbilled revenues related to these amounts. The unbilled revenue estimates are based on estimated customer usage by customer
type, weather effects, unaccounted-for gas and the most current tariff rates.
Revenues for NJRES 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.
Revenues from all other activities are recorded in the period during which products or services are delivered and accepted
by customers, or over the related contractual term.
Gas Purchases
NJNG's tariff includes a component for BGSS, which is designed to allow NJNG 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 credits from non-firm sales and transportation
activities. 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.
NJRES' gas purchases represent the total commodity contract cost, recognized upon completion of the transaction, as well
as realized gains and losses of settled derivative instruments, both for physical purchase contracts and all financial contracts and
unrealized gains and losses on the change in fair value of financial derivative instruments that have not yet settled.
(1) TEFA was phased out in January 2014.
Cash and Cash Equivalents
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 12. Income Taxes.
In addition, NJR evaluates its tax positions to determine the appropriate accounting and recognition of future obligations
associated with unrecognized tax benefits.
The Company invests in property that qualifies for federal ITCs and utilizes the ITCs, as allowed, based on the cost and life
of the assets. ITCs at NJNG are deferred and amortized as a reduction to the tax provision over the average lives of the related
equipment in accordance with regulatory treatment. ITCs at NJR's unregulated subsidiaries are recognized as a reduction to income
tax expense when the property is placed in service.
Page 72
Page 73
Capitalized and Deferred Interest
NJNG's base rates include the ability for NJNG to recover the cost of debt associated with AFUDC and CWIP. For most of
NJNG's construction projects, an incremental cost of equity is also recoverable during periods when NJNG's short-term debt
balances are lower than its CWIP. For more information on AFUDC treatment with respect to certain accelerated infrastructure
projects, see Note 3 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 is recognized in interest expense and in other income
for the equity component on the Consolidated Statements of Operations and include the following for the fiscal years ended
2014
2013
2012
$
$
1,057
1,562
2,619
$
$
921
2,037
2,958
$
$
300
638
938
3.30%
1.05%
1.47%
September 30:
($ in thousands)
AFUDC:
Debt
Equity
Total
Weighted average interest rate
Sales Tax Accounting
(Millions)
Sales tax
TEFA (1)
Total
Pursuant to a BPU order, NJNG is permitted to recover carrying costs on uncollected balances related to SBC program costs,
which include NJCEP, RA and USF expenditures. See Note 3. Regulation. The SBC interest rate changes each September based
on the August 31 seven-year constant maturity Treasury rate plus 60 basis points. The rate was 2.65 percent, 2.84 percent and 1.61
percent for the fiscal years ended September 30, 2014, 2013 and 2012, respectively. Accordingly, other income included $586,000,
$653,000 and $878,000 in the fiscal years ended September 30, 2014, 2013 and 2012, respectively.
Sales tax and TEFA are collected from customers and presented in both operating revenues and operating expenses on the
Consolidated Statements of Operations for the fiscal years ended September 30, as follows:
2014
2013
2012
$
$
47.4 $
44.4 $
1.4
5.0
48.8 $
49.4 $
32.3
6.0
38.3
Cash and cash equivalents consists of cash on deposit and temporary investments with maturities of three months or less,
and excludes restricted cash of $1 million and $1.1 million as of September 30, 2014 and 2013, respectively, related to escrow
balances for utility plant projects, which is recorded in other current and noncurrent assets on the Consolidated Balance Sheets,
respectively.
Property Plant and Equipment
Regulated property, plant and equipment and solar and wind equipment are stated at original cost. Regulated property, plant
and equipment costs include direct labor, materials and third-party construction contractor costs, AFUDC and certain indirect costs
related to equipment and employees engaged in construction. Upon retirement, the cost of depreciable regulated property, plus
removal costs less salvage, is charged to accumulated depreciation with no gain or loss recorded.
Depreciation is computed on a straight-line basis over the useful life of the assets for non-regulated assets for financial
statement purposes 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 2.44 percent of average depreciable property in fiscal 2014, 2.43 percent
in fiscal 2013 and 2.38 percent in fiscal 2012.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Property, plant and equipment was comprised of the following as of September 30:
(Thousands)
Property Classifications
Distribution facilities
Transmission facilities
Storage facilities
Solar and wind property
All other property
Total property, plant and equipment
Accumulated depreciation and amortization
Property, plant and equipment, net
Sale of Asset
Estimated Useful Lives
2014
2013
38 to 74 years
35 to 56 years
34 to 47 years
20 to 25 years
5 to 35 years
$ 1,567,648 $ 1,421,885
281,488
273,853
41,669
41,687
376,065
232,409
66,673
85,321
2,333,543
2,055,155
(449,433)
(412,039)
$ 1,884,110 $ 1,643,116
On October 22, 2013, CR&R sold approximately 25.4 acres of undeveloped land located in Monmouth County for $6 million,
generating a pre-tax gain after closing costs of $313,000, which was recognized in other income on the Unaudited Condensed
Consolidated Statements of Operations.
Disposal of Equipment
In October 2012, certain NJRCEV's solar assets sustained damage as a result of Superstorm Sandy. To the extent that any
of the assets were deemed irreparable, the Company disposed of the damaged assets. As a result, the Company recognized a pre-
tax loss of $766,000 during fiscal 2013, which is included in other income on the Consolidated Statements of Operations. The
Company also received $997,000 from an insurance claim, representing the replacement value of the disposed assets and recorded
a gain in the same amount in other income on the Consolidated Statements of Operations.
Impairment of Long-Lived Assets
The Company reviews the carrying amount of an asset for possible impairment whenever events or changes in circumstances
indicate that such amount may not be recoverable.
No impairments were identified for the fiscal years ended September 30, 2014, 2013 and 2012.
Available for Sale Securities
Included in other noncurrent assets on the Consolidated Balance Sheets are certain investments in equity securities of a
publicly traded energy company that have a fair value of $10.7 million and $11.7 million as of September 30, 2014 and 2013,
respectively. Total unrealized gains associated with these equity securities, which are included as a part of accumulated other
comprehensive income, a component of common stock equity, were $8.1 million, $4.8 million after tax, and $9.1 million, $5.4
million after tax, for the fiscal years ended September 30, 2014 and 2013, respectively. Reclassifications made from unrealized
gains to realized gains are determined based on average cost. There were no sales of securities during fiscal 2014. During fiscal
2013, NJR received proceeds of approximately $482,000 from the sale of available-for-sale securities and realized a pre-tax gain
of $380,000, which is included in other income in the Consolidated Statements of Operations. Reclassifications of realized gains
out of OCI into income are determined based on average cost.
The Company accounts for its investment in PennEast using the equity method of accounting. NJR expects the pipeline to
cost approximately $1 billion, which will be split among the six investors in accordance with ownership interests. NJR has a 20
percent equity interest and has the ability to exert significant influence, but not control.
The Company accounts for its investment in OwnEnergy using the cost method of accounting. NJRCEV is not the primary
beneficiary of OwnEnergy, nor does it have significant influence over operating and management decisions. Therefore, NJRCEV
records dividends, if and when received, as a component of other income on the Consolidated Statements of Operations.
During the fourth quarter of fiscal 2014, NJR determined that it was unlikely that it would be able to recover the value of
its cost method investment in OwnEnergy and, therefore, recognized an impairment loss of $6.4 million, which is included in
other income, net on the Consolidated Statements of Operations. See Note 6. Investment in Equity Investees for more information.
Customer Accounts Receivable and Allowance for Doubtful Accounts
Receivables consist of natural gas sales and transportation services billed to residential, commercial, industrial and other
customers, as well as equipment sales, installations, solar leases and power purchase agreements to commercial and residential
customers. NJR evaluates it accounts receivables and, to the extent customer account balances are outstanding for more than 60
days, establishes an allowance for doubtful accounts. The allowance is based on a combination of factors including historical
collection experience and trends, aging of receivables, general economic conditions in the company's distribution or sales territories,
and customer specific information. NJR writes-off customers' accounts once it is determined they are uncollectible.
The following table summarizes customer accounts receivable by company as of September 30:
(Thousands)
NJRES
NJNG (1)
NJRCEV
NJRHS and other
Total
Loan Receivable
2014
2013
$ 142,566
75% $ 194,263
81%
41,281
22
594 —
5,529
3
43,045
293
2,680
18
—
1
$ 189,970
100% $ 240,281
100%
(1) Does not include unbilled revenues of $7.2 million and $7.4 million as of September 30, 2014 and 2013, respectively.
NJNG provides interest-free loans, with terms ranging from two to 10 years, to customers that elect to purchase and install
certain energy efficient equipment in accordance with its BPU approved SAVEGREEN program. The loans are recognized at net
present value on the Consolidated Balance Sheets. Refer to Note 5. Fair Value for a discussion of the Company's fair value
measurement policies and level disclosures. The Company has recorded $3.9 million and $1.9 million in other current assets and
$27.3 million and $14.3 million in other noncurrent assets as of September 30, 2014 and 2013, respectively, on the Consolidated
Balance Sheets, related to the loans.
NJR's policy is to establish an allowance for doubtful accounts when loan balances are outstanding for more than 60 days.
There was no allowance for doubtful accounts established during fiscal 2014 and 2013.
Asset Retirement Obligations
NJR recognizes a liability for its AROs based on the fair value of the liability when incurred, which is generally upon
acquisition, construction, development and/or through the normal operation of the asset. Concurrently, NJR also capitalizes an
asset retirement cost by increasing the carrying amount of the related asset by the same amount as the liability. In periods subsequent
to the initial measurement, NJR is required to recognize changes in the liability resulting from the passage of time (accretion) or
due to revisions to either timing or the amount of the originally estimated cash flows to settle the conditional ARO.
Investments in Equity Investees
Pension and Postemployment Plans
The Company accounts for its investments in Steckman Ridge and Iroquois using the equity method of accounting, where
its respective ownership interests are 50 percent or less and/or it has significant influence over operating and management decisions,
but is not the primary beneficiary, as defined under ASC 810, Consolidation. The Company's share of earnings is recognized as
equity in earnings of affiliates on the Consolidated Statements of Operations.
NJR has two noncontributory defined pension plans covering eligible employees, including officers. Benefits are based on
each employee's years of service and compensation. NJR's funding policy is to contribute annually to these plans at least the
minimum amount required under ERISA, 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. NJR made no discretionary contributions
to the pension plans in fiscal 2014, and contributed $20 million in aggregate to the plans in fiscal 2013 and 2012, respectively.
Page 74
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New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJR 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. NJR contributed $5 million, $6 million and $5.8 million in aggregate to these plans in fiscal 2014, 2013 and 2012, respectively.
See Note 10. Employee Benefit Plans, for a more detailed description of the Company's pension and postemployment plans.
Foreign Currency Transactions
NJRES' market area includes Canadian delivery points and as a result incurs certain natural gas commodity costs and demand
fees that are denominated in Canadian dollars. Gains or losses that occur as a result of these foreign currency transactions are
reported as a component of gas purchases on the Consolidated Statements of Operations and were not material during the fiscal
years ended September 30, 2014, 2013 and 2012.
Recent Updates to the Accounting Standards Codification
Balance Sheet Offsetting
In December 2011, the FASB issued ASU No. 2011-11, an amendment to ASC 210, Balance Sheet, requiring additional
disclosures about the nature of an entity's rights of setoff and related master netting arrangements. ASU 2013-01, issued in January
2013, further clarified that the amended guidance was applicable to certain financial and derivative instruments. The Company
applied the provisions of the amended guidance retrospectively effective October 1, 2013. The guidance did not impact the
Company's financial position, results of operations or cash flows, however, it required additional disclosures that are included in
Note 4. Derivative Instruments.
Income Taxes
In July 2013, the FASB issued ASU No. 2013-11, an amendment to ASC 740, Income Taxes, which clarifies financial
statement presentation for unrecognized tax benefits. The ASU requires that an unrecognized tax benefit, or portion thereof, shall
be presented in the balance sheet as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss or a
tax credit carryforward. To the extent such a deferred tax asset is not available or the company does not intend to use it to settle
any additional taxes that would result from the disallowance of a tax position, the related unrecognized tax benefit will be presented
as a liability in the financial statements. The amended guidance will become effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013. The Company currently does not have unrecognized tax benefits recorded on its
balance sheet and does not expect any impact to its financial position upon adoption during its first quarter of fiscal 2015.
Discontinued Operations
In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity. The new guidance changes the definition and reporting of discontinued operations to include only those
disposals that represent a strategic shift and that have a major effect on an entity's operations and financial results. The new
guidance, which also requires additional disclosures, becomes effective for annual periods beginning on or after December 15,
2014 and interim periods within those years. The company does not expect an impact to its financial position, results of operations
and cash flows upon adoption.
Revenue
In May 2014, the FASB issued ASU No. 2014-09, and added Topic 606, Revenue from Contracts with Customers, to the
ASC. ASC 606 supersedes ASC 605, Revenue Recognition, as well as most industry-specific guidance, and prescribes a single,
comprehensive revenue recognition model designed to improve financial reporting comparability across entities, industries,
jurisdictions and capital markets. The new guidance will become effective for fiscal years, and interim periods within those years,
beginning after December 15, 2016. Upon adoption, the guidance will be applied on a full or modified retrospective basis. The
Company is currently evaluating the provisions of ASC 606 to understand the impact, if any, to its financial position, results of
operations and cash flows upon adoption.
Stock Compensation
In June 2014, the FASB issued ASU No. 2014-12, an amendment to ASC 718, Compensation - Stock Compensation, which
clarifies the accounting for performance awards when the terms of the award provide that a performance target could be achieved
after the requisite service period. The new guidance will become effective for fiscal years, and interim periods within those years,
beginning after December 15, 2015. The company does not expect any impact to its financial position, results of operations and
cash flows upon adoption.
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)
Balance as of September 30, 2012
Other comprehensive income, net of tax
Other comprehensive income (loss), before reclassifications,
net of tax of $(485), $16, $(5,124), $(5,593)
Amounts reclassified from accumulated other
comprehensive income, net of tax of $155, $7, $(810),
$(648)
Net current-period other comprehensive income (loss), net
of tax of $(330), $23, $(5,934), $(6,241)
Balance at September 30, 2013
Other comprehensive income, net of tax
Other comprehensive (loss), before reclassifications, net of
tax of $426 $159, $3,334, $3,919
Amounts reclassified from accumulated other
comprehensive income, net of tax of $0, $(98), $(1,172),
$(1,270)
Net current-period other comprehensive income, net of tax
of $426, $61, $2,162, $2,649
Balance at September 30, 2014
$
$
Unrealized gain
on available for
sale securities
Net unrealized
Adjustment to
gain on
derivatives
postemployment
benefit obligation
Total
$
4,921
$
51
$
(15,743)
$ (10,771)
703
(28)
7,526
8,201
(1)
(224)
(2)
(11)
(3)
1,184
949
479
5,400
$
(39)
12
8,710
9,150
$
(7,033)
$ (1,621)
(618)
(273)
(5,006)
(5,897)
(1)
—
(2)
168
(3)
1,756
1,924
(618)
4,782
$
(105)
(93)
(3,250)
(3,973)
$
(10,283)
$ (5,594)
(1) Reclassified to other income in the Consolidated Statements of Operations.
(2) Consists of realized losses related to foreign currency derivatives, which are reclassified to gas purchases in the Consolidated Statements of Operations.
(3)
Included in the computation of net periodic pension cost, a component of O&M expense in the Consolidated Statements of Operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires NJR to make estimates that affect the reported
amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period. On a monthly
basis, NJR evaluates its estimates, including those related to the calculation of the fair value of derivative instruments, debt,
unbilled revenues, allowance for doubtful accounts, provisions for depreciation and amortization, regulatory assets and liabilities,
income taxes, pensions and other postemployment benefits, contingencies related to environmental matters and litigation. AROs
are evaluated as often as needed. NJR'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.
NJR 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, NJR will establish a reserve if a loss is probable and can be reasonably
estimated, in which case it is NJR'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 NJR'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.
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New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
3. REGULATION
The EDECA is the legal framework for New Jersey's public utility and wholesale energy landscape. NJNG is required,
pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas
suppliers. Customers can choose the supplier of their natural gas commodity in NJNG's service territory.
As required by EDECA, NJNG's rates are segregated into two primary components, the commodity portion, which represents
the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the gas to NJNG's service territory,
and the delivery portion, which represents the transportation of the commodity portion through NJNG's gas distribution system
to the end-use customer. NJNG does not earn utility gross margin on the commodity portion of its natural gas sales. NJNG earns
utility gross margin through the delivery of natural gas to its customers, regardless of whether it or a third-party supplier provides
the wholesale natural gas commodity.
Under EDECA, the BPU is required to audit the state's energy utilities every two years. The primary purpose of the audit
is to ensure that utilities and their affiliates offering unregulated retail services do not have an unfair competitive advantage over
nonaffiliated providers of similar retail services. A combined competitive services and management audit of NJNG commenced
in August 2013. A draft management audit report was accepted by the BPU on July 23, 2014, for public comment and is waiting
for final 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 investment based on the BPU's approval, in accordance with accounting guidance applicable to
regulated operations. 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.
As recovery of regulatory assets is subject to BPU approval, if there are any changes in regulatory positions that indicate
recovery is not probable, the related cost would be charged to income in the period of such determination.
Regulatory assets and liabilities included on the Consolidated Balance Sheets as of September 30, are comprised of the
following:
(Thousands)
Regulatory assets-current
Underrecovered gas costs
Conservation Incentive Program
New Jersey Clean Energy Program
Total current regulatory assets
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries
Liability for future expenditures
Deferred income taxes
Derivatives at fair value, net
SAVEGREEN
Postemployment and other benefit costs
Deferred Superstorm Sandy costs
Other noncurrent regulatory assets
Total noncurrent regulatory assets
Regulatory liability-current
Conservation Incentive Program
Derivatives at fair value, net
Total current regulatory liabilities
Regulatory liabilities-noncurrent
Cost of removal obligation
Derivatives at fair value, net
Other noncurrent regulatory liabilities
Total noncurrent regulatory liabilities
2014
2013
12,577 $
—
14,285
26,862 $
953
18,887
14,532
34,372
30,916 $
177,000
9,968
—
29,180
108,507
15,207
6,797
377,575 $
5,752 $
320
6,072 $
61,163 $
57
106
61,326 $
46,968
183,600
10,718
19
30,004
101,415
14,822
14,656
402,202
—
1,456
1,456
79,315
—
332
79,647
$
$
$
$
$
$
$
$
NJNG's recovery of costs is facilitated through its base tariff rates, BGSS and other regulatory tariff riders. NJNG is required
to make an annual filing to the BPU by June 1 of each year for review of its BGSS, CIP and various other programs and related
rates. Annual rate changes are requested to be effective at the beginning of the following fiscal year. In addition, NJNG is also
permitted to request approval of certain rate or program changes on an interim basis. All rate and program changes are subject to
proper notification and BPU review and approval.
Gas Costs
NJNG recovers its cost of gas through the BGSS rate component of its customers' bills. NJNG's cost of gas includes the
purchased cost of the natural gas commodity, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive
programs, and hedging transactions. Under-recovered gas costs represent a regulatory asset that generally occurs during periods
when NJNG's BGSS rates are lower than actual costs and requests amounts to be recovered from customers in the future. Conversely,
over-recovered 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.
Conservation Incentive Program
The CIP permits NJNG to recover utility gross margin variations related to customer usage resulting from customer
conservation efforts and allows NJNG to mitigate the impact of weather on its gross margin. Such utility gross margin variations
are recovered in the year following the end of the CIP usage year, without interest, and are subject to additional conditions, including
an earnings test and an evaluation of BGSS related savings.
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 2015. NJNG recovers the costs associated with its portion
of the NJCEP obligation, including interest, through its SBC rate rider over a one-year period.
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 RA rate rider. Recovery for NJNG's estimated future liability
will be requested and/or recovered when actual expenditures are incurred. See Note 13. Commitments and Contingencies.
In 1993, NJNG adopted the provisions of ASC 740, Income Taxes, which changed the method used to determine deferred
tax assets and liabilities. Upon adoption, NJNG recognized a transition adjustment and corresponding regulatory asset representing
the difference between NJNG's existing deferred tax amounts compared with the deferred tax amounts calculated in accordance
with the change in method prescribed by ASC 740. NJNG recovers the regulatory asset associated with these tax impacts through
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 4. Derivatives.
NJNG administers certain programs that supplement the state's NJCEP and that allows 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 through a tariff rider, as approved by the BPU, over a two to 10-year period depending upon the specific
Deferred Income Taxes
future base rates, without interest.
Derivatives
SAVEGREEN
program incentive.
Page 78
Page 79
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Postemployment and Other Benefit Costs
Postemployment and Other Benefit Costs represents NJNG's underfunded postemployment benefit obligations that the
Company began recognizing in fiscal 2006, as a result of changes in the accounting provisions of ASC 715, Compensation and
Benefits, as well as a fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated with
Medicare D, both of which are deferred as regulatory assets and are recoverable, without interest, in base tariff rates. See Note 10.
Employee Benefit Plans.
Deferred Superstorm Sandy Costs
In October 2012, portions of NJNG's distribution system incurred significant damage as a result of Superstorm Sandy. NJNG
filed a petition with the BPU in November 2012 requesting deferral accounting for uninsured incremental O&M costs associated
with its restoration efforts, which was approved in May 2013. On October 22, 2014, the BPU approved, as prudent and reasonable,
the deferred O&M storm costs to be recovered in NJNG's next base rate case including the appropriate recovery period for such
deferred expenses, to be filed no later than November 15, 2015.
Other Regulatory Assets
Other regulatory assets consists primarily of deferred costs associated with certain components of NJNG's SBC, as discussed
further below, and NJNG's compliance with federal and state mandated PIM provisions. NJNG's related costs to maintain the
operational integrity of its distribution and transmission main are recoverable, subject to BPU review and approval, in its next
base rate case. NJNG is limited to recording a regulatory asset associated with PIM that does not exceed $700,000 per year. In
addition, to the extent that project costs are lower than the approved PIM annual expense of $1.4 million, NJNG will record a
regulatory liability that will be refundable as a credit to customers' gas costs when the net cumulative liability exceeds $1 million.
As of September 30, 2014, NJNG has recorded $3.8 million of PIM in other regulatory assets.
Cost of Removal Obligation
NJNG accrues and collects for cost of removal in base tariff rates on its utility property, without interest. A regulatory liability
represents the current collections in excess of actual expenditures, which the Company will return to customers over approximately
48 years, through a reduction in the depreciation expense component of NJNG's base tariff rates, as approved by the BPU in
NJNG's October 2008 base rate case.
The following is a description of regulatory proceedings during fiscal 2013 and 2014:
receives approval for recovery of all costs through base rates.
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 when the natural gas commodity costs decrease in comparison to amounts projected or to amounts previously
collected from customers. Commodity prices were relatively stable during fiscal 2014 and 2013, therefore, no refunds or bill
credits were issued to BGSS customers.
Concurrent with the annual BGSS filing, NJNG files for an annual review of its CIP. In March 2013, NJNG and South Jersey
Gas Company filed a joint petition with the BPU requesting the continuation of the CIP with certain modifications. On May 21,
2014, the BPU approved the continuation of the CIP program with no expiration date; however, it will be subject to review in a
future rate filing in 2017. NJNG's annual BGSS and CIP filings are summarized as follows:
•
June 2012 BGSS/CIP filing — NJNG proposed to maintain its BGSS rate. In addition, NJNG requested approval to
decrease the CIP rate for residential non-heating customers and increase the CIP rates for residential heating and
commercial customers, which increased an average residential heat customer's bill by 2.4 percent, effective October
2012. In May 2013, the BPU approved the changes on a final basis. In May 2013, NJNG notified the BPU that it was
going to reduce its BGSS rate resulting in a 5.2 percent decrease to an average residential heat customer's bill, effective
June 1, 2013.
Page 80
Page 81
•
June 2013 BGSS/CIP filing — NJNG proposed to maintain its BGSS rate. In addition, NJNG proposed a 1 percent
reduction to an average residential heat customer's bill related to the CIP factor. The CIP rate reduction was provisionally
approved by the BPU on October 16, 2013, to be effective November 1, 2013. On November 21, 2013, NJNG notified
the BPU of its intent to reduce its BGSS rate, effective December 1, 2013, resulting in a 6 percent decrease to the
average residential heat customer's bill. On July 23, 2014, the BPU approved these rates on a final basis.
•
June 2014 BGSS/CIP filing — NJNG proposed to maintain its BGSS rate. In addition, NJNG proposed a 4.3 percent
reduction to an average residential heat customer's bill related to the CIP factor for fiscal 2015. On September 30, 2014,
the BPU provisionally approved these rates to be effective October 1, 2014.
• On October 1, 2014, NJNG implemented a decrease to its BGSS price for residential sales and general service small
sales customers resulting in a 5 percent decrease to the average residential heat customer's bill.
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 has implemented BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG's gas
distribution system, including AIP and SAFE. The AIP projects, which totaled approximately $148.7 million, were constructed
and gas was introduced to the system from 2009 through October 2012. In May 2013, a base rate change was approved by the
BPU that permits NJNG to recover a total of approximately $15.3 million annually. Depending on the infrastructure project,
recoveries include a weighted average cost of capital of 7.76 percent or 7.12 percent with a return on equity of 10.3 percent.
In October 2012, the BPU approved NJNG's petition to implement the SAFE program, investing up to $130 million, exclusive
of AFUDC, over a four-year period to replace portions of NJNG's gas distribution unprotected steel and cast iron infrastructure
in order to improve the safety and reliability of the gas distribution system. The approved SAFE Program includes the deferral of
infrastructure costs subject to review in NJNG's next base rate case to be filed no later than November 15, 2015, the deferral of
depreciation expense on SAFE investments and recognizes an overall rate of return on infrastructure investments of 6.9 percent,
including a return on equity of 9.75 percent. The deferred cost recovery will include accruals for both debt and equity components
of AFUDC while construction is completed but not yet in service. In accordance with ASC 980, Regulated Operations, when
SAFE construction projects are placed in service, NJNG will accrue an AFUDC debt rate. For ratemaking purposes, subsequent
to projects being placed into service, NJNG will continue to earn an AFUDC rate of 6.9 percent per year until such time that NJNG
In June 2012, the BPU approved a pilot program for NJNG to invest up to $10 million to build NGV refueling stations in
Monmouth, Ocean and Morris counties. On April 23, 2014, the BPU approved NJNG's request to include a cost recovery filing
to the BPU within the Company's next base rate case to be filed no later than November 15, 2015. In addition, the BPU approved
a deferred accounting methodology related to the NGV investment costs consistent with NJNG's SAFE Program. The NGV program
was authorized by the BPU to earn an overall weighted average cost of capital of 7.1 percent, including a return on equity of 10.3
percent. A portion of the proceeds from the utilization of the NGV equipment, along with any available federal and state incentives,
will be credited back to ratepayers to help offset the cost of this investment. As of September 30, 2014, NJNG has begun development
on three NGV stations for a total investment of approximately $5.8 million to date.
On September 3, 2013, NJNG filed a petition seeking approval of NJ RISE, which consists of six capital investment projects
estimated to cost $102.5 million over a five-year period, excluding AFUDC, for gas distribution storm hardening and mitigation
projects, along with incremental O&M expenses. The submission was made in response to a March 2013 BPU order, initiating a
proceeding to investigate prudent, cost efficient and effective opportunities to protect New Jersey's utility infrastructure from
future major storm events. These system enhancements are intended to minimize service impacts during extreme weather events
to customers that live in the most storm prone areas of NJNG's service territory. In the filing, NJNG seeks to recover the capital
costs associated with NJ RISE through an annual adjustment to its base rate. On July 23, 2014, the BPU issued an order approving
a Stipulation of Settlement related to the NJ RISE capital infrastructure program that requires NJNG to submit a filing in May
2015 to recover costs through July 31, 2015, associated with NJ RISE. Those costs will be recovered through an adjustment to
base rates as of November 1, 2015. Additional cost recovery will be included in NJNG's next base rate case scheduled to be filed
no later than November 15, 2015.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing
programs that include off-system sales, capacity release, storage incentive and FRM programs. In August 2011, the BPU approved
an extension of NJNG's BGSS incentive programs for four years through October 31, 2015, maintaining the existing margin-
sharing percentages. This agreement also permits the Company to annually propose a process to evaluate and discuss alternative
incentive programs, should performance of the existing incentives or market conditions warrant re-evaluation.
SAVEGREEN
SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are
designed to encourage the installation of high efficiency heating and cooling equipment and other energy efficiency upgrades to
promote energy efficiency incentives to its residential and commercial customers while stimulating state and local economies
through the creation of jobs. Depending on the specific initiative, NJNG recovers costs associated with the programs over a two
to 10-year period through a tariff rider mechanism. As of September 30, 2014, the BPU has approved total SAVEGREEN
expenditures of $85 million related to grants and rebates, of which, NJNG has spent a total of $52.8 million and approved $93.1
million related to customer financing incentives, of which, NJNG has provided interest-free loans in the amount of $38.8 million.
SAVEGREEN investments and costs are filed with the BPU on an annual basis and include the following:
NJNG's next base rate case to be filed no later than November 15, 2015.
•
June 2012 SAVEGREEN filing — In June 2013, the BPU approved NJNG's 2012 request to extend and expand
SAVEGREEN through June 2015, with certain modifications, resulting in a planned investment of more than $85
million, which includes $17.3 million of investments in grants and rebates, and includes a weighted average cost of
capital of 6.9 percent. In addition, the BPU approved a tariff rider rate increase of approximately 1.7 percent to recover
costs and investments related to SAVEGREEN over a two to 10-year period, which represents an an annual recovery
of approximately $12.4 million.
Additionally, in June 2014, NJNG submitted a rate filing for the recovery of SAVEGREEN costs, which proposes to
maintain the existing rate.
Societal Benefits Clause
The SBC is comprised of three primary riders that allow NJNG to recover costs associated with USF, which is a permanent
statewide program for all natural gas and electric utilities for the benefit of income-eligible customers, MGP remediation, and the
NJCEP. NJNG has submitted the following filings to the BPU, which includes a report of program expenditures incurred each
program year:
•
•
•
•
•
February 2012 SBC filing — NJNG requested, and received, BPU approval of its MGP expenditures incurred through
June 2011, which continued its existing overall SBC rate and recovery that was approved by the BPU, effective November
2011.
June 2012 USF filing — NJNG filed to reduce the USF recovery rate resulting in a .1 percent decrease for the average
residential heat customer's bill. The rate was approved by the BPU, effective October 2012.
June 2013 USF filing — NJNG filed to reduce the USF recovery rate resulting in a .5 percent decrease for the average
residential heat customer's bill effective October 1, 2013. The rate was approved by the BPU in September 2013.
July 2013 SBC filing — NJNG requested approval of its MGP expenditures incurred through June 2013, as well as a .2
percent reduction to the average residential heat customer's bill related to the SBC RA factor to recover $18.7 million
annually, and a 1.9 percent increase related to its NJCEP factor. The rates were approved by the BPU on a provisional
basis, effective December 1, 2013, and on a final basis in July 2014.
June 2014 USF filing — NJNG filed to to increase the statewide USF rate, resulting in a .4 percent increase to the
average residential heat customer's bill effective October 1, 2014. The rate was approved by the BPU in September
2014.
Page 82
Page 83
•
September 2014 SBC filing — NJNG requested approval of its MGP expenditures incurred through June 2014, as well
as a 3 percent reduction to the average residential heat customer's bill, to recover $8.5 million annually related to the
SBC RA factor and $16.3 million related to the NJCEP factor.
• Additionally, in November 2012, the BPU approved NJNG's funding obligations for NJCEP for the period from January
2013 to June 2013, of approximately $9.8 million. In June 2013, the BPU approved NJNG's funding obligations for
July 2013 to June 2014, of approximately $15.6 million. In June 2014, the BPU approved NJNG's funding obligations
for July 2014 to June 2015, of approximately $15.6 million. Accordingly, NJNG recorded the obligation and
corresponding regulatory asset on the Consolidated Balance Sheets.
Other Regulatory Initiatives
In November 2012, NJNG filed a petition with the BPU requesting deferral accounting for uninsured incremental O&M
costs associated with Superstorm Sandy, which was subsequently approved in May 2013. In March 2013, the BPU issued an Order
establishing a generic proceeding to review the prudency of costs incurred by New Jersey utility companies in response to major
storm events in 2011 and 2012. In July 2013, NJNG filed its detailed report including unreimbursed, uninsured incremental storm
restoration costs and capital expenditures. As of September 30, 2014, NJNG has deferred $15.2 million of these costs as a regulatory
asset. On October 22, 2014, the BPU approved, as prudent and reasonable, the deferred O&M storm costs to be recovered in
In December 2012, NJNG filed a petition with the BPU requesting approval of a municipal consent in the Borough of
Sayreville, New Jersey to provide natural gas distribution service to Red Oak Power, LLC, an electric generating facility. The
municipal consent was approved by the BPU in September 2013. In December 2013, the BPU approved a gas service agreement
between TAQA GEN-X, LLC and NJNG that allows NJNG to provide transportation service to Red Oak Power, LLC, through
September 2022. Construction to connect to the plant commenced during the fourth quarter of fiscal 2014, and is anticipated to
cost approximately $1 million, which will be reimbursed by Red Oak Power, LLC. Service is expected to begin in the first half
of fiscal 2015.
On April 23, 2014, the BPU approved a petition filed by NJNG requesting authorization over a three-year period to issue
up to $300 million of medium-term notes with a maturity of not more than 30 years, renew its revolving credit facility expiring
August 2014 for up to five years, enter into interest rate risk management transactions related to debt securities and redeem,
refinance or defease any of NJNG's outstanding long-term debt securities.
4. DERIVATIVE INSTRUMENTS
The Company is subject to commodity price risk due to fluctuations in the market price of natural gas, SRECs, and electricity.
To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts,
physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing
and anticipated commitments to purchase and sell natural gas, SRECs, and electricity. In addition, the Company may utilize foreign
currency derivatives as cash flow hedges of Canadian dollar denominated gas purchases. These contracts, with a few exceptions
as described below, are accounted for as derivatives. Accordingly, all of the financial and certain of the Company's physical
derivative instruments are recorded at fair value on the Consolidated Balance Sheets. For a more detailed discussion of the
Company's fair value measurement policies and level disclosures associated with the NJR's derivative instruments, see Note 5.
Fair Value.
Since the Company chooses not to designate its financial commodity and physical forward commodity derivatives as
accounting hedges or to elect NPNS as appropriate, changes in the fair value of these derivative instruments are recorded as a
component of gas purchases or operating revenues, as appropriate for NJRES, on the Consolidated Statements of Operations as
unrealized gains or (losses). For NJRES at settlement, realized gains and (losses) on all financial derivative instruments are
recognized as a component of gas purchases and realized gains and (losses) on all physical derivatives follow the presentation of
the related unrealized gains and (losses) as a component of either gas purchases or operating revenues.
NJRES also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of
Canadian currency relative to the US dollar. NJRES utilizes foreign currency derivatives to lock in the currency translation rate
associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures,
or swaps and are accounted for as derivatives. These derivatives are being used to hedge future forecasted cash payments associated
with transportation and storage contracts along with purchases of natural gas. The Company has designated these foreign currency
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
derivatives as cash flow hedges of that exposure, and expects the hedge relationship to be highly effective throughout the term.
Since NJRES designates its foreign exchange contracts as cash flow hedges, changes in fair value of the effective portion of the
hedge are recorded in OCI. When the foreign exchange contracts are settled and the related purchases are recognized in income,
realized gains and (losses) are recognized in gas purchases on the Consolidated Statements of Operations.
As a result of NJRES entering into transactions to borrow gas, commonly referred to as “park and loans,” an embedded
derivative is created related to differences between the fair value of the amount borrowed and the fair value of the amount that
will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location over the contract
term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed gas is
expected to occur, and is considered a derivative transaction that is recorded at fair value on the Consolidated Balance Sheets,
with changes in value recognized in current period earnings.
Changes in fair value of NJNG's financial derivative instruments are recorded as a component of regulatory assets or liabilities
on the Consolidated Balance Sheets. NJNG has received regulatory approval to defer and to recover these amounts through future
BGSS rates as an increase or decrease to the cost of natural gas in NJNG's tariff for gas service.
The Company elects NPNS accounting treatment on all physical commodity contracts at NJNG. These contracts are accounted
for on an accrual basis. Accordingly, physical purchases are recognized in regulatory assets or liabilities on the Consolidated
Balance Sheets when the contract settles and the natural gas is delivered and amortized in current period earnings based on the
current BPU BGSS factor.
NJRCEV hedges certain of its expected production of SRECs through forward and futures contracts. The contracts require
the Company to physically deliver the SRECs upon settlement. The Company elects NPNS accounting treatment on all SREC
forward and futures contracts it enters into. NJRCEV recognizes the related revenue upon transfer of the SREC certificate to the
stated counterparty.
Fair Value of Derivatives
The following table reflects the fair value of NJR's derivative assets and liabilities recognized on the Consolidated Balance
Sheets as of September 30:
(Thousands)
Balance Sheet Location
Derivatives designated as hedging instruments:
NJRES:
Fair Value
2014
2013
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Foreign currency contracts
Derivatives - current
Derivatives - noncurrent
Fair value of derivatives designated as hedging instruments
$
$
— $
—
— $
155
—
155
$
$
16
—
16
$
$
3
2
5
Derivatives not designated as hedging instruments:
NJNG:
Financial commodity contracts
Derivatives - current
$
2,525
$
2,205
$
3,502
$
2,045
Derivatives - noncurrent
82
25
121
140
NJRES:
Physical forward commodity contracts Derivatives - current
Financial commodity contracts
Derivatives - current
Derivatives - noncurrent
Derivatives - noncurrent
15,391
35
46,307
5,537
30,778
132
46,725
6,533
11,282
541
38,527
2,099
14,573
22
23,769
2,294
Fair value of derivatives not designated as hedging instruments
Total fair value of derivatives
$ 69,877
$ 86,398
$ 69,877
$ 86,553
$ 56,072
$ 56,088
$ 42,843
$ 42,848
Page 84
As of September 30, 2014, the gross notional amount of the foreign currency transactions was approximately $2.9 million,
and ineffectiveness in the hedge relationship is immaterial to the financial results of NJR.
Offsetting of Derivatives
NJR transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets and
liabilities with the same counterparty, however NJR's policy is to present its derivative assets and liabilities on a gross basis in the
Unaudited Condensed Consolidated Balance Sheets.
The tables below summarize the reported gross amounts, the amounts that NJR has the right to offset but elects not to,
financial collateral, as well as the net amounts NJR could present in the Unaudited Condensed Consolidated Balance Sheets but
elects not to.
Amounts
Presented in
Offsetting
Derivative
Balance Sheets (1)
Instruments (2)
Financial Collateral
Received/Pledged (3) Net Amounts (4)
(Thousands)
As of September 30, 2014:
Derivative assets:
NJRES
Physical forward commodity contracts
Financial commodity contracts
Total NJRES
NJNG
Financial commodity contracts
Derivative liabilities:
NJRES
Physical forward commodity contracts
Financial commodity contracts
Foreign currency contracts
Total NJRES
NJNG
As of September 30, 2013:
Derivative assets:
NJRES
Physical forward commodity contracts
Financial commodity contracts
Foreign currency contracts
Total NJRES
NJNG
Financial commodity contracts
Derivative liabilities:
NJRES
Physical forward commodity contracts
Financial commodity contracts
Foreign currency contracts
Total NJRES
NJNG
ISDA netting.
2,607
(2,230)
(377)
$
$
$
$
$
$
$
$
$
$
$
$
—
—
—
(1,200)
(1,414)
—
(2,614)
—
(100)
6,870
—
6,770
214
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
3,895
—
3,895
—
17,652
—
155
17,807
—
8,174
21,433
11
29,618
1,652
—
—
—
(500)
10,546
(500)
10,546
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
15,426
51,844
67,270
(11,531)
(51,844)
(63,375)
30,910
53,258
155
84,323
(12,058)
(51,844)
—
(63,902)
3,623
(2,185)
(3,549)
(26,063)
(5)
(29,617)
(3,549)
(26,063)
(5)
(29,617)
11,823
40,626
16
52,465
14,595
26,063
5
40,663
Page 85
Financial commodity contracts
2,185
(2,185)
(1) Derivative assets and liabilities are presented on a gross basis in the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.
(2) Offsetting derivative instruments include: transactions with NAESB netting election, transactions held by FCM's with net margining and transactions with
(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.
Financial commodity contracts
2,230
(2,230)
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJRES utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical gas
for injection into storage and the subsequent sale of physical gas at a later date. The gains or (losses) on the financial transactions
that are economic hedges of the cost of the purchased gas are recognized prior to the gains or (losses) on the physical transaction,
which are recognized in earnings when the natural gas is sold. 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
NJRES, although the Company's intended economic results relating to the entire transaction are unaffected.
The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations as of
September 30:
(Thousands)
Location of gain (loss) recognized
in income on derivatives
Amount of gain (loss) recognized
in income on derivatives
Wholesale Credit Risk
Derivatives not designated as hedging instruments:
NJRES:
Physical commodity contracts
Physical commodity contracts
Financial commodity contracts
Operating revenues
Gas purchases
Gas purchases
Total unrealized and realized (losses) gains
2014
2013
2012
$
(48,977)
(83,847)
(118,872)
$ (251,696)
$
1,117
(17,194)
41,183
$ (7,187)
12,967
81,872
$ 25,106
$ 87,652
The table above does not include gains (losses) associated with NJNG's financial derivatives that totaled $10.1 million, $1.8
million and $(25.3) million for the fiscal years ended September 30, 2014, 2013 and 2012, respectively. These derivatives are part
of NJNG's risk management activities that relate to its natural gas purchases and BGSS incentive programs. As these transactions
are entered into pursuant to and recoverable through regulatory riders, any changes in the value of NJNG's financial derivatives
are deferred in regulatory assets or liabilities resulting in no impact to earnings.
As previously noted, NJRES designates its foreign exchange 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 gas purchases on the Consolidated Statements of Operations. The following table reflects the effect of
derivative instruments designated as cash flow hedges on OCI as of September 30:
(Thousands)
Derivatives in cash flow hedging relationships:
Amount of Gain or
(Loss) Recognized in
OCI on Derivatives
(Effective Portion) (1)
2014
2013
Amount of Gain or
(Loss) Reclassified from
OCI into Income
(Effective Portion)
Amount of Gain or
(Loss) Recognized on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)
2014
2013
2014
2013
Foreign currency contracts
$
(432) $
(44) $
266 $
(18) $
— $
—
(1)
The settlement of foreign currency transactions over the next 12 months is expected to result in the reclassification of $(155,000) from OCI into earnings.
The maximum tenor is April 2015.
NJNG and NJRES had the following outstanding long (short) derivatives as of September 30:
NJNG
NJRES
Futures
Futures
Financial Options
Physical
Volume (Bcf)
2014
2013
17.3
(62.1)
1.2
28.6
22.6
(64.2)
1.5
7.3
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Broker Margin
Generally, exchange-traded futures contracts require posted collateral, referred to as margin, usually in the form of cash. The
amount of margin required is comprised of a fixed initial amount based on exchange requirements and a variable amount based
on a daily mark-to-market. The Company maintains separate broker margin accounts for NJNG and NJRES. The balances as of
September 30, by company, are as follows:
(Thousands)
NJNG
NJRES
Balance Sheet Location
Broker margin - Current assets
Broker margin - Current assets
2014
2013
$
$
1,057 $
26,282 $
213
6,368
NJNG and NJRES are exposed to credit risk as a result of their wholesale marketing activities. In addition, NJRCEV engages
in SREC sales. As a result of the inherent volatility in the prices of natural gas commodities, derivatives and SRECs, the market
value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those
counterparties. If a counterparty failed to perform the obligations under its contract (e.g., failed to deliver or pay for natural gas),
then the Company could sustain a loss.
NJR monitors and manages the credit risk of its wholesale marketing 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 NJR's election not to extend credit or because exposure exceeds defined thresholds. Most of
NJR'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.
The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as
of September 30, 2014. Internally-rated exposure applies to counterparties that are not rated by S&P or Moody's. In these cases,
the Company's or guarantor's financial statements are reviewed, and similar methodologies and ratios used by S&P and/or Moody's
are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial
derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial
derivative commodity contract that has settled for which payment has not yet been received. 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.
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Gross Credit
Exposure
$ 143,070
6,462
9,334
9,366
$ 168,232
Conversely, certain of NJNG's and NJRES' derivative instruments are linked to agreements containing provisions that would
require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual
counterparty agreements and can result in cash payments if NJNG's credit rating were to fall below its current level. NJNG's credit
rating, with respect to S&P, reflects the overall corporate credit profile of NJR. 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.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Level 2
Other significant observable inputs such as interest rates or price data, including both commodity and basis pricing
that is observed either directly or indirectly from publications or pricing services. NJR's Level 2 assets and liabilities
include over-the-counter physical forward commodity contracts and swap contracts 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). 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 was considered to be a “model,” it would still be considered to be a Level 2 input as:
1) The data is widely accepted and public
2) The data is non-proprietary and sourced from an independent third party
3) The data is observable and published
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
Level 3
Inputs derived from a significant amount of unobservable market data. These include NJR's best estimate of fair value
and are derived primarily through the use of internal valuation methodologies.
NJNG's and NJRES' financial derivatives portfolios consist mainly of futures, options and swaps. NJR 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 source for its price inputs is CME/NYMEX. NJRES also
uses ICE, Platts, and Natural Gas Exchange for Canadian delivery points. However, NJRES 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, NJRES' 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
NJR also has available for sale securities and other financial assets that include listed equities, mutual funds and money
market funds for which there are active exchange quotes available.
When NJR determines fair values, measurements are adjusted, as needed, for credit risk associated with its counterparties,
as well as its own credit risk. NJR 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.
Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon
the degree to which the Company's credit rating and/or financial metrics deteriorate, and the extent to which liability amounts
exceed applicable threshold limits. The aggregate fair value of all derivative instruments with credit-risk-related contingent features
that were in a liability position on September 30, 2014 and 2013, is $39,000 and $2 million, respectively, for which the Company
had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements had
been invoked on September 30, 2014 and 2013, the Company would have been required to post an additional $7,000 and $1.1
million, respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected on the
Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would
permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted,
as previously discussed.
Liquidation of Clearing Broker
In October 2011, MF Global disclosed to the CME that it had a “significant shortfall” in its segregated customer accounts.
As of the close of business on November 3, 2011, the market value of NJRES' MF Global account was $27.8 million. NJRES
received distributions from the Securities Investor Protection Act Trustee totaling $9.3 million related to its CME positions. During
the fourth quarter of fiscal 2012, the Company established an allowance for bad debt of $1.4 million. On October 24, 2012, NJR
sold its remaining claim of $18.5 million for $17.1 million. The loss on the sale was equal to the allowance established during
fiscal 2012.
5.
FAIR VALUE
Fair Value of Assets and Liabilities
The fair value of cash and temporary investments, accounts receivable, current loan receivables, accounts payable, commercial
paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of
those instruments. Non-current loan receivables are recorded based on what the company expects to receive, which approximates
fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.
As of September 30, the estimated fair value of long-term debt at NJNG and NJR, including current maturities and excluding
capital leases, as applicable, is as follows:
or other pricing services.
(Thousands)
NJNG
Carrying value
Fair market value
NJR
Carrying value
Fair market value
2014
2013
$
$
$
$
432,845 $
453,773 $
379,845
397,175
125,000 $
133,136 $
150,000
159,343
NJR 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, 2014
and 2013, NJR discloses its debt within Level 2 of the fair value hierarchy.
Fair Value Hierarchy
NJR applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial
derivatives and physical commodity contracts qualifying as derivatives, available for sale securities and other financial assets and
liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to
inputs that are based on unobservable market data and include the following:
Level 1
Unadjusted quoted prices for identical assets or liabilities in active markets. NJR's Level 1 assets and liabilities include
exchange traded 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 NJR refers internally to as
basis swaps, fixed swaps, futures and financial options that are cleared through a FCM.
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New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(Thousands)
As of September 30, 2014:
Assets
Physical forward commodity contracts
Financial derivative contracts - natural gas
Available for sale equity securities - energy industry (1)
Other (2)
Total assets at fair value
Liabilities
Physical forward commodity contracts
Financial commodity contracts - natural gas
Financial commodity contracts - foreign exchange
Total liabilities at fair value
As of September 30, 2013:
Assets
Physical forward commodity contracts
Financial derivative contracts - natural gas
Financial commodity contracts - foreign exchange
Available for sale equity securities - energy industry (1)
Other (2)
Total assets at fair value
Liabilities
Physical forward commodity contracts
Financial derivative contracts - natural gas
Financial commodity contracts - foreign exchange
Total liabilities at fair value
(1)
(2)
Included in other noncurrent assets on the Consolidated Balance Sheets.
Includes various money market funds in Level 1.
6.
INVESTMENTS IN EQUITY INVESTEES
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
—
54,451
10,672
1,299
$ 66,422
$
—
55,488
—
$ 55,488
$
—
44,249
—
11,716
1,129
$ 57,094
$
—
28,248
—
$ 28,248
$ 15,426
—
—
—
$ 15,426
$ 30,910
—
155
$ 31,065
$ 11,823
—
16
—
—
$ 11,839
$ 14,595
—
5
$ 14,600
$ —
—
—
—
$ —
$ —
—
—
$ —
$ —
—
—
—
—
$ —
$ —
—
—
$ —
Total
$ 15,426
54,451
10,672
1,299
$ 81,848
$ 30,910
55,488
155
$ 86,553
$ 11,823
44,249
16
11,716
1,129
$ 68,933
$ 14,595
28,248
5
$ 42,848
Investments in equity investees includes NJR's equity method and cost method investments.
Weighted average shares of common stock outstanding-basic
Equity Method Investments
During the fourth quarter of fiscal 2014, NJR, through a subsidiary, NJR Pipeline Company, formed PennEast with four
other investors, with another investor joining in October 2014, plans to construct and operate a 108-mile pipeline that will extend
from northeast Pennsylvania to western New Jersey.
As of September 30, NJR's equity method investments include the following:
NJRES and NJNG have entered into transportation, storage and park and loan agreements with Steckman Ridge and Iroquois.
In addition, NJNG has entered into a precedent capacity agreement with PennEast with an estimated service date of November 1,
2017. See Note 15. Related Party Transactions for more information on these intercompany transactions.
Cost Method Investments
In fiscal 2012, NJR invested $8.8 million in OwnEnergy, a developer of onshore wind projects, for an 18.7 percent ownership
interest and the option, but not the obligation, to purchase certain qualified projects.
During fiscal 2014, NJRCEV agreed to acquire the development rights to the following onshore wind farms from OwnEnergy:
a $21.2 million 9.7 MW project in Two Dot, Montana that was completed in June 2014; and
a $42 million, 20 MW project in Carroll County, Iowa that is currently under construction and expected to be operational
in the second quarter of fiscal 2015.
Accordingly, NJRCEV reclassified $2.4 million associated with the wind purchase option from its investment to property,
plant and equipment on the Consolidated Balance Sheets, which represents the costs associated with the rights to develop the
•
•
projects above.
During the fourth quarter of fiscal 2014, due to its concerns surrounding the ability of OwnEnergy to fulfill its future obligation
to present qualified projects to NJRCEV for investment, the Company reassessed the value of its cost method investment, as well
as remaining value of its wind purchase option and determined that it was other-than-temporarily impaired. As a result, NJRCEV
recognized an impairment loss of $6.4 million, $3.8 million after tax, which is included in other income, net on the Consolidated
Statements of Operations.
On October 9, 2014, NJRCEV also acquired the development rights to an $85 million, 48 MW wind project in Rush County,
Kansas that is currently under construction and is expected to commence commercial operation in the first quarter of fiscal 2016.
The following table presents the calculation of the Company's basic and diluted earnings per share for the fiscal years ended
7. EARNINGS PER SHARE
September 30:
(Thousands, except per share amounts)
Net income, as reported
Basic earnings per share
Basic earnings per common share
Diluted earnings per share
Weighted average shares of common stock outstanding-basic
Incremental shares (1)
Weighted average shares of common stock outstanding-diluted
Diluted earnings per common share (2)
(1)
(2)
Incremental shares consist of stock options, stock awards and performance units.
There were no anti-dilutive shares excluded from the calculation of diluted earnings per share for fiscal 2014, 2013 and 2012.
2014
2013
2012
$ 141,970 $ 114,809 $
92,879
42,099
$3.37
41,658
$2.76
41,527
$2.24
42,099
41,658
41,527
362
42,461
$3.34
156
41,814
$2.75
105
41,632
$2.23
(Thousands)
Steckman Ridge (1)
Iroquois
PennEast
Total
(1)
quarterly and are due October 1, 2023.
2014
128,413 $
24,042
555
153,010 $
$
$
2013
129,707
23,084
—
152,791
Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2014 and 2013, which accrue interest at a variable rate that resets
Page 90
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New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
8. DEBT
NJNG First Mortgage Bonds
NJNG and NJR finance working capital requirements and capital expenditures through the issuance of various long-term
debt and other financing arrangements, including unsecured credit and private placement debt shelf facilities. Amounts available
under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit.
The following table presents the long-term debt of the Company as of September 30:
Maturity date:
December 1, 2038
August 1, 2023
August 1, 2024
October 1, 2040
May 15, 2018
September 1, 2027
August 1, 2035
August 1, 2041
April 15, 2028
March 13, 2024
March 13, 2044
June 1, 2021
Various dates
(Thousands)
NJNG
First mortgage bonds:
5.00%
4.50%
4.60%
4.90%
5.60%
Variable
Variable
Variable
3.15%
4.77%
3.58%
4.61%
Series HH
Series II
Series JJ
Series KK
Series LL
Series MM
Series NN
Series OO
Series PP
Series QQ
Series RR
Unsecured senior notes
March 15, 2014
Capital lease obligation-buildings
Capital lease obligation-meters
Capital lease obligation-equipment
December 1, 2013
Less: Current maturities of long-term debt
Total NJNG long-term debt
NJR
6.05%
1.94%
2.51%
3.25%
Unsecured senior notes
September 24, 2017
Unsecured senior notes
September 17, 2015
Unsecured senior notes
September 17, 2018
Unsecured senior notes
September 17, 2022
Less: Current maturities of long-term debt
Total NJR long-term debt
Total long-term debt
2014
2013
$
— $
12,000
10,300
10,500
15,000
10,300
10,500
15,000
125,000
125,000
9,545
41,000
46,500
50,000
—
70,000
55,000
18,726
31,143
—
(9,505)
473,209
50,000
25,000
25,000
50,000
(25,000)
125,000
9,545
41,000
46,500
50,000
60,000
—
—
20,381
31,261
42
(68,643)
362,886
50,000
25,000
25,000
50,000
—
150,000
$ 598,209 $ 512,886
NJNG and Trustee, entered into the New Mortgage Indenture, dated September 1, 2014, which secures all of the outstanding
First Mortgage Bonds issued under the Old Mortgage Indenture. The New 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 New 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 New Mortgage Indenture no longer contains a restriction on the ability of NJNG to pay dividends. New Jersey
Administrative Code 14:4-4.7 states that a public utility cannot issue dividends if it's equity to total capitalization ratio falls below
30 percent without regulatory approval. As of September 30, 2014, NJNG equity to total capitalization ratio is 50.9 percent and
has the ability to issue up to $841.2 million of FMBs under the terms of the New Mortgage Indenture.
In August 2011, NJNG completed a refunding of its outstanding Auction-Rate Securities whereby the EDA issued three
series of Variable Rate Demand Notes with a total principal amount of $97 million with maturity dates ranging from September
2027 to August 2041. NJNG and the EDA entered into a Loan Agreement securing the payment of principal and interest on the
notes by NJNG with a pledge of $97 million principal amount of First Mortgage Bonds issued by NJNG. This agreement was
amended and restated effective September 1, 2014, to accommodate a new variable interest rate mode. In connection with the
change in interest rate mode, NJNG entered into a Continuing Covenant Agreement dated as of September 24, 2014, with Wells
Fargo Municipal Capital Strategies, LLC, pursuant to which Wells Fargo agreed to buy the EDA Bonds. Each series of EDA Bonds
is expected to accrue interest for five years at a variable rate determined monthly, which rate is initially calculated as .55 percent
plus 70 percent of one month LIBOR, subject to earlier redemption or conversion to another interest rate mode. The EDA Bonds
are not subject to optional tender while they bear interest at a LIBOR index rate. Any remaining unamortized extinguished debt
costs, will be amortized over the life of the new EDA Bonds in accordance with ASC 980, Regulated Operations, therefore, there
was no impact to income upon extinguishment.
The rates on these types of investments are generally correlated with the Securities Industry and Financial Markets Association
Municipal Swap Index and will initially accrue interest at a daily rate, with a maximum rate of 12 percent per annum. As of
September 30, 2014, the interest rate on the EDA Bonds was .66 percent.
On April 15, 2013, NJNG issued $50 million of 3.15 percent senior secured notes due April 15, 2028, in the private placement
market pursuant to a note purchase agreement entered into on February 8, 2013. Interest is payable semi-annually. The proceeds
were used to refinance short-term debt and will fund capital expenditure requirements.
On March 13, 2014, NJNG issued $70 million of 3.58 percent senior notes due March 13, 2024, and $55 million of 4.61
percent senior notes due March 13, 2044, secured by First Mortgage Bonds in the private placement market pursuant to a note
purchase agreement entered into on February 7, 2014. The proceeds were used to pay down short-term debt and redeem NJNG's
$60 million, 4.77 percent private placement bonds on March 15, 2014.
On May 27, 2014, NJNG redeemed the $12 million, 5 percent Series HH bonds, which were callable as of December 1,
2013.
NJNG Sale-Leasebacks
Annual long-term debt redemption requirements, excluding capital leases, as of September 30, are as follows:
(Millions)
2015
2016
2017
2018
2019
Thereafter
NJNG
NJR
$
$
$
$
$
$
— $
— $
— $
125.0 $
— $
307.8 $
25.0
—
50.0
25.0
—
50.0
NJNG has entered into a sale-leaseback for its headquarters building, which has a 25.5-year term that expires in June 2021,
subject to an option by NJNG to renew the lease for additional five-year terms a maximum of four times. The present value of the
agreement's minimum lease payments is reflected as both a capital lease asset and a capital lease obligation, which are included
in utility plant and long-term debt, respectively, on the Consolidated Balance Sheets.
NJNG received $7.6 million, $7.1 million and $6.5 million for fiscal 2014, 2013 and 2012, respectively, in connection with
the sale-leaseback of its natural gas meters. NJNG records a capital lease obligation that is paid over the term of the lease and has
the option to purchase the meters back at fair value upon expiration of the lease. During fiscal 2014, 2013 and 2012, NJNG
exercised early purchase options with respect to meter leases by making final principal payments of $956,000, $752,000 and $1
million, respectively. This sale-leaseback program is expected to continue on an annual basis.
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New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Contractual commitments for capital lease payments, as of the fiscal years ended September 30, are as follows:
A summary of NJR's and NJNG's short-term bank facilities as of September 30, are as follows:
(Millions)
2015
2016
2017
2018
2019
Thereafter
Subtotal
Less: interest component
Total
NJR Long-term Debt
Lease
Payments
$ 11.9
12.1
11.0
9.1
6.3
7.6
58.0
(8.1)
$ 49.9
NJR has two unsecured, uncommitted private placement debt shelf note agreements. These debt shelf note agreements are
to be used for general corporate purposes, including working capital and capital expenditures.
The first agreement was entered into with Prudential on June 30, 2011, in the amount of $75 million, which expired on
June 30, 2014, and was amended effective July 25, 2014, by the First Amendment to the Prudential Facility, which allowed for
another $100 million under the Prudential Facility. As of September 30, 2014, NJR had $50 million at 3.25 percent outstanding
under this agreement, which will mature on September 17, 2022, and $100 million in notes at 3.48 percent due November 7, 2024.
On September 26, 2013, NJR entered into an unsecured, uncommitted $100 million private placement shelf note agreement
with MetLife. The MetLife Facility, subject to the terms and conditions set forth therein, allows NJR to issue senior notes to
MetLife or certain of MetLife's affiliates from time to time during a three-year issuance period ending September 26, 2016, on
terms and conditions, including interest rates and maturity dates, to be agreed upon in connection with each note issuance. The
notes issued under the MetLife Facility will be guaranteed by certain unregulated subsidiaries of NJR. As of September 30, 2014,
$100 million remains available for borrowing under the MetLife Facility.
Additionally, NJR entered into another debt shelf note agreement on May 12, 2011, in the amount of $100 million, which
expired on May 10, 2013. As of September 30, 2014, NJR had two series of notes outstanding under this agreement, $25 million
at 1.94 percent, which will mature on September 15, 2015 and $25 million at 2.51 percent, which will mature on September 15,
2018. Notes issued under these agreements are guaranteed by certain unregulated subsidiaries of the Company.
NJR had no long-term, variable-rate debt outstanding as of September 30, 2014 and 2013.
2014
2013
$ 425,000
$ 148,000
$ 325,000
$
97,000
1.08%
1.00%
$ 256,484
$
$
$
$
$
—%
—
—
—
—
—
$ 210,110
$ 100,000
$ 100,000
0.74%
—
10,000
$
$
$ 100,000
$ 250,000
$ 168,600
$ 250,000
$ 153,000
.12%
.13%
$ 96,269
$
81,400
(Thousands)
NJR
Bank revolving credit facilities (1)
Notes outstanding at end of period
Weighted average interest rate at end of period
Amount available at end of period (2)
Bank term loan
Loan outstanding at end of period
Weighted average interest rate at end of period
Amount available at end of period
Bank letter of credit facility (3) (4)
NJNG
Bank credit facility dedicated to EDA Bonds (1) (4)
Bank revolving credit facilities (1)
Commercial paper outstanding at end of period
Weighted average interest rate at end of period
Amount available at end of period (5)
(1)
(2)
(4)
(5)
the same amount.
(3) Uncommitted, expired on June 5, 2014.
amount.
NJR Short-term Debt
Committed credit facilities, which require commitment fees on the unused amounts.
Letters of credit outstanding total $20.5 million and $17.9 million as of September 30, 2014 and 2013, respectively, which reduces amount available by
There were no borrowings outstanding as of September 30, 2014 and 2013, respectively.
Letters of credit outstanding total $731,000 and $266,000 as of September 30, 2014 and 2013, respectively, which reduces amount available by the same
NJR had a $325 million unsecured committed credit facility expiring August 22, 2017. On January 24, 2014, NJR entered
into an agreement for a $50 million unsecured, committed credit line. The credit line was put in place primarily to provide additional
working capital to NJRES to meet any potential margin calls that may arise in NJRES' normal course of business. Effective January
31, 2014, NJR utilized the accordion option available under the NJR Credit Facility to increase the amount of credit available
from $325 million to $425 million. The additional credit line was thereby terminated on the same date. The credit facility is used
primarily to finance its share repurchases, to satisfy NJRES' short-term liquidity needs and to finance, on an initial basis, unregulated
investments.
As of September 30, 2014, NJR has six letters of credit outstanding totaling $20.5 million. One letter of credit for $15 million
is issued on behalf of NJRES and five letters of credit, which total $5.5 million, are issued on behalf of NJRCEV. 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.
NJRES' letter of credit is used for margin requirements for natural gas transactions and expires on December 31, 2014.
NJRCEV's letters of credit are used to secure construction of ground-mounted solar projects and to secure obligations pursuant
to an Interconnection Services Agreement. They expire on dates ranging from November 27, 2014 to August 21, 2015.
On September 13, 2013, NJR, as borrower, and certain of its unregulated subsidiaries, as guarantors, entered into an unsecured
one-year $100 million Term Loan Credit Agreement with JPMorgan that expired on September 15, 2014, and was not replaced.
On June 5, 2013, NJR entered into a new agreement permitting the issuance of stand-alone letters of credit for up to $10
million, which expired on June 5, 2014.
Page 94
Page 95
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
On October 24, 2014, NJR entered into a $100 million uncommitted line of credit agreement, with Santander Bank, N.A.,
Stock Options
expiring on October 23, 2015.
The following table summarizes the stock option activity for the past three fiscal years:
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
NJNG Short-term Debt
NJNG had a $250 million unsecured committed credit facility, which was due to expire in August 2014. On May 15, 2014,
NJNG replaced the facility with a new $250 million, five-year, revolving, unsecured credit facility expiring in May 2019. The
new NJNG Credit Facility permits the borrowing of revolving loans and swing loans, as well as the issuance of letters of credit.
It also permits an increase to the facility, from time to time, with the existing or new lenders, in a minimum of $15 million
increments up to a maximum of $50 million at the lending banks' discretion. As of September 30, 2014, the unused amount available
under the NJNG Credit Facility, including amounts allocated to the backstop under the commercial paper program and the issuance
of letters of credit, was $153 million.
As of September 30, 2014, NJNG has two letters of credit outstanding for $731,000. NJNG's letters of credit are used for
collateral for remediation projects and expire on August 11, 2015. These letters of credit reduce the amount available under NJNG's
committed credit facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the
counterparty, and will be renewed as necessary.
NJNG entered into the JPMC Facility, which was a $100 million four-year credit facility that was due to expire in August
2015, to provide liquidity support in the event of a failed remarketing of the EDA Bonds and to ensure payment of principal and
interest. The JPMC Facility was terminated on September 26, 2014 as a result of the change in the interest rate mode on the EDA
bonds.
9.
STOCK-BASED COMPENSATION
In January 2007, the NJR 2007 Stock Award and Incentive Plan replaced the 2002 Employee and Outside Director Long-
Term Incentive Plan. Shares have been issued in the form of options, performance shares, restricted stock and deferred retention
stock. The Outside Director Stock Compensation Plan allows for the issuance of non-restricted shares to non-employee directors.
As of September 30, 2014, 1,596,316 and 28,897 shares remain available for future issuance to employees and directors,
respectively.
The following table summarizes all stock-based compensation expense recognized during the following fiscal years:
(Thousands)
Stock-based compensation expense:
Performance share awards
Restricted and non-restricted stock
Deferred retention stock
Compensation expense included in operation and maintenance expense
Income tax benefit
Total, net of tax
2014
2013
2012
$
2,509 $
1,664
13,643
1,049 $
1,276
1,081
1,326
1,362
2,733
17,816
(7,278)
$ 10,538 $
3,456
(1,412)
2,044 $
5,371
(2,194)
3,177
Outstanding at September 30, 2011
Outstanding at September 30, 2012
Outstanding at September 30, 2013
Granted
Exercised
Forfeited
Granted
Exercised
Forfeited
Granted
Exercised
Forfeited
Outstanding at September 30, 2014
Exercisable at September 30, 2014
Exercisable at September 30, 2013
Exercisable at September 30, 2012
Exercise Price Range
$28.65 - $30.37
Performance Shares
Shares
109,763
Weighted Average
Exercise Price
$27.84
(28,138)
$25.30
81,625
$28.71
(15,000)
$25.08
66,625
$29.53
(42,500)
$26.26
—
—
—
—
—
—
—
—
—
—
—
—
24,125
24,125
66,625
81,625
$30.00
$30.00
$29.53
$28.71
There are no costs related to outstanding options for the stock options listed above. During fiscal 2014 and fiscal 2013, NJR
received proceeds of $1.2 million and $376,000, respectively, from the exercise of stock options.
The following table summarizes stock options outstanding and exercisable as of September 30, 2014:
Outstanding and Exercisable
Weighted
Average
Remaining
Contractual
Term
(in years)
Number
Of Stock
Options
24,125
0.6
Weighted
Average
Exercise
Price
$30.00
Aggregate
Intrinsic
Value
(in thousands)
$
495
In fiscal 2014, the Company granted to various officers 34,577 performance shares, which are market condition awards that
vest on September 30, 2016, subject to the Company meeting certain performance conditions. In fiscal 2014, the Company also
granted to various officers 39,287 performance shares, of which 25,240 vest in September 2016 and 14,047 vest annually over a
three year period beginning in September 2014, both of which are subject to the Company meeting certain performance conditions.
In fiscal 2013, the Company granted to various officers 49,904 performance shares, which are market condition awards that vest
on September 30, 2015, subject to the Company meeting certain performance conditions. In fiscal 2012, the Company granted to
various officers 28,418 performance shares, which vested on September 30, 2014. There is $2.2 million of deferred compensation
related to unvested performance shares that is expected to be recognized over the next two years.
Page 96
Page 97
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the performance share activity under the NJR 2007 Stock Award and Incentive Plan for the
The following table summarizes the restricted stock activity under the NJR 2007 Stock Award and Incentive Plan for the
past three fiscal years:
past three fiscal years:
Non-vested and outstanding at September 30, 2011
Granted
Vested (2)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2012
Granted
Vested
Cancelled/forfeited (3)
Non-vested and outstanding at September 30, 2013
Granted
Vested (4)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2014
(1)
Weighted Average
Grant Date
Fair Value
$28.04
$47.17
30.08
—
$33.26
$30.74
—
26.24
$36.70
$40.55
47.17
—
$36.59
Shares (1)
106,027
28,418
(49,702)
—
84,743
49,904
—
(56,325)
78,322
73,864
(28,418)
—
123,768
(2)
(3)
(4)
The number of common shares issued related to 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.
As certified by the Company's Leadership and Compensation Committee on November 13, 2012, the number of common shares related to performance
shares and market condition shares earned was 68.8 percent , or 15,427 shares and 70 percent, or 19,095 shares, respectively. The number represented on
this line is the target number of 100 percent. See footnote (1) above.
As certified by the Company's Leadership and Compensation Committee on November 12, 2013, the number of common shares granted in fiscal 2011
related to performance shares and market condition shares earned was zero. The number represented on this line is the target number of 100 percent. See
footnote (1) above.
As certified by the Company's Leadership and Compensation Committee on November 11, 2014, the number of common shares related to performance
shares earned was 150 percent, or 42,627 shares, excluding accumulated dividends. The number represented on this line is the target number of 100
percent. See footnote (1) above.
The Company measures compensation expense related to performance shares based on the fair value of these awards at their
date of grant. In accordance with ASC 718, Compensation - Stock Compensation, compensation expense for market condition
grants are recognized for awards granted, and are not adjusted based on actual achievement of the performance goals. The Company
estimated the fair value of these grants on the date of grant using a lattice model. Performance condition grants are initially fair
valued at the company's stock price on grant date, and are subsequently adjusted for actual achievement of the performance goals.
Restricted Stock
In fiscal 2014, the company granted 16,678 shares of restricted stock that will vest annually over a three year period beginning
in October 2014. In fiscal 2013, the company granted 2,139 shares of restricted stock that will vest in October 2015. In fiscal 2012,
the company granted 1,929 shares of restricted stock that vested in October 2014. There is $576,000 of deferred compensation
related to unvested restricted stock shares that is expected to be recognized over the next two years.
Page 98
Page 99
Non-vested and outstanding at September 30, 2011
Cancelled/forfeited
Non-vested and outstanding at September 30, 2012
Cancelled/forfeited
Non-vested and outstanding at September 30, 2013
Granted
Vested
Granted
Vested (1)
Granted
Vested (1)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2014
Deferred Retention Stock
end.
the past three fiscal years:
Outstanding at September 30, 2011
Outstanding at September 30, 2012
Granted/Vested
Delivered
Forfeited
Granted/Vested
Delivered
Forfeited
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2013
Outstanding at September 30, 2014
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
Shares
77,097
1,929
(19,680)
—
59,346
2,139
(19,680)
(2,550)
39,255
16,678
(34,230)
(958)
20,745
Shares
106,730
49,171
(103,903)
(2,827)
49,171
67,295
—
(4,673)
111,793
28,985
—
(2,387)
138,391
$39.90
$47.17
$39.10
—
$40.40
$40.62
$39.10
$40.74
$41.05
$45.56
$40.74
$40.74
$45.20
$35.37
$47.17
$35.37
35.37
$47.17
$40.62
—
$43.44
$43.38
$45.75
—
$42.94
$43.89
$
879
$
888
$ 1,534
—
—
—
—
—
—
—
—
—
—
$ 4,787
—
—
—
—
—
—
—
—
—
—
—
—
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
and the related shares are granted upon approval by the Board of Directors, which generally occurs subsequent to the fiscal year
The following table summarizes the deferred retention stock award under the NJR 2007 Stock Award and Incentive Plan for
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Non-Employee Director Stock
Non-employee director compensation includes an annual retainer that is awarded in stock. In January 2014, the company
issued 15,848 shares for the annual retainer with a weighted average fair value of $44.80 per share. The shares vested immediately
and are amortized to expense over a 12 month period. As of September 30, 2014, there is $177,000 of expense remaining to be
recognized through December 31, 2014. In January 2013 and January 2012, the company issued 16,262 and 10,800 shares for the
annual retainer with weighted average fair values of $39.97 and $48.18, respectively.
10. EMPLOYEE BENEFIT PLANS
Pension and Other Postemployment Benefit Plans
The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and
nonrepresented employees with more than one year of service. Defined benefit plan benefits are based on years of service and
average compensation during the highest sixty 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 also 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.
During the fourth quarter of fiscal 2014, the Company implemented a voluntary early retirement program to certain employees
and recognized an expense of approximately $5 million, including pension and postemployment benefit costs of $3.5 million
related to special termination benefits, and $1.5 million related to other severance benefits.
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 2014 and 2013, the Company had no minimum funding requirements.
The Company made no discretionary contributions to the pension plans in fiscal 2014, and contributed $20 million in fiscal 2013.
The Company elected to make this discretionary tax-deductible contribution to improve the funded status of the pension plans.
The Company does not expect to be required to make additional contributions to fund the pension plans over the next three 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.
In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans.
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 $5 million and $6 million, respectively, in fiscal 2014 and
2013 and estimates that it will contribute between $4 million to $6 million over the next five years. Additional contributions may
be required based on market conditions and changes to assumptions.
Page 100
Page 101
(1)
Balance represents amounts recognized in accordance with ASC 715 and excludes $308,000 associated with a regulatory asset approved by the BPU for
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:
(Thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Special termination benefits
Actuarial loss (gain)
Benefits paid, net of retiree subsidies received
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid, net of plan participants' contributions
Fair value of plan assets at end of year
Amounts recognized on Consolidated Balance Sheets
Postemployment employee benefit (liability) asset
Funded status
Current
Noncurrent
Total
(1)
Includes the Company's PEP.
Balance at September 30, 2012
Amounts arising during the period:
Net actuarial (gain)
Amounts amortized to net periodic costs:
Net actuarial (loss)
Prior service (cost) credit
Net transition obligation
Balance at September 30, 2013
Amounts arising during the period:
Net actuarial loss
Amounts amortized to net periodic costs:
Net actuarial (loss) gain
Prior service (cost) credit
Net transition obligation
Balance at September 30, 2014
fiscal 2012.
Pension (1)
OPEB
2014
2013
2014
2013
$
198,826 $
211,136 $
112,771 $
121,027
6,143
10,066
47
2,814
21,440
(11,637)
6,871
8,942
49
—
(22,288)
(5,884)
3,923
5,734
38
648
6,792
(2,133)
4,686
5,148
32
—
(15,645)
(2,477)
227,699 $
198,826 $
127,773 $
112,771
200,236 $
166,664 $
49,555 $
41,090
22,923
85
(11,591)
211,653 $
(16,046) $
19,323
20,083
(5,834)
4,590
4,970
(2,206)
200,236 $
1,410 $
56,909 $
(70,864) $
5,120
5,977
(2,632)
49,555
(63,216)
(100) $
(15,946)
(16,046) $
(96) $
(136) $
1,506
(70,728)
1,410 $
(70,864) $
(100)
(63,116)
(63,216)
$
$
$
$
$
$
Regulatory Assets
Pension
OPEB
$
80,449 $
58,799
$
25,183 $
1,511
(1)
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
(17,961)
(13,523)
(8,826)
(3,589)
(5,719)
(105)
—
(3,743)
301
(22)
(1,927)
(3)
—
(114)
54
(4)
$
56,664 $
41,812
$
14,427 $
(2,142)
10,563
4,277
6,243
2,098
(5,326)
(107)
—
(2,607)
303
(11)
(3,085)
(4)
—
$
61,794 $
43,774
$
17,581 $
107
54
—
117
The Company recognizes a liability for its underfunded benefit plans as required by the Compensation - Retirement Benefits
Topic of the ASC. The Company records the offset to regulatory assets for the portion of liability relating to its regulated utility
and to accumulated other comprehensive income for the portion of the liability related to its non-regulated operations.
The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income
as of September 30:
—
61,794 $
—
56,664 $
$
(Thousands)
Net actuarial loss (gain)
$
2014
60,797 $
997
2013
55,559 $
1,105
Prior service cost (credit)
Net transition obligation
Total
2014
45,809 $
(2,035)
—
43,774 $
2013
44,140 $
(2,339)
11
41,812 $
2014
17,570 $
11
2013
14,412 $
15
—
17,581 $
—
14,427 $
2014
2013
425 $
(308)
—
117 $
(1,782)
(360)
—
(2,142)
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
The weighted average assumptions used to determine benefit costs during the fiscal year and obligations as of September 30,
periodic benefit cost as of September 30 are:
are as follows:
Regulatory Assets
Accumulated Other Comprehensive Income
(Loss)
Pension
OPEB
Pension
OPEB
2014
2012
2014
2012
OPEB
2013
Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as
components of net periodic benefit cost in fiscal 2015 are as follows:
Compensation increase
3.25/3.50% (1)
(1)
Percentages for represented and nonrepresented plans, respectively.
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
$
5,305 $
108
5,413 $
2,911
(311)
2,600
$
$
1,680 $
3
1,683 $
32
(54)
(22)
The accumulated benefit obligation for the pension plans, including the PEP, exceeded the fair value of plan assets. The
projected benefit and accumulated benefit obligations and the fair value of plan assets as of September 30, are as follows:
(Thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Pension
2014
2013
$ 227,699 $ 198,826
$ 198,058 $ 176,172
$ 211,653 $ 200,236
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:
(Thousands)
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Prior service cost (credit) amortization
Recognized net initial obligation
Net periodic benefit cost
$
$
Special termination benefit
Net periodic benefit cost recognized as expense $
2014
6,143 $
10,066
(15,475)
5,596
111
—
6,441 $
2,814
9,255 $
Pension
2013
2012
2014
6,871 $
8,942
(14,825)
7,646
5,375 $
8,825
(12,685)
5,015
108
—
8,742 $
—
8,742 $
46
—
6,576 $
—
6,576 $
3,923 $
5,734
(4,174)
2,500
(357)
11
7,637 $
648
8,285 $
OPEB
2013
2012
4,686 $
3,584
5,148
(3,653)
3,857
(355)
26
5,133
(2,746)
2,894
25
356
9,709 $
9,246
—
—
9,709 $
9,246
Page 102
Page 103
Benefit costs:
Discount rate
Expected asset return
Compensation increase
Obligations:
Discount rate
Pension
2013
4.30%
8.50%
3.25%
5.15%
3.25%
5.15%
8.25%
3.25%
4.55%
5.25%
8.25%
3.25%
5.15%
8.25%
3.50%
4.30%
8.50%
3.25%
4.30%
3.25%
4.55%
3.50%
5.15%
3.25%
5.25%
8.25%
3.25%
4.30%
3.25%
In selecting an assumed discount rate, the Company uses a modeling process that involves selecting a portfolio of high-
quality corporate debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of
the Company's expected future benefit payments. The Company considers the results of this modeling process, as well as overall
rates of return on high-quality corporate bonds and changes in such rates over time, to determine its assumed discount rate.
Information relating to the assumed HCCTR used to determine expected OPEB benefits as of September 30, and the effect
of a one percent change in the rate, are as follows:
($ in thousands)
HCCTR
Ultimate HCCTR
Year ultimate HCCTR reached
Year-end benefit obligation
Total service and interest cost
Year-end benefit obligation
Total service and interest costs
Effect of a 1 percentage point increase in the HCCTR on:
Effect of a 1 percentage point decrease in the HCCTR on:
2014
7.1%
4.8%
2022
2013
2012
7.3%
4.8%
2022
7.5%
4.8%
2022
$ 20,965
$
1,885
$ 18,008
$
2,156
$ 21,278
$
1,868
$ (16,932)
$ (1,493)
$ (14,629)
$ (1,675)
$ (17,034)
$ (1,457)
The Company's investment objective is a long-term real rate of return on assets before permissible expenses that is
approximately 6 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:
Asset Allocation
U.S. equity securities
International equity securities
Fixed income
Total
2015
Target
Allocation
40%
20
40
100%
Assets at
September 30,
2014
39%
20
41
2013
42%
22
36
100%
100%
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
The Plan had no Level 2 or Level 3 fair value measurements during the two fiscal years and there have been no changes in
following years:
(Thousands)
2015
2016
2017
2018
2019
2020 - 2024
Pension
OPEB
$
$
$
$
$
$
7,176 $
8,102 $
8,513 $
9,309 $
10,017 $
3,509
4,292
4,735
5,197
5,705
62,977 $
37,063
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.
Defined Contribution Plan
The estimated subsidy payments are:
Fiscal Year
2015
2016
2017
2018
2019
2020 - 2024
Estimated Subsidy Payment
(Thousands)
$201
$225
$249
$274
$300
$2,030
valuation methodologies as of September 30, 2014. The following is a description of the valuation methodologies used for assets
Money Market funds — Represents bank balances and money market funds that are valued based on the net asset value of
measured at fair value:
shares held at year end.
Registered Investment Companies — Equity and fixed income funds valued at the net asset value of shares held by the plan
at year end as reported on the active market on which the individual securities are traded.
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.
The Company offers a Savings Plan to eligible employees. As of January 1, 2014, the Company matches 60 percent of
participants' contributions up to 6 percent of base compensation. Represented NJRHS employees, non-represented employees
hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are eligible for an employer
special contribution of between 3 and 4 percent of base compensation, depending on years of service, into the Savings Plan on
their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was $2.2 million in fiscal 2014,
$1.9 million in fiscal 2013 and $1.7 million in fiscal 2012. The amount contributed for the employer special contribution of the
Savings Plan was $374,000 in fiscal 2014, $193,000 in fiscal 2013 and $143,000 in fiscal 2012.
11. ASSET RETIREMENT OBLIGATIONS
NJR recognizes AROs related to the costs associated with cutting and capping its main and service gas distribution pipelines
of NJNG, which is required by New Jersey law when taking such gas distribution pipeline out of service.
Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:
The following is an analysis of the change in the ARO liability for the fiscal year ended September 30:
(Thousands)
Assets
Money market funds
Registered Investment Companies-
Equity Funds
Large Cap Index
Extended Market Index
International Stock
Fixed Income Funds
Emerging Markets
Core Fixed Income
Opportunistic Income
Ultra Short Duration
High Yield Bond Fund
Long Duration Fund
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Pension
OPEB
2014
2013
2014
2013
$
50
$
3
$
1,154
$
1,150
70,358
12,475
41,833
69,707
14,736
42,792
10,029
8,754
—
—
—
21,054
55,854
—
—
—
19,850
44,394
19,092
3,733
10,309
2,798
6,522
3,960
3,761
5,580
—
16,419
3,444
10,033
2,163
11,684
—
—
4,662
—
Total assets at fair value
$ 211,653
$ 200,236
$
56,909
$
49,555
(Thousands)
Balance at October 1
Accretion
Additions
Retirements
Balance at period end
Sheets.
2015
2016
2017
2018
2019
Total
Accretion amounts are not reflected as an expense on NJR's Consolidated Statements of Operations, but rather are deferred
as a regulatory asset and netted against NJNG's regulatory liabilities, for presentation purposes, on the Consolidated Balance
Accretion for the next five years is estimated to be as follows:
(Thousands)
Fiscal Year Ended September 30,
2014
2013
$
$
28,711
2,012
925
(1,153)
$
30,495
$
27,983
1,892
533
(1,697)
28,711
Estimated Accretion
$ 2,075
2,139
2,194
2,248
2,303
$ 10,959
Page 104
Page 105
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
12. INCOME TAXES
A reconciliation of the U.S. federal statutory rate of 35 percent to the effective rate from operations for the fiscal years ended
September 30, 2014, 2013 and 2012 is as follows:
(Thousands)
Statutory income tax expense
Change resulting from
State income taxes
Depreciation and cost of removal
Investment tax credits
Basis adjustment of solar assets due to ITC
Other
Income tax provision
Effective income tax rate
The income tax provision (benefit) from operations consists of the following:
2014
$ 67,834
2013
$ 52,661
2012
$ 35,213
7,785
(4,437)
(23,083)
3,959
(218)
$ 51,840
5,168
(5,769)
(18,749)
3,225
(961)
$ 35,575
5,434
(3,999)
(34,397)
5,974
(496)
$ 7,729
26.8%
23.6%
7.7%
(Thousands)
Current
Federal
State
Deferred
Federal
State
Investment tax credits
Income tax provision
2014
2013
2012
there was no need to recognize any liabilities associated with uncertain tax positions.
$ 37,904 $ 12,248 $ 14,983
4,025
11,096
1,763
24,963
960
(23,083)
34,127
6,186
(18,749)
$ 51,840 $ 35,575 $
18,757
4,361
(34,397)
7,729
The temporary differences, which give rise to deferred tax assets and (liabilities), consist of the following:
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 New Jersey, New York, Connecticut, Texas, Delaware, Pennsylvania, Oklahoma, North
Carolina and Louisiana and the City of New York. The Company neither files in, nor believes it has a filing requirement in, any
The Company's federal income tax returns through fiscal 2010 have either been reviewed by the IRS, or the related statute
of limitations has expired and all matters have been settled. The IRS is currently examining tax returns for fiscal 2011 through
foreign jurisdictions.
fiscal 2013.
The State of New Jersey has completed its sales and use tax examinations through March 31, 2010, and its corporate business
tax examinations through September 30, 2008. All periods subsequent to those ended September 30, 2009, are statutorily open to
examination in all applicable states with the exception of New York. In New York, all periods subsequent to September 30, 2011,
are statutorily open to examination.
In May 2013, the State of New Jersey completed their audit of NJRES for the periods ended September 30, 2008, 2009 and
2010. The audit resulted in a refund of $1.1 million that was related primarily to state apportionment differences.
NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations
associated with unrecognized tax benefits. As of September 30, 2014 and 2013, based on its analysis, the Company determined
As of September 30, 2014, the Company has state income tax net operating losses of approximately $153.2 million, which
generally have a life of 20 years. The company has recorded a deferred state tax asset of approximately $9 million on the
Consolidated Balance Sheets, reflecting the tax benefit associated with the loss carryforwards. In addition, as of September 30,
2014 and 2013, the Company has recorded a valuation allowance of $212,000 and $262,000, respectively, because it believes that
it is more likely than not that the deferred tax assets related to CR&R and NJR will expire unused.
The deferred tax assets will expire as follows:
(Thousands)
Fiscal years 2015 - 2018
Fiscal years 2019 - 2023
Fiscal Years 2024 - 2028
Fiscal Years 2029 - 2034
Total
$
78
—
—
8,946
$ 9,024
In addition, as of September 30, 2014, the Company has an ITC carryforward of approximately $7.5 million, which has a
life of 20 years. This carryforward will begin to expire in fiscal 2034.
In September 2013, the U.S. Department of the Treasury and the IRS released final regulations that provide guidance on
applying Section 263(a) of the Internal Revenue Code to amounts paid to acquire, produce, or improve tangible property, as well
as rules for materials and supplies. Implementation of these final regulations in September 2013 had no material impact on NJR's
and its subsidiaries' results of operations, financial condition or cash flow.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Cash Commitments
NJNG has entered into long-term contracts, expiring at various dates through October 2032, for the supply, storage and
transportation of natural gas. These contracts include current annual fixed charges of approximately $78.3 million at current contract
rates and volumes, which are recoverable through BGSS.
For the purpose of securing storage and pipeline capacity, NJRES enters into storage and pipeline capacity contracts, which
require the payment of certain demand charges by NJRES 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 regulated by the 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.
(Thousands)
Deferred tax assets
Investment tax credits
Deferred service contract revenue
Incentive compensation
Fair value of derivatives
State net operating losses
Conservation incentive plan
Other
Total deferred tax assets
Deferred tax liabilities
Property related items
Remediation costs
Equity investments
Post employment benefits
Fair value of derivatives
Conservation incentive plan
Under-recovered gas costs
Other
Total deferred tax liabilities
2014
2013
$
$
$
$
$
10,341
3,299
14,632
14,350
8,962
2,312
10,078
63,974
(371,017)
(12,429)
(35,474)
(10,268)
—
—
(5,056)
(11,751)
(445,995)
(382,021)
(1)
$
$
$
$
$
43,033
3,231
6,798
—
6,118
—
5,718
64,898
(329,921)
(18,881)
(33,368)
(17,455)
(6,258)
(7,611)
(383)
(13,699)
(427,576)
(362,678)
Includes $2.8 million for NJNG, which is being amortized over the life of the related assets and $7.5 million for NJRCEV, which is ITC carryforward.
Total net deferred tax liabilities
(1)
Page 106
Page 107
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 RA. However, because recovery of such costs is subject
to BPU approval, there can be no assurance as to the ultimate recovery through the RA or the impact on the Company's results of
operations, financial position or cash flows, which could be material. 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
operations or cash flows.
The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In the
Company's opinion, the ultimate disposition of these matters will not have a material effect on its financial condition, results of
14. BUSINESS SEGMENT AND OTHER OPERATIONS DATA
NJR organizes its businesses based on its products and services as well as regulatory environment. As a result, the Company
manages the businesses through the following reportable segments and other operations: the Natural Gas Distribution segment
consists of regulated energy and off-system, capacity and storage management operations; the Energy Services segment consists
of unregulated wholesale energy operations; the Clean Energy Ventures segment consists of capital investments in distributed
power projects; the Midstream segment consists of NJR's investments in natural gas transportation and storage facilities; the Home
Services and Other operations consist of heating, cooling and water appliance sales, installations and services, commercial real
estate development, other investments and general corporate activities. Information related to the Company's various business
segments and other operations is detailed below:
(Thousands)
Fiscal Years Ended September 30,
Operating revenues
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Commitments as of September 30, 2014, for natural gas purchases and future demand fees for the next five fiscal year periods
Consolidated Balance Sheets, based on the most likely amount. The actual costs to be incurred by NJNG are dependent upon several
are as follows:
(Thousands)
NJRES:
Natural gas purchases
Storage demand fees
Pipeline demand fees
Sub-total NJRES
NJNG:
Natural gas purchases
Storage demand fees
Pipeline demand fees
Sub-total NJNG
2015
2016
2017
2018
2019
Thereafter
$ 298,563 $
27,883
76,524
$ 402,970 $
18,402 $
10,471
41,759
70,632 $
— $
5,612
21,828
27,440 $
— $
3,500
14,499
17,999 $
— $
1,782
6,638
8,420 $
5,328 $
$ 100,218 $
17,865
24,045
44,372
54,293
$ 178,556 $
67,565 $
$ 581,526 $ 138,197 $
34 $
— $
— $
9,299
9,299
10,883
87,367
85,558
41,001
51,918 $
96,666 $
94,857 $
79,358 $ 112,856 $ 105,086 $
—
2,598
6,861
9,459
—
4,649
860,211
864,860
874,319
Total (1)
(1) Does not include amounts related to intercompany asset management agreements between NJRES and NJNG.
As of September 30, 2014, the Company's future minimum lease payments under various operating leases will not be more
than $2 million annually for the next five years and $22.8 million in the aggregate for all years thereafter.
Guarantees
As of September 30, 2014, there were NJR guarantees covering approximately $323.6 million of natural gas purchases and
NJRES demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
The Company previously entered into agreements to lease vehicles, generally over a five-year term, that qualified as operating
leases. These agreements contain provisions that could require the Company to make additional cash payments at the end of the term
for a portion of the residual value of the vehicles. As of September 30, 2014, the present value of the liability recognized on the
Consolidated Balance Sheets is $700,000. In the event performance under the guarantee is required, the Company's maximum future
payment would be $922,000.
Legal Proceedings
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of five MGP sites, dating back to gas operations in the late 1800s and early 1900s
that contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative
proceedings with the NJDEP, as well as participating in various studies and investigations by outside consultants, to determine the
nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under
Administrative Consent Orders or Memoranda of Agreement with the NJDEP.
NJNG may recover its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RA
approved by the BPU. In February 2012, NJNG filed its 2011 SBC filing, requesting approval of its MGP expenditures incurred
through June 30, 2011, which would continue its existing overall SBC rate and recovery at approximately $20 million. In July 2013,
NJNG requested approval of its MGP expenditures incurred through June 2013 as well as a reduction in the RA factor to $18.7
million annually. The petition was provisionally approved by the BPU on November 22, 2013, with rates effective December 1,
2013, and was approved on a final basis in July 2014. In September 2014, NJNG requested approval of its MGP expenditures incurred
through June 2014 to recover $8.5 million annually related to the SBC RA factor. As of September 30, 2014, $30.9 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 periodically, and at least annually, performs an environmental review of the MGP sites, including a review of potential
liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures
to remediate and monitor the five MGP sites for which it is responsible, including potential liabilities for Natural Resource Damages
that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range
from approximately $151.3 million to $249.8 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, 2014, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $177 million on the
Natural Gas Distribution
External customers
Energy Services
External customers (1)
Intercompany
Clean Energy Ventures
External customers
Subtotal
Home Services and Other
External customers
Intercompany
Eliminations
Total
Depreciation and amortization
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Home Services and Other
Midstream
Subtotal
Eliminations
Total
Interest income (2)
Energy Services
Midstream
Subtotal
Natural Gas Distribution
Home Services and Other
Eliminations
Total
(1)
(2)
Page 108
Page 109
2014
2013
2012
$
819,415 $
787,987 $
627,713
2,351,084
1,577,851
2,858,703
72,114
14,575
3,764,807
5,494
11,988
45,452
1,235
(73,349)
47,009
945
(6,439)
3,156,553
2,210,581
$ 3,738,145 $ 3,198,068 $ 2,248,923
$
40,540 $
37,999 $
11,295
59
6
51,900
846
(4)
222
950
2,171
1
(950)
1,222 $
$
$
$
44
8,477
6
46,526
786
(2)
1,065
1,719
1
2
52,742 $
47,310 $
41,643
999 $
653 $
(884)
837 $
(1,001)
1,026
2,760
2,257
41,102
1,093
(3,853)
35,247
59
5,680
6
40,992
661
(10)
889
37
1,098
2,024
3
Includes sales to Canada, which accounted for 3.3, 5.9 and 6.6 percent of total operating revenues during fiscal 2014, 2013 and 2012, respectively.
Included in other income on the Consolidated Statement of Operations.
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
(Thousands)
Fiscal Years Ended September 30,
Interest expense, net of capitalized interest
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Subtotal
Home Services and Other
Total
Income tax provision (benefit)
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Equity in earnings of affiliates
Midstream
Eliminations
Total
Net financial earnings
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Capital expenditures
Natural Gas Distribution
Clean Energy Ventures
Subtotal
Home Services and Other
Total
Investments in equity investees
Clean Energy Ventures
Midstream
Total
The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company's 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)
Consolidated net financial earnings
Less:
Tax adjustments
Consolidated net income
Unrealized loss (gain) on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
2014
2013
2012
$
176,857 $
113,681 $
112,417
28,534
26,639
(20,286)
(9,418)
7,635
655
35,790
(4,891)
(11,361)
$
141,970 $
114,809 $
92,879
The Company uses derivative instruments as economic hedges of purchases and sales of physical gas inventory. For GAAP
purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues
and cost of gas related to physical gas flow is recognized when the gas is delivered to customers. Consequently, there is a mismatch
in the timing of earnings recognition between the economic hedges and physical gas flows. Timing differences occur in two ways:
• Unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical gas inventory
flows; and
• Unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in
the same period as physical gas inventory movements occur.
NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of
the economic hedges with the physical sale of gas. Consequently, to reconcile between GAAP and NFE, current period unrealized
gains and losses on the derivatives are excluded from NFE as a reconciling item. Additionally, realized derivative gains and losses
are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold
out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical gas flows.
The Company's assets for the various business segments and business operations are detailed below:
(Thousands)
Assets at end of period
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Subtotal
Home Services and Other
Intercompany assets (1)
Total
(1)
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
2014
2013
2012
$ 2,143,684 $ 2,094,940 $ 2,005,520
457,080
380,707
153,891
468,096
253,663
153,536
347,406
223,247
157,779
3,135,362
2,970,235
2,733,952
82,413
85,293
73,298
(58,971)
(50,745)
(37,245)
$ 3,158,804 $ 3,004,783 $ 2,770,005
2014
2013
2012
16,683 $
1,725
5,300
1,396
25,104
359
25,463 $
39,374 $
26,458
(21,937)
5,227
49,122
2,460
258
51,840 $
14,995 $
14,890
2,534
3,387
1,962
22,878
1,101
1,096
854
2,665
19,505
1,339
23,979 $
20,844
35,399 $
10,516
(17,711)
4,993
33,197
2,550
(172)
35,575 $
38,135
(4,950)
(32,507)
4,978
5,656
2,178
(105)
7,729
14,078 $
(3,546)
10,532 $
13,868 $
(3,519)
10,349 $
14,308
(3,674)
10,634
74,204 $
79,735
12,654
7,498
73,846 $
19,311
10,060
7,199
174,091
110,416
2,798
(32)
3,292
(27)
176,857 $
113,681 $
73,238
10,791
19,452
6,749
110,230
2,366
(179)
112,417
152,566 $
135,543
288,109
1,179
289,288 $
137,083 $
116,455
59,125
196,208
1,042
89,726
206,181
1,334
197,250 $
207,515
— $
555
555 $
— $
8,800
—
—
— $
8,800
$
$
$
$
$
$
$
$
$
$
$
$
Page 110
Page 111
New Jersey Resources Corporation
Part II
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
15. RELATED PARTY TRANSACTIONS
NJRES may periodically enter into storage or park and loan agreements with its affiliated FERC-regulated natural gas storage
facility, Steckman Ridge, or transportation agreements with its affiliated FERC-regulated interstate pipeline, Iroquois. As of
September 30, 2014, NJRES has entered into storage and park and loan transactions with Steckman Ridge for varying terms, all
of which expire by October 31, 2020. Additionally, NJRES has transportation capacity with Iroquois that expires by March 31,
2019. Demand fees, net of eliminations, associated with both Steckman Ridge and Iroquois were $6.2 million, $6.1 million and
$6.6 million during the fiscal years ended September 30, 2014, 2013 and 2012, respectively. As of September 30, 2014, NJRES
had demand fees payable of $187,000 and $389,000 to Steckman Ridge and Iroquois, respectively, which are included in gas
purchases payable. As of September 30, 2013, fees payable to Steckman Ridge and Iroquois were $159,000 and $390,000
respectively.
In January 2010, NJNG entered into a 10-year agreement effective April 1, 2010, for 3 Bcf of firm storage capacity with
Steckman Ridge. Under the terms of the agreement, NJNG incurs demand fees, at market rates, of approximately $9.3 million
annually, a portion of which is eliminated in consolidation. These fees are recoverable through NJNG's BGSS mechanism and are
included in regulatory assets. Additionally, NJNG has transportation capacity with Iroquois that expires by January 31, 2019.
Demand fees, net of eliminations, associated with both Steckman Ridge and Iroquois were $6.4 million, $5.9 million and $5.6
million during the fiscal years ended September 30, 2014, 2013and 2012, respectively. NJNG had demand fees payable to Steckman
Ridge in the amount of $775,000 as of September 30, 2014 and $775,000 as of September 30, 2013. NJNG had fees payable to
Iroquois of $48,000 and $61,000 as of September 30, 2014 and September 30, 2013, respectively.
NJNG and NJRES have entered into various asset management agreements. Under the terms of these agreements, NJNG
releases certain transportation and storage contracts to NJRES for the entire term of the agreements. NJNG also sold natural gas
in storage at cost to NJRES. In return, NJNG has the option to purchase index priced gas and storage inventory gas from NJRES
at NJNG's citygate and other delivery locations to maintain operational reliability. As of September 30, 2014, NJNG and NJRES
had four asset management agreements with expiration dates ranging from October 2014 through March 2016.
In the fourth quarter of fiscal 2014, NJNG entered into a precedent agreement for transportation capacity of 180,000 dths
per day with PennEast with an estimated service date of November 1, 2017.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of fiscal 2014 and 2013 follows. Due to the seasonal nature of the Company's
businesses, quarterly amounts vary significantly during the fiscal year. In the opinion of management, the information furnished
reflects all adjustments necessary for a fair presentation of the results of the interim periods.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
Disclosure Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management, including the principal executive officer
and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered
by this report. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that,
as of end of the period covered by this report, the Company's disclosure controls and procedures are effective, to ensure that
information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded,
processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
The report of management required under this ITEM 9A is contained in ITEM 8 of this Form 10-K under the caption
Management's Report on Internal Control over Financial Reporting.
The attestation report required under this ITEM 9A is contained in ITEM 8 of this 10-K under the caption Report of
Attestation Report of Registered Public Accounting Firm
Independent Registered Public Accounting Firm.
Changes in Internal Control over Financial Reporting
There has been no change in internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15
(f)) that occurred during the quarter ended September 30, 2014, that has materially affected, or is reasonably likely to materially
affect, internal control over financial reporting.
(Thousands, except per share data)
2014
Operating revenues
Gross margin (1)
Operating income (loss)
Net income (loss)
Earnings (loss) per share
Basic
Diluted
2013
Operating revenues
Gross margin (1)
Operating income (loss)
Net income (loss)
Earnings (loss) per share
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
None
ITEM 9B. OTHER INFORMATION
$ 878,405 $ 1,579,569 $ 688,257 $ 591,914
$
47,375
(28,838)
$
(24,420)
$
64,432 $ 315,849 $
12,224 $ 247,012 $
7,693 $ 172,971 $
28,474 $
(29,208) $
(14,274) $
$0.18
$0.18
$4.11
$4.07
$(0.34)
$(0.34)
$(0.58)
$(0.58)
$ 736,019 $ 960,885 $ 767,469 $ 733,695
$ 135,189 $ 108,137 $ 100,641 $
23,088
(31,929)
47,000 $
$
(20,021)
29,155 $
$
87,191 $
60,206 $
56,969 $
45,469 $
$1.44
$1.44
$1.09
$1.08
$0.70
$0.70
$(0.48)
$(0.48)
(1) Gross margin consists of operating revenue less cost of goods sold and other direct expenses at NJR's unregulated subsidiaries and utility gross margin at
NJNG, which includes natural gas revenues less natural gas purchases, sales tax, a TEFA and regulatory rider expenses.
The sum of quarterly amounts may not equal the annual amounts due to rounding.
Page 112
Page 113
New Jersey Resources Corporation
Part III
New Jersey Resources Corporation
Part IV
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements.
All Financial Statements of the Registrant are filed as part of this report and included in Item 8 of Part II of this Form 10-K.
(a) 2. Financial Statement Schedules-See Index to Financial Statement Schedules in Item 8.
(a) 3. Exhibits-See Exhibit Index on page 119
Information required by this item, including information concerning the Board of Directors of the Company, the members
of the Company's Audit Committee, the Company's Audit Committee Financial Expert, compliance with Section 16(a) of the
Exchange Act and shareholder proposals, is incorporated by reference to the Company's Proxy Statement for the 2015 Annual
Meeting of Shareholders, which will be filed with SEC pursuant to Regulation 14A within 120 days after September 30, 2014.
The information regarding executive officers is included in this report following Item 4, as Item 4A, under the caption Executive
Officers of the Company and incorporated herein by reference.
The Board of Directors has adopted the Code of Conduct, a code for all directors, officers and employees, as required by
the New York Stock Exchange (NYSE) rules, and governing the chief executive officer and senior financial officers, in compliance
with Sarbanes-Oxley and SEC regulations. Copies of the Code of Conduct are available free of charge on the Company's website
at http://investor.njresources.com under the caption Corporate Governance. A printed copy of the Code of Conduct is available
free of charge to any shareholder who requests it by contacting the Corporate Secretary at 1415 Wyckoff Road, Wall, New Jersey
07719. The Company will disclose any amendments to, or waivers from, a provision of the Code of Conduct that applies to the
principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar
functions that relate to any element of the Codes as defined in Item 406 of Regulation S-K by posting such information on the
Company's website.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by this Item is incorporated by reference from the Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference from the Registrant's Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is incorporated by reference from the Registrant's Proxy Statement.
Page 114
Page 115
New Jersey Resources Corporation
Part IV
INDEX TO FINANCIAL STATEMENT SCHEDULES
New Jersey Resources Corporation
Part IV
SCHEDULE II
Schedule II - Valuation and qualifying accounts and reserves for each of the three years in the period ended
September 30, 2014
Page
117
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2014, 2013 and 2012
Schedules other than those listed above are omitted because they are either not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
Allowance for doubtful accounts
5,330
2,504
(2,477) $
5,357
(Thousands)
CLASSIFICATION
2014
2013
2012
Regulatory asset
Allowance for doubtful accounts
Regulatory asset
Allowance for doubtful accounts
(1) Uncollectible accounts written off, less recoveries and adjustments.
ADDITIONS
CHARGED
TO
BEGINNING
BALANCE
EXPENSE OTHER
(1)
ENDING
BALANCE
$
$
$
$
$
71
4,797
141
4,612
(71)
2,627
(70)
3,932
(2,094) $
5,330
— $
— $
—
71
(3,747) $
4,797
Page 116
Page 117
New Jersey Resources Corporation
Part IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
New Jersey Resources Corporation
Part IV
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
Date: November 25, 2014
NEW JERSEY RESOURCES CORPORATION
(Registrant)
By:/s/ Glenn C. Lockwood
Glenn C. Lockwood
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the dates indicated:
4.2(a)
36th Supplemental Indenture dated as of September 1, 2014, between NJNG and U.S. Bank National Association,
as Trustee (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K, as filed on September 30,
November 25, 2014
November 25, 2014
/s/ Laurence M. Downes
Laurence M. Downes
Chairman, President and
Chief Executive Officer
Director
/s/ Laurence R. Codey
Lawrence R. Codey
Director
November 25, 2014
/s/ Alfred C. Koeppe
Alfred C. Koeppe
Director
November 25, 2014
/s/ Glenn C. Lockwood
Glenn C. Lockwood
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
November 25, 2014
November 25, 2014
/s/ Donald L. Correll
Donald L. Correll
Director
/s/ Robert B. Evans
Robert B. Evans
Director
November 25, 2014
/s/ M. William Howard, Jr.
M. William Howard, Jr.
Director
November 25, 2014
November 25, 2014
November 25, 2014
/s/ J. Terry Strange
J. Terry Strange
Director
/s/ Sharon C. Taylor
Sharon C. Taylor
Director
/s/ David A. Trice
David A. Trice
Director
November 25, 2014
/s/ Jane M. Kenny
Jane M. Kenny
Director
November 25, 2014
/s/ George R. Zoffinger
George R. Zoffinger
Director
4.7(a)
First Amendment to the 2008 NPA, dated as of September 1, 2014, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 99.3 to the Current Report on
Form 8-K, as filed on September 30, 2014)
Page 118
Page 119
3.1
Restated Articles of Incorporation of New Jersey Resources Corporation, as amended through January 22, 2014
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, as filed on January 23, 2014)
3.2
Bylaws of New Jersey Resources Corporation, as amended through July 16, 2014 (incorporated by reference to
Exhibit 3.2 to the Current Report on Form 8-K, as filed on July 21, 2014)
4.1
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-
K for the year ended September 30, 2013, as filed on November 25, 2013)
4.2
Indenture of Mortgage and Deed of Trust dated as of September 1, 2014, between NJNG and U.S. Bank National
Association, as Trustee (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K, as filed on
September 30, 2014)
2014)
$250,000,000 Credit Agreement dated as of May 15, 2014, by and among New Jersey Natural Gas Company, the
Lenders party thereto, PNC Bank, National Association, as Administrative Agent, Wells Fargo Bank, National
Association, as Syndication Agent, U.S. Bank National Association, TD Bank, N.A., and Santander Bank, N.A., as
Documentation Agents, and PNC Capital Markets LLC and Wells Fargo Securities, LLC, as Joint Lead Arrangers
(incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, as filed on
August 4, 2014)
$325,000,000 Amended and Restated Credit Agreement dated as of August 22, 2012 by and among the Company,
the guarantors thereto, the lenders party thereto, PNC Bank, National Association, as Administrative Agent,
JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as Syndication Agents, Bank of America,
N.A., TD Bank, N.A. and U.S. Bank National Association, as Documentation Agents (incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K as filed on August 28, 2012)
$75,000,000 Shelf Note Purchase Agreement dated as of June 30, 2011, between New Jersey Resources Corporation
and Prudential Investment Management, Inc. (“Prudential Facility”)(incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K as filed on July 6, 2011)
4.5(a)
First Amendment to the Prudential Facility dated as of July 25, 2014, between the Company and Prudential
Investment Management, Inc. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K as
filed on November 12, 2014)
$50,000,000 Note Purchase Agreement dated as of September 24, 2007, by and among the Company, New York
Life Insurance Company and New York Life Insurance and Annuity Company (incorporated by reference to Exhibit
4.7 to the Annual Report on Form 10-K as filed on December 10, 2007)
$125,000,000 Note Purchase Agreement dated as of May 15, 2008 (“2008 NPA”), by and among New Jersey Natural
Gas Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.8 to the Current Report on
Form 8-K, as filed on May 20, 2008)
$100,000,000 Shelf Note Purchase Agreement dated as of May 12, 2011, between New Jersey Resources Corporation
and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K as filed on May 17, 2011)
$125,000,000 Note Purchase Agreement dated as of February 7, 2014, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.5 to the Quarterly Report on Form
10-Q, as filed on May 7, 2014)
4.3
4.4
4.5
4.6
4.7
4.8
4.9
New Jersey Resources Corporation
Part IV
New Jersey Resources Corporation
Part IV
Exhibit
Number
Exhibit Description
Exhibit
Number
Exhibit Description
4.10
4.11
4.12
4.13
4.14
Loan Agreement between New Jersey Economic Development Authority and New Jersey Natural Gas Company
dated as of August 1, 2011 (incorporated by reference to Exhibit 4.10 to the Annual Report on Form 10-K for the
year ended September 30, 2011, as filed on November 23, 2011)
Continuing Covenant Agreement between NJNG and Wells Fargo Municipal Strategies, LLC, dated September
24, 2014 (incorporated by reference to Exhibit 99.4 to the Current Report on Form 8-K, as filed on September 30,
2014)
$50,000,000 Note Purchase Agreement dated as of February 8, 2013, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.12 to the Quarterly Report on
Form 10-Q, as filed on May 3, 2013)
Shelf Note Purchase Agreement dated as of September 26, 2013, between New Jersey Resources Corporation and
Metropolitan Life Insurance Company (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-
K, as filed on October 1, 2013)
$100,000,000 Uncommitted Line of Credit Agreement, dated as of October 24, 2014, with Santander Bank, N.A.,
as the Lender (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, as filed on October
30, 2014)
10.1*
Amended and Restated Supplemental Executive Retirement Plan Agreement between the Company and Laurence
M. Downes dated December 31, 2008 (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form
10-Q, as filed on February 6, 2009)
10.2(a)*
Schedule of Supplemental Executive Retirement Plan Agreements for named executive officers (incorporated by
reference to Exhibit 10.2(a) to the Annual Report on Form 10-K for the year ended September 30, 2010, as filed on
November 24, 2010)
10.2(b)* Form of Amendment of Supplemental Executive Retirement Plan Agreement between the Company and Named
Executive Officer (for future use) (incorporated by reference to Exhibit 10.4(b) to the Quarterly Report on Form
10-Q, as filed on February 6, 2009)
10.3
10.4
10.5*
10.6*
Service Agreement for Rate Schedule SS-1 by and between NJNG and Texas Eastern Transmission Company, dated
as of June 21, 1995 (incorporated by reference to Exhibit 10-5B to the Annual Report on Form 10-K for the year
ended September 30, 1996, as filed on December 30, 1996)
Lease Agreement between NJNG, as Lessee, and State Street Bank and Trust Company of Connecticut, National
Association, as Lessor, for NJNG's Headquarters Building dated December 21, 1995 (incorporated by reference to
Exhibit 10-7 to the Annual Report on Form 10-K for the year ended September 30, 1996, as filed on December 30,
1996)
The Company's Long-Term Incentive Compensation Plan, as amended, effective as of October 1, 1995 (incorporated
by reference to Appendix A to the Proxy Statement for the 1996 Annual Meeting as filed on January 4, 1996)
21.1+
Subsidiaries of the Registrant
Employment Continuation Agreement between the Company and Laurence M. Downes dated December 31, 2008
(incorporated by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q, as filed on February 6, 2009)
10.6(a)*
Schedule of Employee Continuation Agreements (incorporated by reference to Exhibit 10.6(a) to the Annual Report
on Form 10-K for the year ended September 30, 2010, as filed on November 24, 2010)
10.7*
10.8*
10.9*
Summary of Company's Non-Employee Director Compensation (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K as filed on November 12, 2014)
The Company's 2007 Stock Award and Incentive Plan (as amended and restated January 1, 2009) (incorporated by
reference to Exhibit 10.17 to the Quarterly Report on Form 10-Q, as filed on February 6, 2009)
2007 Stock Award and Incentive Plan Form of Stock Option Agreement (incorporated by reference to Exhibit 10.18
to the Quarterly Report on Form 10-Q, as filed on February 6, 2009)
10.10*
2007 Stock Award and Incentive Plan Form of Restricted Stock Agreement (incorporated by reference to Exhibit
10.3 to the Current Report on Form 8-K, as filed on December 24, 2013)
Page 120
Page 121
10.10(a)* 2007 Stock Award and Incentive Plan Form of Restricted Stock Agreement (incorporated by reference to Exhibit
10.20 to the Quarterly Report on Form 10-Q, as filed on February 6, 2009)
10.11*
2007 Stock Award and Incentive Plan Form of NFE Annual Average Growth Rate Performance Share Agreement
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, as filed on December 24, 2013)
10.12*
2007 Stock Award and Incentive Plan Form of Performance Shares Agreement-TSR (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, as filed on January 4, 2010)
10.13*
2007 Stock Award and Incentive Plan Form of Performance-Based Restricted Stock Agreement (incorporated by
reference to Exhibit 10.4 to the Current Report on Form 8-K, as filed on December 24, 2013)
10.14*
2007 Stock Award and Incentive Plan Form of Performance Shares Agreement-NFE (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, as filed on December 28, 2011)
10.15*
2007 Stock Award and Incentive Plan Form of Deferred Stock Retention Award Agreement (incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K, as filed on December 24, 2013)
10.15(a)* 2007 Stock Award and Incentive Plan Form of Deferred Stock Retention Award Agreement (incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K, as filed on December 28, 2011)
10.16*
2007 Stock Award and Incentive Plan Form of Deferred Stock Retention Award Agreement (FY 2013)
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, as filed on February 2, 2013)
10.17
Limited Liability Company Agreement of Steckman Ridge GP, LLC dated as of March 2, 2007 (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, as filed on May 3, 2007)
10.18
Limited Partnership Agreement of Steckman Ridge, LP dated as of March 2, 2007 (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q, as filed on May 3, 2007)
10.20* New Jersey Resources Corporation Savings Equalization Plan (incorporated by reference to Exhibit 10.27 to the
Quarterly Report on Form 10-Q, as filed on February 6, 2009)
10.21* New Jersey Resources Corporation Pension Equalization Plan (incorporated by reference to Exhibit 10.28 to the
Quarterly Report on Form 10-Q, as filed on February 6, 2009)
10.22* New Jersey Resources Corporation Directors' Deferred Compensation Plan (incorporated by reference to Exhibit
10.25 to the Quarterly Report on Form 10-Q, as filed on February 6, 2009)
10.23* New Jersey Resources Corporation Officers' Deferred Compensation Plan (incorporated by reference to Exhibit
10.26 to the Quarterly Report on Form 10-Q, as filed on February 6, 2009)
23.1+
Consent of Independent Registered Public Accounting Firm
31.1+
Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act
31.2+
Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act
32.1+ † Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act
32.2+ † Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act
101+
Interactive Data File (Annual Report on Form 10-K, for the fiscal year ended September 30, 2014, furnished in
XBRL (eXtensible Business Reporting Language)).
_______________________________
+ Filed herewith.
* Denotes compensatory plans or arrangements or management contracts.
† This certificate accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by NJR for purposes of Section 18 or any other provision of the Securities Exchange Act of 1934, as amended.
Shareowner Information
annual meeting
The Annual Shareowners Meeting will be held at 9:30 a.m. on January 21,
• Increase your holdings in NJR by reinvesting all or some of your cash
2015 at the Eagle Oaks Golf and Country Club, 20 Shore Oaks Drive,
dividends in our common stock.
Farmingdale, NJ 07727. Please refer to your proxy statement for directions.
• Invest automatically with optional withdrawals from your bank account.
stock listing
The Company’s common stock is traded on the New York Stock Exchange
under the ticker symbol NJR. The stock may also appear as NewJerRes
or NJRsc in stock tables in many daily newspapers, business publications,
financial Web sites and search engines.
• Benefit from maintenance of shares of common stock in book-entry
form and detailed record keeping and reporting, provided at no charge.
• Deposit common stock certificates registered in your name with the Plan
Administrator into your Plan account for safekeeping, at no cost.
• Receive statements of your account following each reinvestment of
dividends and each investment of an optional cash payment or payroll
investoR anD meDia infoRmation
deduction amount, if any.
Members of the financial community are invited to contact Joanne
• Execute plan transactions online.
Fairechio, Director — Investor Relations, at 732-378-4967 or Dennis Puma,
Director — Investor Relations, at 732-938-1229. Members of the media
are invited to contact Michael Kinney, Senior Executive Communications
Specialist , at 732-938-1031. Correspondence can be sent to New Jersey
For additional information, visit njresources.com, then “Shareholder Account
Info” under “Investor Relations.” Full details are contained in the NJR Direct
prospectus, which may be obtained from WFSS or the Company.
Resources, 1415 Wyckoff Road, P.O. Box 1468, Wall, NJ 07719.
DiviDenDs
stock tRansfeR agent anD RegistRaR
The Transfer Agent and Registrar for the Company’s common stock is Wells
Fargo Shareowner Services (WFSS). Shareowners with questions about
account activity should contact WFSS investor relations representatives
between 8 a.m. and 8 p.m. ET, Monday through Friday, by calling toll-free
Dividends on common stock are declared quarterly by the Board of
Directors. Shareowners of record receive their dividend checks from WFSS,
unless they have elected to reinvest their dividends through the Plan.
The Company offers direct deposit of dividends into shareowners’ bank
accounts so the funds are available the same day they are paid. Please
800-817-3955.
contact WFSS for details.
General written inquiries and address changes may be sent to:
Wells Fargo Shareowner Services
P.O. Box 64874, St. Paul, MN 55164-0874
or
Wells Fargo Shareowner Services
1110 Centre Point Curve, Suite 101, Mendota Heights, MN 55120
Shareowners can view their account information online at
shareowneronline.com.
new JeRsey ResouRces DiRect stock PuRchase anD
DiviDenD Reinvestment Plan
Request foR foRm 10-k anD otheR Documents
The following documents may be obtained when available, without charge,
upon written request to: Investor Relations, New Jersey Resources, 1415
Wyckoff Road, P.O. Box 1468, Wall, NJ 07719:
• Annual Report and Form 10-K
• Form 10-Q
• Form 8-K
• Quarterly Earnings News Release
• Audit Committee Charter
• Corporate Governance Guidelines
• Leadership Development and Compensation Committee Charter
The New Jersey Resources Direct Stock Purchase and Dividend Reinvestment
• Nominating/Corporate Governance Committee Charter
Plan, NJR Direct, provides a convenient and economical method for new
• NJR Code of Conduct
eligible investors to make an initial investment in shares of common stock
and for existing shareowners to invest in additional shares of common stock
These documents, as well as other filings made with the Securities and
or reinvest all or some of their common stock cash dividends. This is neither
Exchange Commission, also are available through njresources.com.
an offer to sell nor a solicitation of an offer to buy securities. The Plan is
administered by WFSS.
As a participant in NJR Direct, you can:
• Conveniently purchase our common stock without incurring brokerage
commissions or transaction/processing fees.
• Build your investment over time, starting with as little as $100, up to a
Information in this Annual Report should not be considered a solicitation
of the sale or purchase of securities.
maximum of $100,000 per calendar year.
Design: Decker Design, Inc., New York
1415 Wyckoff Road
Post Office Box 1468
Wall, NJ 07719
732-938-1480
www.njresources.com