2015 Annual Report
SAFE, RELIABLE NATURAL GAS AT OUR
CORE … AND SO MUCH MORE
www.njresources.com
SAFE, RELIABLE AND COMPETITIVELY PRICED SERVICE / CUSTOMER SATISFACTION / GROWTH
QUALITY / VALUING EMPLOYEES / CORPORATE CITIZENSHIP / SUPERIOR RETURN
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.
Table of Contents
Financial Performance
Letter from the Chairman
Features
Directors and Officers
Presenting Our 2015 Form 10-K
Form 10-K
Shareowner Information
2
3
16
30
32
33
ibc
Our business is strong,
our strategy sound and our
team second to none. We
have the fundamentals in
place to provide safe, reliable,
affordable service to our
customers and value to our
shareowners.
1
FINANCIAL PERFORMANCE
DIVIDENDS PER SHARE
$0.77
$0.81
$0.72
$0.86
$0.92
$1.00
$0.75
$0.50
$0.00
PAYOUT RATIO (On an NFE† basis)
60%
56%
57%
59%
40%
20%
0%
51%
41%
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
PERFORMANCE GRAPH*
VALUE OF $10,000 INVESTED*** (9/30/10)
$225
$200
$175
$150
$125
$100
$75
$18,182
$14,812
$12,466
$12,471
$11,223
Old Company
Peer Group
Company
Peer Group**
S&P 500
NJR
$20,000
$15,000
$10,000
$5,000
$0
2010
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
* The performance graph shows a comparison of the five-year cumulative
sales and other taxes and regulatory rider expenses, and may not be
the availability of creditworthy customers and counterparties and liquidity in
return, including reinvestment of dividends, assuming $100 invested on
comparable to the definition of gross margin used by others in the natural
the wholesale energy trading market; the ability to obtain governmental and
September 30, 2010, in New Jersey Resources (NJR) stock, the New
gas distribution business and other industries. For further discussion of this
regulatory approvals, land-use rights electrical grid connection and/or financing for
Company Peer Group, the Old Company Peer Group and the S&P 500 Index.
financial measure, please see our Form 10-K.
the construction, development and creation of certain of NJR’s energy investments,
and NJNG infrastructure projects in a timely manner; risks associated with the
** NJR includes the performance of a self-constructed peer group to include
Information Regarding Forward-Looking Statements — This letter contains
management of the Company’s joint ventures, partnerships and investment in a
a higher percentage of natural gas utility and combination natural gas and
forward-looking statements within the meaning of the Private Securities
master limited partnership; risks associated with our investments in distributed
electric utility companies of comparable size and market capitalization
Litigation Reform Act of 1995. NJR cautions readers that the assumptions
power projects, including the availability of regulatory and tax incentives, the
to that of NJR, as compared with published indexes. For fiscal 2015, we
forming the basis for forward-looking statements include many factors that
availability of viable projects and NJR’s eligibility for federal investment tax
revised our self-constructed peer group based upon recommendations
are beyond NJR’s ability to control or estimate precisely, such as estimates of
credits (ITC), and production tax credits (PTC), the future market for SRECs and
by our independent compensation consultant. The revisions increased the
future market conditions and the behavior of other market participants. Words
operational risks related to projects in service; timing of qualifying for ITCs and PTCs
size of the group to enhance statistical reliability and to mitigate the need
such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “may,”
due to delays or failures to complete planned solar and wind energy projects; the
for future revisions in the event of industry consolidation. The companies in
“will,” “intends,” “expects,” “believes,” “should” and similar expressions may
level and rate at which NJNG’s costs and expenses are incurred and the extent to
the group were selected based on industry, market capitalization, revenue
identify forward-looking information and such forward-looking statements
which they are allowed to be recovered from customers through the regulatory
range and other growth and business factors. The New Company Peer
are made based upon management’s current expectations and/or beliefs as
process, including through the base rate case filing; access to adequate supplies of
Group is comprised of: AGL Resources, Inc., Atmos Energy Corporation,
of this date or a prior date concerning future developments and their potential
natural gas and dependence on third-party storage and transportation facilities for
The Laclede Group, Inc., Northwest Natural Gas Company, ONE Gas, Inc.,
effect upon NJR. There can be no assurance that future developments will be
natural gas supply; operating risks incidental to handling, storing, transporting and
Piedmont Natural Gas Company, Inc., Questar Corporation, South Jersey
in accordance with management’s expectations or that the effect of future
providing customers with natural gas; risks related to our employee workforce; the
Industries, Inc., Southwest Gas Corporation, UIL Holdings, Inc., Vectren
developments on NJR will be those anticipated by management.
regulatory and pricing policies of federal and state regulatory agencies; the costs
Corporation and WGL Holdings, Inc.
of compliance with present and future environmental laws, including potential
Forward-looking information in this release includes, but is not limited to,
climate change-related legislation; risks related to changes in accounting standards;
Old Company Peer Group was a self-constructed peer group comprised
certain statements regarding future NJNG customer growth; NJNG utility gross
the disallowance of recovery of environmental-related expenditures and other
of: AGL Resources, Inc., Atmos Energy Corporation, The Laclede Group,
margin growth; forecasted contribution of business segments to fiscal 2016
regulatory changes; environmental-related and other litigation and uncertainties;
Inc., Northwest Natural Gas Company, Piedmont Natural Gas Company,
NFE and beyond; , future capital expenditures and infrastructure investments;
risks related to cyber-attack or failure of information technology systems; and the
Inc., South Jersey Industries, Inc., Southwest Gas Corporation, Vectren
the completion of Alexander Wind Farm and the PennEast Pipeline project.
impact of natural disasters, terrorist activities and other extreme events on our
Corporation and WGL Holdings, Inc.
operations and customers.
The factors that could cause actual results to differ materially from NJR’s
*** Assumes Dividends Reinvested
expectations include, but are not limited to, weather and economic conditions;
The aforementioned factors are detailed in the “Risk Factors” sections of our
demographic changes in the NJNG service territory and their effect on NJNG’s
Annual Report on Form 10-K filed on or about November 24, 2015, as filed
† Net financial earnings (NFE) is a financial measure not calculated in
customer growth; volatility of natural gas and other commodity prices;
with the Securities and Exchange Commission (SEC), which is available on the
accordance with generally accepted accounting principles (GAAP) of
changes in rating agency requirements and/or credit ratings; the impact of
SEC’s website at sec.gov. Information included in this letter is representative
the United States as it excludes all unrealized and certain realized gains
volatility in the credit markets; the ability to comply with debt covenants; the
as of the date of the letter only, and while NJR periodically reassesses material
and losses associated with derivative instruments, net of applicable tax
impact to the asset values and resulting higher costs and funding obligations
trends and uncertainties affecting NJR’s results of operations and financial
adjustments. For further discussion of this financial measure, please see
of NJR’s pension and postemployment benefit plans as a result of downturns
condition in connection with its preparation of management’s discussion
our Form 10-K.
in the financial markets, lower discount rates, revised actuarial assumptions
and analysis of results of operations and financial condition contained in its
or impacts associated with the Patient Protection and Affordable Care Act;
Quarterly and Annual Reports filed with the SEC, NJR does not, by including
‡ Utility gross margin is a financial measure not calculated in accordance
accounting effects and other risks associated with hedging activities and
this statement, assume any obligation to review or revise any particular
with GAAP, which is defined as natural gas revenues less natural gas costs,
use of derivatives contracts; commercial and wholesale credit risks, including
forward-looking statement referenced herein in light of future events.
2
DEAR FELLOW SHAREOWNER,
Thanks to the contributions of our nearly 1,000 employees, New Jersey Resources’ (NJR) fiscal 2015
performance was outstanding. With a focus on our core competencies — which include a strong
financial profile, disciplined capital allocation, reliability-related infrastructure investments and a
diverse portfolio of non-regulated investments — we successfully executed our strategy and fulfilled
our commitments to our customers, our shareholders and the communities we serve.
Driven by the talent and hard work of the women and men of our Company, New Jersey Natural
Gas (NJNG) ranked “Highest in Customer Satisfaction with Residential Natural Gas Service in the
East among Large Utilities,” according to the J.D. Power 2015 Gas Utility Residential Customer
Satisfaction Study. We are also proud to report Cogent ReportsTM, a division of Market Strategies
International, named NJNG the “Most Trusted Utility in the Eastern United States,” as well as a 2015
natural gas “Environmental Champion.” This is a particularly gratifying honor given our long-standing
commitment to helping our customers use less energy through Conserve to Preserve®, the umbrella
for our commitment to environmental stewardship. In addition, we continue to move up Fortune
magazine’s list of America’s largest corporations from 699 to 649, and were named one of the top 40
electric and natural gas utilities in the nation by Public Utilities Fortnightly magazine. Finally, for the
23rd consecutive year, NJNG had the lowest number of complaints per 1,000 customers among major
electric and natural gas utilities in the state, as reported to the New Jersey Board of Public Utilities
(BPU). These accomplishments, which recognize the dedication of our employees, are a source of
pride for our Company and serve as a reminder that to lead, excellence must be pursued each and
every day. That is our goal and our promise.
This commitment to excellence was reflected in our financial results, which exceeded our
expectations. Net financial earnings (NFE)† in fiscal 2015 were $151.5 million, or $1.78 per basic share,
compared with $176.9 million, or $2.10 per share in fiscal 2014. You will recall last year NJR Energy
Services (NJRES), our wholesale energy services company, had an outstanding year, with results
substantially higher than our original plan. We issued a 2-for-1 split of our outstanding common stock,
the fourth common stock split in our 33 years on the New York Stock Exchange. And, for the 20th
consecutive year, we increased our annual dividend — this year by 6.7 percent, marking the 22nd
dividend increase since 1995. Including dividends reinvested, our shareowners enjoyed a 22.8 percent
total return on their investment in fiscal 2015. Our year-end closing share price was a record $30.03
per share. All in all, our team delivered excellent financial results.
3
As we look ahead, we believe current natural gas market dynamics provide a variety of opportunities
for our Company. Demand for safe, reliable, affordable natural gas remains strong and is, in fact,
growing. Reliability-related infrastructure investments are supported by public policy at both
the state and federal level. Given the demographics of our service territory, the market for new
residential and commercial construction continues to improve. With technological advancements,
renewable energy, including solar and wind, is becoming more efficient and affordable. As a
trusted brand, our customers count on us to help them make informed decisions about how to
save energy and money. These factors — taken together — create a solid foundation for growth.
CUSTOMER GROWTH
“A customer is the most important visitor on our premises, he is not dependent on us. We are
dependent on him.” You may be surprised to learn that many attribute this quote to Mahatma
Gandhi. Truer words were never spoken. At all levels of our Company, we focus on meeting our
customers’ expectations every day. Our Company is comprised of two regulated businesses, NJNG
and NJR Midstream (Midstream), as well as three non-regulated entities, NJRES, NJR Clean Energy
Ventures (NJRCEV) and NJR Home Services (NJRHS). The needs of our customers are varied,
and meeting their expectations can be challenging. By having both regulated and non-regulated
companies within our portfolio, we are able to balance the steady growth and stability traditionally
associated with regulated businesses with the ability to take advantage of emerging energy
markets, new technology and public policy decisions that create new opportunities.
Since 1952, NJNG, our principal subsidiary, has been the foundation of our Company. Our
customers rely on us to provide safe, reliable natural gas to heat their homes and run their
businesses, and our shareowners depend on us to deliver a fair return on their investment,
regardless of circumstance. In fiscal 2015, we again met this challenge and delivered consistent
performance. With a strong customer growth rate of 1.6 percent, we added 7,858 new customers
and helped 636 existing customers convert to natural gas. We expect these additions and
conversions, including commercial customers who switched from interruptible to firm natural gas
service, to contribute $4.5 million annually to utility gross margin‡. As we look to the future, the
outlook for continued core customer growth is strong.
RELIABILITY-RELATED INFRASTRUCTURE INVESTMENTS
To consistently provide safe, reliable natural gas service to our customers, we continue to invest
significant resources in the integrity and resiliency of our system. Our extensive pipeline network
of more than 7,300 miles of distribution and transmission main serves over 512,000 customers
throughout Monmouth and Ocean counties and parts of Morris, Middlesex, Sussex and Burlington
counties. Over the past seven years, we have reinvested more than $800 million into system
growth and renewal projects.
In fiscal 2015, NJNG invested $33 million in its Safety Acceleration and Facilities Enhancement
(SAFE) program to further ensure the safety, reliability and integrity of our natural gas delivery
system. These improvements are part of a planned $130 million, four-year infrastructure investment
designed to replace 100 percent of the cast iron main and approximately 50 percent of the
unprotected bare steel distribution main, the oldest and most leak-prone pipes in our system.
According to a study conducted by the Rutgers University Bloustein School of Planning and Public
Policy, for every $1 million spent on infrastructure construction projects by NJNG, 10.2 jobs are
created. Utilizing this formula, the SAFE program is expected to create 1,599 direct and indirect
jobs, as well as $120 million in economic activity for New Jersey.
4
22nd
dividend increase
since 1995
5
$806
invested in
system reliability
and resiliency
since 2008
million
6
In addition, through our New Jersey Reinvestment in System Enhancement (NJ RISE) program,
we are investing $103 million in six storm-hardening, capital projects that directly address the
damage our system sustained during Superstorm Sandy. Solicited by the BPU, NJ RISE is designed
to enhance the resiliency of our natural gas distribution and transmission systems along the most
vulnerable parts of our coastline. Cost recovery for NJ RISE investments, as well as additional SAFE
investments, will be addressed in the resolution of NJNG’s base rate case filed in November 2015.
To further strengthen our system, NJNG filed petitions with the BPU in fiscal 2015 for approval
to construct and operate the Southern Reliability Link (SRL), a 30-mile transmission pipeline
project that will support the safe, reliable, resilient distribution of natural gas to 83 municipalities
throughout Monmouth, Ocean and Burlington counties, benefiting over one million people. By
connecting to a second interstate pipeline, the SRL will provide supply diversity, while significantly
enhancing our system’s reliability. The SRL also will provide the same increased reliability and
resiliency to the natural gas distribution system that serves Joint Base McGuire-Dix-Lakehurst to
support its critical mission.
Additionally, construction is underway on a liquefier at our Howell, New Jersey liquefied natural
gas (LNG) plant. This $28 million project will enable us to liquefy pipeline natural gas and better
utilize our existing LNG facilities. In terms of our commitment to environmental stewardship, it
will significantly reduce truck traffic and the associated emissions related to the transportation
of LNG from our current long-time supplier in Everett, Massachusetts while creating savings for
our customers.
DIVERSIFIED GROWTH
While our location and demographics support a healthy new customer growth rate, we have
invested in a variety of programs that add to NJNG’s utility gross margin, lower our customers’ bills
and advance state energy and environmental policies.
In 2009, we created The SAVEGREEN Project® (SAVEGREEN) to encourage our customers to
invest in high-efficiency equipment by providing valuable rebates and incentives. Our SAVEGREEN
offerings complement those of New Jersey’s Clean Energy Program™ (NJCEP) and make energy-
efficiency improvements more affordable for our customers while enhancing the comfort of
their homes and the efficiency of their businesses. By replacing older, inefficient equipment with
high-efficiency natural gas appliances and implementing other energy-efficiency upgrades,
SAVEGREEN helps customers save energy, lower their monthly energy bills and contribute toward
a sustainable environment. By our estimates, the average customer who upgrades to a high-
efficiency natural gas furnace, and benefits from SAVEGREEN’s enhanced rebates, saves 147 therms
per year, avoiding the release of more than 1,700 pounds of carbon dioxide in the atmosphere.
In 2015, the BPU approved an extension of SAVEGREEN through July 31, 2017, giving our customers
the opportunity to continue to benefit from this comprehensive energy-efficiency program. This
fiscal year alone, we conducted more than 4,400 energy audits, with over 3,800 customers taking
advantage of enhanced rebates and more than 1,900 customers participating in our zero-percent
APR On-Bill Repayment Program (OBRP) for a “whole-house” approach to energy-efficiency.
Through SAVEGREEN, NJNG has invested $118 million, which has resulted in an estimated $291
million in economic activity since its inception in 2009. In total, NJNG has the approval to invest
approximately $220 million in SAVEGREEN grants, financial incentives and the OBRP over the life
of the program.
7
In addition, through our NGV Advantage program, we invested $10 million to construct three public
access compressed natural gas (CNG) fueling stations in Monmouth and Ocean counties. The
first two, located at Waste Management, Inc.’s facility in Toms River and Shore Point Distributing
Co. in Freehold, are operational. The third station is located at the Department of Public Works in
Middletown Township and is expected to open during the first quarter of fiscal 2016.
Finally, in fiscal 2015, our Basic Gas Supply Service (BGSS) incentive programs saved customers
$88.9 million and generated $17.7 million in utility gross margin. As a result of the expertise of our
NJNG energy services team, since 1992, these incentive programs have saved customers over $800
million and provided shareowners with $1.25 per share in NFE, which is an average of $.05 per
share annually — a significant benefit to both customers and shareowners. In October of this year,
NJNG’s incentive programs were extended by the BPU.
With this solid foundation, we expect NJNG to contribute between 60 and 70 percent of fiscal
2016 NFE.
CONSTRUCTIVE REGULATORY RELATIONSHIPS
Maintaining constructive regulatory relationships is essential to our ability to meet the needs of
our customers and our investors. The collaborative relationships we have developed with the BPU
and the Division of Rate Counsel have helped us identify areas of common interest. The result is
innovative projects that help ensure safe, reliable, affordable service and support public policy,
including increased resiliency, emissions reduction and the creation of thousands of jobs. We
are grateful for their support and look forward to continuing our work together on behalf of our
customers and the state.
As we look to the future, we believe the fundamentals that support NJNG’s future growth are
getting stronger. New residential construction is on the rise and natural gas continues to be the
fuel of choice for over 95 percent of these homeowners. Population growth in our service territory
exceeds the state average and remains strong, particularly in Ocean County. The outlook is just as
solid in the conversion market, as the cost of abundant, domestic natural gas continues to compare
favorably with all other fuels. This price advantage, coupled with a targeted marketing approach,
should ensure robust customer growth for the foreseeable future. In fact, we anticipate adding
16,000 to 18,000 new customers over the next two fiscal years, who are expected to contribute an
additional $4.4 million annually to utility gross margin.
PRUDENT INVESTMENTS IN OUR NON-REGULATED ENERGY PORTFOLIO
When it comes to understanding and capitalizing on changing wholesale market conditions,
NJRES sets the standard. Every day, our team leverages their years of industry experience and a
disciplined, innovative approach to energy marketing to bring value to our customers, Company
and investors. As a result, NJRES is one of the top 20 largest natural gas marketers in North
America according to Natural Gas Intelligence — quite an accomplishment.
In fiscal 2015, utilizing our strategically located assets to meet the demand for natural gas this
past winter, NJRES again delivered extremely strong results, contributing NFE of more than
$42 million and exceeding our expectations. Our team continues to monitor market conditions
and identify opportunities to provide value to our customers and shareowners. As a leader at
the forefront of the growing natural gas market, demand for our services and expertise continues
to increase.
8
Among the top
20largest natural gas
marketers in North
America
9
$452million
invested in
solar and
onshore wind
farms
10
Looking forward, we expect NJRES to continue to provide a diverse range of physical and
producer natural gas services, and contribute 5 to 15 percent of total NFE in fiscal 2016 and beyond
with potential upside, depending on market conditions.
Meeting our nation’s growing energy needs, while protecting the environment, will require continued
investment in a diverse array of renewable energy technologies. As environmental stewards, we
are committed to enhancing our customers’ quality of life and operating in an environmentally
responsible way. For us, sustainability has long been a core value and is directly tied to our daily
operations and investment strategy. In 2009, we established NJRCEV, our clean energy subsidiary, to
execute our electric energy strategy, with a particular focus on solar and onshore wind investments.
In fiscal 2015, NJRCEV’s residential solar leasing program, The Sunlight Advantage®, installed solar
arrays on over 800 homes, bringing our total since inception to nearly 4,000. NJRCEV is one of the
top residential solar providers in New Jersey, with generation capacity of more than 35 megawatts
(MW). In addition, NJRCEV has invested over $273 million in 22 commercial solar systems, including
five installed in fiscal 2015, with a combined generation capacity of over 82 MW.
Since 2009, NJRCEV has installed approximately 470,000 solar panels, with a total of 117.7 MW of
installed capacity. Every year, these assets generate approximately 126,000 Solar Renewable Energy
Certificates (SRECs), which represent the financial value of the environmental benefit created by
solar energy. SRECs are sold to Load Serving Entities to satisfy New Jersey’s requirement that a
portion of the state’s electric generation comes from renewable sources. SREC prices have stabilized
in response to the Solar Act of 2012, generating a more reliable revenue source each fiscal year.
To expand and diversify our clean energy portfolio, in 2014 NJRCEV built its first onshore
wind farm in Two Dot, Montana, a $20.7 million investment. In fiscal 2015, NJRCEV placed its
second onshore wind farm into service. The Carroll Area Wind Farm represents an investment
of $42 million and is located in Carroll County, Iowa. The farm consists of nine Siemens SWT 2.3
megawatt, 108-meter rotor diameter wind turbines with a total capacity of 20 MW, or enough
energy to power more than 7,500 homes annually.
Our third and largest onshore wind farm, located in Alexander, Kansas is projected to come on
line in early fiscal 2016. The energy produced at the 48.3 MW Alexander Wind Farm, as well as
its renewable attributes, will be sold through long-term power purchase agreements. Renewable
Portfolio Standards throughout the country will be a key driver of the onshore wind market, and
NJRCEV will pursue additional onshore wind opportunities. We expect NJRCEV to contribute
between 10 and 20 percent of fiscal 2016 NFE.
Midstream, our regulated natural gas storage and pipeline business, earned NFE of $9.8 million
in fiscal 2015, compared with $7.5 million in fiscal 2014. Bolstered by strategic assets located near
the Marcellus Shale in eastern Pennsylvania, Midstream adds increasing value to our portfolio.
This year, we strategically diversified our midstream footprint and entered into an agreement to
exchange our 5.53 percent equity ownership in the Iroquois Gas Transmission System, LP (IGTS)
for approximately 1.84 million common units in Dominion Midstream Partners, LP (NYSE: DM), a
master limited partnership.
Midstream also maintains a 50-percent ownership of the Steckman Ridge storage facility, a 12 Bcf
storage field located in Bedford County, Pennsylvania. This multi-cycle facility began operating in
11
fiscal 2009 and offers customers a range of flexible storage options. We anticipate our midstream
assets will continue to generate between 5 and 10 percent of our NFE.
In addition to Dominion and Steckman Ridge, we have a 20 percent interest in the proposed
PennEast Pipeline (PennEast), designed to bring lower cost natural gas from Pennsylvania to
New Jersey. PennEast submitted a filing to Federal Energy Regulatory Commission (FERC) in
September 2015, and, pending FERC approval, anticipates construction to begin in 2017. As I write,
the price of natural gas produced in the Marcellus Shale is among the least expensive in the world.
In fiscal 2015, NJRHS, our retail appliance service and installation business, earned $2.4 million,
compared with $2.5 million during fiscal 2014. In addition to the installation of 2,000 water heaters
and 1,400 heating and air conditioning systems, NJRHS sold more than 220 solar leases and
completed over 96,000 service calls this fiscal year. Notably, the professionalism and expertise of
our hardworking women and men continue to be recognized by our customers, as NJRHS achieved
a customer satisfaction rating just shy of 97 percent.
This year, Keith Hartman joined the Company as vice president of NJRHS and has expanded our
service contract offerings, as well as our talented staff of technicians. We will benefit from his
extensive experience and look forward to his ongoing contributions and leadership. We expect
NJRHS to contribute between 1 and 3 percent of NFE in fiscal 2016.
CORPORATE CITIZENSHIP
Giving back to the communities we proudly serve is a defining characteristic of our Company and
one of our core commitments. This fiscal year, our team contributed over 5,000 hours of service
through our Volunteers Inspiring Service In Our Neighborhoods or VISION program, and continues to
support the work of over 1,800 nonprofit organizations across our service territory. I am particularly
proud that when the call goes out for volunteers, our employees are always there to help.
This year, we celebrated the 26th anniversary of our Project Venture mentoring program.
Inaugurated in 1990, Project Venture pairs middle school students from Asbury Park and Lakewood
with employee mentors who provide these young people with the opportunity to experience the
business world, and all its opportunities, firsthand.
AN EXCEPTIONAL TEAM
Our outstanding performance this fiscal year is the result of the dedication and the many talents
our employees bring to the job each and every day. But the true value of our commitment to
excellence and success is most evident in the difference we make in the lives of all those we touch,
including our workforce. We were pleased to welcome Amanda Mullan as our new vice president
of Human Resources. With her ability and experience, our team is even stronger.
I would like to express my personal appreciation to the members of our Board of Directors for their
guidance and support. Their breadth and depth of knowledge is invaluable, and I am grateful for
their willingness to generously share their expertise for the benefit of our entire Company. I’d also
like to thank our leadership team, whose focus on meeting our commitments to our stakeholders
and engaging our employees in a meaningful way enables us to accomplish all that we do.
This year, we were saddened by the passing of a member of our NJR family, Richard S. Sambol, a
former member of our Board of Directors. Dick joined the NJNG Board in July 1988. He was elected
12
97%customer
satisfaction
with appliance
service and
installations
13
Saved
customers over
$800million
with our BGSS
incentive programs
since 1992
14
to the NJR Board in November 1989 and served in that capacity until January 1997. We were
fortunate to have him on our Board, and we continue to benefit from his extensive knowledge and
experience to this day.
And, finally, we are blessed with an exceptional group of employees, many of whom are members
of the International Brotherhood of Electrical Workers, Local 1820. I would like to thank Union
President, Jeff Bollermann, and the members of Local 1820’s Executive Board for their steady
leadership. Our employees are the heart and spirit of our Company. It is their contributions that
make our achievements possible.
LOOKING AHEAD
As we prepare for the future, we will continue to refine and build on our sound and proven growth
strategies: reliability-related infrastructure investments; diversified customer and utility gross
margin growth; constructive regulatory relationships; prudent investment in the development
of our non-regulated energy portfolio; and focus on the needs of our stakeholders, which have
generated strong performance, year after year.
As you can see, our business is strong, our strategy sound and our team second to none. We have
the fundamentals in place to provide safe, reliable, affordable service to our customers and value
to our shareowners in the years ahead. Our commitment to meeting these expectations will never
change. That is our pledge to you.
Our Annual Shareowners Meeting will be held at 9:30 a.m. on January 20, 2016 at Eagle Oaks Golf
and Country Club located in Farmingdale, New Jersey. I hope you will join us. Your feedback is
important to me. Please feel free to write, call or e-mail me at lmdownes@njresources.com and
share your thoughts on our performance as well as any suggestions for improvement.
On behalf of our entire Company, we appreciate the opportunity to serve our customers, work with
our community partners, policymakers and regulators and reward our shareowners with proven
results. As always, I appreciate the confidence you place in us through your investment in NJR and
pledge that we will continue to give our best to deliver performance of which we can all be proud.
Sincerely,
Laurence M. Downes
Chairman and CEO
15
ENSURING SAFE, RELIABLE, RESILIENT SERVICE
16
83
MUNICIPALITIES; BENEFITING OVER ONE
MILLION PEOPLE
Safe, reliable service is what customers expect and NJNG delivers every day
to meet the needs of more than half a million customers. In fact, NJNG safely
operates approximately 7,100 miles of distribution main and more transmission
main (226 miles) than all the other natural gas utilities in the state combined.
And we have invested more than $800 million in the integrity, resiliency and
effective operations of our system over the last seven years.
This year, NJNG filed with the BPU for approval to construct and operate the
SRL. A 30-mile transmission main, the SRL will strengthen our distribution
system and provide a second supply source of natural gas to 83 municipalities
— over one million people throughout Ocean, Burlington and Monmouth counties.
By connecting to two separate supply sources at opposite ends of our service
territory, the SRL will greatly enhance our entire core transmission system,
ensure greater resiliency for our customers and provide safe, reliable service to
the region.
17
TRANSFORMING TRANSPORTATION
30%
CLEANER
With the completion of the first public access CNG fueling stations in Monmouth
and Ocean counties, NJNG is providing a cleaner, more affordable alternative to
New Jersey’s businesses and drivers. And, as a safe, abundant and domestically
produced fuel source, natural gas has the potential to transform America’s
dependence on foreign fuels.
NJNG partnered with Waste Management, Inc., Shore Point Distributing Co.
and the Middletown Department of Public Works, all of which employ natural
gas powered vehicles in their fleets, and invested $10 million to expand the
number of public access CNG stations in the state. Located in Toms River and
Freehold Township, New Jersey, respectively, with a third under construction in
Middletown, the stations were built as a pilot program designed to help stimulate
the market for CNG vehicles and reduce greenhouse gas (GHG) emissions.
According to the American Gas Association, natural gas powered vehicles produce
up to 30 percent fewer GHG emissions than diesel. By switching 28 refuse
trucks to CNG, Waste Management is able to reduce its emissions by 1,333
metric tons annually while Shore Point’s 20 day-cab trucks reduce its emissions
by 194 metric tons. Cumulatively, this is equivalent to removing 247 cars from
New Jersey’s roadways.
1818
19
PROTECTING OUR ENVIRONMENT
20
1,700
POUNDS OF GREENHOUSE GAS
EMISSIONS ELIMINATED
NJNG believes the impact of conservation goes far beyond energy savings. Through
Conserve to Preserve — the umbrella for our commitment to environmental
stewardship — NJNG provides tools and resources to help customers make wise
energy choices and reduce their carbon footprint.
Through its highly successful SAVEGREEN program, NJNG provides rebates and
incentives to make home energy improvements more affordable, helping
residential customers save energy, save money and protect our environment. As
a result, the average customer reduced GHG emissions by 1,736 pounds this year
alone — the equivalent of planting nearly half an acre of forest.
Additionally, NJNG is helping small to mid-sized businesses make energy-efficiency
upgrades. Through the state’s Direct Install program, NJCEP will cover up to
70 percent of a project’s eligible cost, while qualified NJNG customers can
finance up to 30 percent of the remaining balance at zero percent APR. In fiscal
2015, NJNG helped New Jersey businesses finance nearly $1 million in energy-
efficiency upgrades.
What SAVEGREEN makes clear is that when we use energy responsibly, we can
improve the comfort of our homes, strengthen our businesses and protect our
environment for future generations.
21
DIVERSIFYING OUR CLEAN ENERGY PORTFOLIO
22,800
HOMES POWERED ANNUALLY WITH
CLEAN ENERGY
The distributed power marketplace is as varied as clean energy itself. Since
its inception in 2009, NJRCEV has earned a reputation as a renewable energy
leader, with a diverse mix of residential and commercial solar, as well as onshore
wind projects.
Through each of its investments, NJRCEV has provided customers with low
carbon energy solutions. Today, it is one of the top residential solar providers
in New Jersey, with nearly 4,000 customers participating in The Sunlight
Advantage program. This year, NJRCEV completed five commercial solar
installations, bringing its total to 22. Building upon its portfolio of solar projects,
NJRCEV employed the same expertise and strategy to expand into the onshore
wind market. To date, it has successfully completed two onshore wind farms in
Montana and Iowa, with a third under construction in Kansas.
In fewer than six years, through its capital allocation and commitment to clean,
distributed energy, NJRCEV has placed over 147 megawatts of renewable
capacity in service, or enough to power approximately 22,800 homes annually.
22
23
GROWING OUR FOOTPRINT
7,858
NEW NATURAL GAS CUSTOMERS ADDED
IN FISCAL 2015
Strengthened by the benefits of clean, affordable, abundant natural gas, a
commitment to customer service and a variety of opportunities to invest in clean
energy, NJR continues to deliver strong performance.
NJNG enjoyed a solid customer growth rate of 1.6 percent in fiscal 2015, adding
a total of 7,858 new customers, a 3.4 percent increase over last year. Because
natural gas enjoys a healthy price advantage over all other fuels, it remains the
preferred fuel in both the single and multi-family markets, and is installed in 95
percent of all new residential construction in NJNG’s service area.
At the same time, our non-regulated businesses continue to grow. To meet the
needs of its customers, NJRES maintains transportation capacity on virtually every
major interstate pipeline in the United States. NJRCEV provides clean energy to
customers in 20 of New Jersey’s 21 counties through its residential solar lease
program. And NJRHS offers heating, air conditioning and water heater service,
sales and installation to residential and commercial customers both inside and
outside their traditional base of Monmouth, Ocean and Morris counties.
24
25
MAKING A DIFFERENCE IN OUR COMMUNITIES
26
OVER
5,000
HOURS OF VOLUNTEER SERVICE
Our service territory is as richly diverse as the state itself, and NJR is proud to
be a part of the communities we serve. These vibrant neighborhoods are not
only where our customers live, but are the special places the women and men
of NJR call home.
Across our Company, we share a commitment to building strong communities
and believe in the value of giving back. Our team at NJRES helps support the
FoodBank of Monmouth and Ocean Counties. Members of NJRCEV participate
in the American Heart Association’s annual heart walk to help end our country’s
number one killer — heart disease. Employees at NJRHS help raise awareness of
ovarian cancer through the Kaleidoscope of Hope walkathon. And, since 1995,
NJNG’s Homeownership Program has helped 98 families realize their dream
of homeownership.
We are particularly proud that in fiscal 2015, through our commitment to
corporate citizenship, NJR employees dedicated over 5,000 hours of volunteer
service and our Company helped more than 1,800 nonprofit organizations.
For us, this is what it means to make a difference.
27
DIVERSIFYING OUR FUTURE
28
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 over 7,300 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, Middlesex, Sussex and Burlington 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 147 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 its stake in Dominion Midstream Partners, L.P.
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
117,000 service contract customers.
NJR and its nearly 1,000 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.
29
DIRECTORS AND OFFICERS OF NEW JERSEY RESOURCES
NEW JERSEY RESOURCES
Directors
Lawrence R. Codey, 71 (A,B,D)
Lead Director, President and
Chief Operating Officer (retired)
Public Service Electric and Gas
(2000)
Donald L. Correll, 65 (A,B,C)
Chief Executive Officer and
Co-Founder
KWP Capital LLC
(2008)
Laurence M. Downes, 58 (B)
Chairman of the Board, President
and Chief Executive Officer
New Jersey Resources
(1995)
Robert B. Evans, 67 (A,B)
President and
Chief Executive Officer (retired)
Duke Energy Americas
(2009)
NEW JERSEY RESOURCES
AND SUBSIDIARIES
Officers
M. William Howard, 69 (B,C)
Pastor
Bethany Baptist Church
(2005)
Jane M. Kenny, 64 (B,C,D)
Co-owner and Managing Partner
The Whitman Strategy Group, LLC
(2006)
Alfred C. Koeppe, 69 (A,B,C,D)
Chief Executive Officer (retired)
Bell Atlantic-New Jersey;
President and Chief Operating
Officer (retired)
Public Service Electric and Gas;
Chief Executive Officer (retired)
Newark Alliance
(2003)
J. Terry Strange, 71 (A,B)
Vice Chairman and Managing Partner
U.S. Audit Practice (retired)
KPMG, LLP
(2003)
Sharon C. Taylor, 61 (C,D)
Senior Vice President
Human Resouces
Prudential Financial, Inc.
(2012)
David A. Trice, 67 (C,D)
President and
Chief Executive Officer (retired)
Newfield Exploration Company
(2004)
George R. Zoffinger, 67 (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
Linda B. Kellner
Thomas J. Massaro Jr.
George C. Smith Jr.
Kathleen T. Ellis
Rhonda M. Figueroa
James W. Kent
Patrick J. Migliaccio
Mark R. Sperduto
Glenn C. Lockwood
Richard R. Gardner
Stanley M. Kosierowski
Amanda E. Mullan
Stephen D. Westhoven
Keith S. Hartman
Craig A. Lynch
Ginger P. Richman
Deborah G. Zilai
3030
NEW JERSEY RESOURCES
Officers
Laurence M. Downes, 58
President and
Chief Executive Officer (1985)
Mariellen Dugan, 49
Senior Vice President and
General Counsel (2005)
Kathleen T. Ellis, 62
Senior Vice President,
Corporate Affairs (2004)
Rhonda M. Figueroa, 56
Corporate Secretary (1981)
Linda B. Kellner, 56
Chief of Staff (1995)
James W. Kent, 46
Treasurer (2013)
Glenn C. Lockwood, 54
Executive Vice President and
Chief Financial Officer (1988)
Patrick J. Migliaccio, 41
Vice President, Finance and
Accounting (2007)
Amanda E. Mullan, 49
Vice President,
Human Resources (2015)
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, 58 (1995)
Chairman
Lawrence R. Codey, 71 (2000)
Donald L. Correll, 65 (2008)
Robert B. Evans, 67 (2009)
Alfred C. Koeppe, 69 (2003)
Lead Director
Sharon C. Taylor, 61 (2014)
Date represents year Director joined
NJR Board.
Officers
Laurence M. Downes, 58
President and
Chief Executive Officer (1985)
Mariellen Dugan, 49
Senior Vice President and
General Counsel (2005)
Kathleen T. Ellis, 62
Executive Vice President and
Chief Operating Officer (2004)
Rhonda M. Figueroa, 56
Corporate Secretary (1981)
Craig A. Lynch, 54
Senior Vice President,
Energy Delivery (1984)
Thomas J. Massaro Jr., 49
Vice President,
Marketing, Customer Services and
Energy Efficiency (1989)
Patrick J. Migliaccio, 41
Vice President,
Finance and Accounting and
Treasurer (2007)
Mark R. Sperduto, 57
Senior Vice President,
Regulatory Affairs (2005)
Date represents year of affiliation
with an NJR company.
NJR SERVICE
Officers
Laurence M. Downes, 58
President and
Chief Executive Officer (1985)
Mariellen Dugan, 49
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 56
Corporate Secretary (1981)
James W. Kent, 46
Treasurer (2013)
Glenn C. Lockwood, 54
Senior Vice President and
Chief Financial Officer (1988)
Patrick J. Migliaccio, 41
Vice President,
Finance and Accounting (2009)
Amanda E. Mullan, 49
Vice President,
Human Resources (2015)
George C. Smith Jr., 58
Vice President,
Internal Audit (1984)
Deborah G. Zilai, 62
Vice President,
Corporate Services (1996)
Date represents year of affiliation
with an NJR company.
NJR ENERGY SERVICES
Directors
Laurence M. Downes, 58 (1995)
Chairman
Robert B. Evans, 67 (2009)
Lead Director
M. William Howard Jr., 69 (2005)
J. Terry Strange, 71 (2003)
David A. Trice, 67 (2004)
George R. Zoffinger, 67 (1996)
Date represents year Director joined
NJR Board.
Officers
Laurence M. Downes, 58
President and
Chief Executive Officer (1985)
Mariellen Dugan, 49
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 56
Corporate Secretary (1981)
James W. Kent, 46
Treasurer (2013)
Glenn C. Lockwood, 54
Senior Vice President and
Chief Financial Officer (1988)
Patrick J. Migliaccio, 41
Vice President,
Finance and Accounting (2009)
Ginger P. Richman, 51
Vice President,
Energy Services (2003)
Stephen D. Westhoven, 47
Senior Vice President (1990)
Date represents year of affiliation
with an NJR company.
NJR HOME SERVICES
Officers
COMMERCIAL REALTY
AND RESOURCES
Officers
Mariellen Dugan, 49
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 56
Corporate Secretary (1981)
Glenn C. Lockwood, 54
Senior Vice President,
Chief Financial Officer (1988)
James W. Kent, 46
Treasurer (2013)
Date represents year of affiliation
with an NJR company.
NJR CLEAN ENERGY VENTURES
Directors
Laurence M. Downes, 58 (1995)
Chairman
M. William Howard Jr., 69 (2005)
Lead Director
Jane M. Kenny, 64 (2006)
J. Terry Strange, 71 (2003)
David A. Trice, 67 (2004)
George R. Zoffinger, 67 (1996)
Date represents year Director joined
NJR Board.
Officers
Laurence M. Downes, 58
Chief Executive Officer (1985)
Mariellen Dugan, 49
Senior Vice President and
General Counsel (2005)
Rhonda M. Figueroa, 56
Corporate Secretary (1981)
Richard R. Gardner, 56
Vice President,
Business Development (1983)
Stanley M. Kosierowski, 63
President (2008)
James W. Kent, 46
Treasurer (2013)
Keith S. Hartman, 54
Vice President (2015)
James W. Kent, 46
Treasurer (2013)
Date represents year of affiliation
with an NJR company.
Stanley M. Kosierowski, 63
President (2008)
Glenn C. Lockwood, 54
Senior Vice President,
Chief Financial Officer (1988)
Patrick J. Migliaccio, 41
Vice President,
Finance and Accounting (2009)
Date represents year of affiliation
with an NJR company.
31
PRESENTING OUR 2015 FORM 10-K
Our 2015 Form 10-K includes financial statements for NJR. It also
PART I: A DESCRIPTION OF NJR BUSINESSES INCLUDES:
includes detailed information about each of our subsidiaries and
• Detailed descriptions of NJR subsidiaries
the competitive environments of our businesses, properties we
• Regulatory outlook for the utility business
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 previous annual
reports to shareowners. We are supplying our 2015 Form 10-K
(without exhibits) consistent with our commitment to provide
transparency and full disclosure to our shareowners.
The 2015 Form 10-K is amended, sup plemented and updated by
any amendment that we may file, and by all of the quarterly reports
on Form 10-Q and current reports on Form 8-K we file with the
SEC during the year. We urge you to read all such reports. Copies
may be obtained as described under “Request for Documents”
on the inside back cover of this Annual Report.
• 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:
• Quarterly dividend and stock price information
• Selected financial data for NJR
• Operational statistics for NJNG
ITEMS 7 AND 7A INCLUDE:
• Management’s Discussion and Analysis of Financial Condition
and Results of Operations, which provides a discussion of
changes in earnings and cash flows over the past three years
• Quantitative and qualitative disclosures about market risk
FORM 10-K OVERVIEW
ITEMS 8 AND 9 INCLUDE:
This Annual Report is not a part of, and should not be considered
• Management’s reports on internal control over financial
to be included in, our 2015 Form 10-K. Use the listing below,
reporting and disclosure controls and procedures
which includes highlights of the 2015 Form 10-K, to help you find
• Reports of independent auditors
information easily. A comprehensive Table of Contents with the
• Financial statements and footnotes for NJR
page number for each item can be found on page “i” of the 2015
• Supplementary financial information (unaudited)
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
32
2015 FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number 1‑8359
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)
22‑2376465
(I.R.S. Employer
Identification Number)
732‑938‑1480
(Registrant's telephone number,
including area code)
Common Stock ‑ $2.50 Par Value
(Title of each class)
New York Stock Exchange
(Name of each exchange on which registered)
Securities registered pursuant to Section 12 (b) of the Act:
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.
Yes: x No: o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes: o No: x
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: x No: o
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: x No: o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K 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. x
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 12b‑2 of the Exchange Act.
Large accelerated filer: x
Accelerated filer: o
Non-accelerated filer: o
(Do not check if a smaller reporting company)
Smaller reporting company: o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes: o No: x
The aggregate market value of the Registrant's Common Stock held by nonaffiliates was $2,609,925,396 based on the closing price of $31.06 per share on
March 31, 2015, as reported on the New York Stock Exchange.
The number of shares outstanding of $2.50 par value Common Stock as of November 20, 2015 was 85,796,206.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareowners (Proxy Statement) to be held January 20, 2016, to be filed on
or about December 10, 2015, 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.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III*
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
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 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.
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i
New Jersey Resources Corporation
GLOSSARY OF KEY TERMS
AFUDC
AIP
ARO
ASC
ASU
Bcf
BGSS
BPU
CIP
CME
CR&R
CWIP
Degree-Day
DM
DM Common Units
Dodd-Frank Act
DRP
dths
EDA
EDA Bonds
EDECA
FASB
FCM
FERC
Financial Margin
FMB
FRM
GAAP
HCCTR
ICE
Iroquois
IRS
ISDA
ITC
JPMC Facility
LIBOR
LNG
Loan Agreement
MetLife
MetLife Facility
MGP
MLP
Moody's
Mortgage Indenture
MW
MWh
NAESB
New NJR Credit Facility
NFE
NGV
NJ RISE
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
Conservation Incentive Program
Chicago Mercantile Exchange
Commercial Realty & Resources Corp.
Construction Work In Progress
The measure of the variation in the weather based on the extent to which the average daily
temperature falls below 65 degrees Fahrenheit
Dominion Midstream Partners, L.P., a master limited partnership
Common units representing limited partnership interests in DM
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 to NJNG 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
First Mortgage Bonds
Financial Risk Management
Generally Accepted Accounting Principles of the United States
Health Care Cost Trend Rate
Intercontinental Exchange
Iroquois Gas Transmission L.P.
Internal Revenue Service
The International Swaps and Derivatives Association
Investment Tax Credit
NJNG's $100 million, four-year credit facility with JPMorgan Chase Bank, N.A. expiring in
August 2015 and terminated on September 26, 2014
London Inter-Bank Offered Rate
Liquefied Natural Gas
Loan Agreement between the EDA and NJNG
Metropolitan Life Insurance Company
NJR's unsecured, uncommitted $100 million private placement shelf note agreement with
MetLife, Inc. expiring in September 2016
Manufactured Gas Plant
Master limited partnership
Moody's Investors Service, Inc.
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
Megawatts
Megawatt Hour
The North American Energy Standards Board
NJR's $425 million unsecured committed credit facility expiring in September 2020
Net Financial Earnings
Natural Gas Vehicles
New Jersey Reinvestment in System Enhancement
Page 1
New Jersey Resources Corporation
GLOSSARY OF KEY TERMS (cont.)
NJCEP
NJDEP
NJNG
NJNG Credit Facility
NJR Credit Facility
New Jersey's Clean Energy Program
New Jersey Department of Environmental Protection
New Jersey Natural Gas Company
The $250 million unsecured committed credit facility expiring in May 2019
NJR's $425 million unsecured committed credit facility, which was terminated on September
28, 2015
NJR Energy
NJR or The Company
NJR Service
NJRCEV
NJRES
NJRHS
NJRPS
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
SRL
Steckman Ridge
Superstorm Sandy
TEFA
Tetco
The Exchange Act
Trustee
U.S.
Union
USF
Wells Fargo
NJR Energy Corporation
New Jersey Resources Corporation
NJR Service Corporation
NJR Clean Energy Ventures Corporation
NJR Energy Services Company
NJR Home Services Company
NJR Plumbing Services, Inc.
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
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
Southern Reliability Link
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
Page 2
New Jersey Resources Corporation
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
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;” “OTHER BUSINESS OPERATIONS -Home Services and Other;” “ENVIRONMENT,” and ITEM 3. LEGAL
PROCEEDINGS,” and in Part II including ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, and ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 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 2016 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;
changes in the rate of NJNG's customer growth;
volatility of natural gas and other commodity prices;
changes in rating agency requirements and/or credit ratings;
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, revised actuarial assumptions or impacts associated with the
Patient Protection and Affordable Care Act;
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, electric grid connection (in the case of distributed power
projects) and/or financing for the construction, development and operation of NJR's unregulated energy investments and NJNG's
infrastructure projects in a timely manner;
risks associated with the management of the Company's joint ventures and partnerships and our investment in an MLP;
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;
timing of qualifying for ITCs and PTCs due to delays or failures to complete planned solar and wind energy projects;
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
regulatory process, including through the base rate case filing;
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.
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 3
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 512,300 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 in the U.S. and Canada. NJRES also provides unregulated 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 comprises the Company's Clean Energy Ventures segment and includes the
results of operations and assets related to the Company's unregulated capital investments in distributed power projects,
including commercial and residential solar projects and onshore wind investments.
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 and NJR Pipeline Company, which holds the Company's 20 percent ownership interest in
PennEast. Until September 29, 2015, NJR Midstream Holdings Corporation, through its subsidiary, NJNR
Pipeline Company, also held the Company's 5.53 percent ownership interest in Iroquois Gas Transmission L.P.
On September 29, 2015, NJNR Pipeline Company exchanged its ownership interest in Iroquois to Dominion
Midstream Partners, L.P. for approximately 1.84 million DM Common Units. The investments in Steckman
Ridge, PennEast and DM comprise the Company's Midstream segment.
NJR Investment Company, a company that held certain energy-related investments, through equity instruments
of public companies. A request for dissolution was filed in August 2015 due to inactivity and all assets were
moved to NJR in September 2015.
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, sales and
installation of appliances to 117,000 service contract customers, as well as solar installation projects.
Commercial Realty & Resources Corp., a company that holds 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.
Page 4
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
BUSINESS SEGMENTS
The Company operates within four reportable business segments: Natural Gas Distribution, Energy Services, Clean Energy
Ventures and Midstream.
The Natural Gas Distribution segment consists of regulated natural gas and off-system sales and 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 by business segment and other operations for the years ended September 30, are as follows:
)
s
d
n
a
s
u
o
h
T
n
i
$
(
$190,000
$180,000
$170,000
$160,000
$150,000
$140,000
$130,000
$120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
180,960
9,780
20,101
Natural Gas Distribution
72,044
Energy Services
Clean Energy Ventures
Midstream
Other
141,970
7,498
12,654
44,394
114,809
7,199
10,060
20,725
73,846
74,204
76,287
2013
2014
2015
Assets by business segment and other operations at September 30, are as follows ($ in Thousands):
2014
Clean Energy
Ventures
380,707
12%
Midstream
153,891
5%
Other
23,442
1%
Energy
Services
457,080
14%
2015
Clean Energy
Ventures
526,475
16%
Energy
Services
269,718
8%
Midstream
182,184
5%
Other
29,601
1%
Natural Gas
Distribution
2,143,684
68%
Natural Gas
Distribution
2,331,060
70%
Page 5
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Management of the Company uses NFE, a non-GAAP financial measure, when evaluating the operating results of the Company.
The Energy Services segment economically hedges its natural gas inventory with financial derivative instruments. 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 (gain) loss on derivative instruments
Effects of economic hedging related to natural gas inventory
Tax adjustments
NFE
2015
2014
$ 180,960 $ 141,970 $ 114,809
2013
(38,681)
(8,225)
17,449
(9,418)
7,635
655
$ 151,503 $ 176,857 $ 113,681
28,534
26,639
(20,286)
NFE by business segment and other operations for the years ended September 30, are as follows:
)
s
d
n
a
s
u
o
h
T
n
i
$
(
$190,000
$180,000
$170,000
$160,000
$150,000
$140,000
$130,000
$120,000
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
176,857
7,498
12,654
79,735
151,503
9,780
20,101
42,122
113,681
7,199
10,060
19,311
73,846
74,204
76,287
2013
2014
2015
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Other
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.
Page 6
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Natural Gas Distribution
General
NJNG provides natural gas service to approximately 512,300 customers. NJNG's service territory includes 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 7,858 and 7,599 new customers and added natural gas heat and other services to another 636 and 627 existing
customers in fiscal 2015 and 2014, respectively. NJNG expects its new customer annual growth rate to continue to be approximately
1.6 percent with projected additions in the range of approximately 16,000 to 18,000 new customers over the next two years. This
anticipated customer growth represents approximately $4.4 million in new annual utility gross margin, a non-GAAP financial
measure, as calculated under NJNG's CIP tariff.
When assessing the potential for future growth in its service area, NJNG uses information derived from county and municipal
planning boards that describes housing developments in various stages of approval. Furthermore, NJNG surveys builders in its
service area to gain insight into future development plans. NJNG has periodically engaged outside consultants to assist in its
customer growth projections. In addition to customer growth through new construction, NJNG's business strategy includes
aggressively pursuing conversions from other fuels, such as oil, electricity and propane. NJNG estimates that during fiscal 2016,
approximately 49 percent of NJNG's projected customer growth will consist of conversions.
NJNG's business is subject to various risks, such as those associated with adverse economic conditions, which can negatively
impact customer growth, operating and financing costs, fluctuations in commodity prices, which can impact customer usage,
customer conservation efforts, certain regulatory actions and environmental remediation. It is often difficult to predict the impact
of trends associated with these risks. NJNG employs strategies to manage the challenges it faces, including pursuing customer
conversions from other fuel sources and monitoring new construction markets through contact with developers, utilizing incentive
programs through BPU-approved mechanisms to reduce gas costs, pursuing rate and other regulatory strategies designed to stabilize
and decouple gross margin, and working actively with consultants and the NJDEP to manage expectations related to its obligations
associated with its former MGP sites.
Operating Revenues/Throughput
For the fiscal year ended September 30, operating revenues and throughput by customer class are as follows:
($ in thousands)
Residential
Commercial and other
Firm transportation
Total residential and commercial
Interruptible
Total system
BGSS incentive programs (1)
Total
2015
Operating
Revenue
$
466,464
106,505
77,974
650,943
10,049
660,992
120,978
$
781,970
Bcf
45.9
9.6
16.0
71.5
47.1
118.6
47.8
166.4
2014
Operating
Revenue
$
469,831
110,740
86,131
666,702
9,384
676,086
143,329
Bcf
43.1
8.2
17.7
69.0
10.5
79.5
27.4
2013
Operating
Revenue
$
467,269
99,736
73,745
640,750
9,066
649,816
138,171
Bcf
38.3
7.5
15.2
61.0
10.9
71.9
36.0
$
819,415
106.9
$
787,987
107.9
(1) Does not include 174.6, 153.4 and 105.5 Bcf for the capacity release program and related amounts of $8.9 million, $5.4 million and $3.7 million, which are
recorded as a reduction of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30, 2015, 2014 and 2013,
respectively.
In fiscal 2015, no single customer represented more than 10 percent of total NJNG operating revenues.
Page 7
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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 20-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, regardless 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, a revenue
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 tariff 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 2015, NJNG purchased natural gas from approximately 86 suppliers under contracts ranging from one day to one
year and purchased over 10 percent of its natural gas from 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.
Firm Transportation and Storage Capacity
NJNG maintains agreements for firm transportation and storage capacity with several interstate pipeline companies to take
delivery of firm natural gas supplies, which ensures the ability to reliably service its customers. NJNG receives natural gas at 10
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 and the contract expiration dates are as follows:
Pipeline
Texas Eastern Transmission, L.P.
Columbia Gas Transmission Corp.
Tennessee Gas Pipeline Co.
Transcontinental Gas Pipe Line Corp.
Algonquin Gas Transmission
Total
Maximum daily
deliverability (dths) (1)
270,738
50,000
25,166
22,531
12,000
380,435
Expiration
Various dates between 2017 and 2023
Various dates between 2024 and 2030
Various dates between 2018 and 2019
Various dates between 2016 and 2017
June 30, 2017
(1)
Numbers are shown net of any capacity release contracted amounts.
Iroquois and Dominion Transmission Corporation provide NJNG firm contract transportation service and supply the pipelines
included in the table above.
Page 8
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
In addition, NJNG has 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:
Pipeline
Texas Eastern Transmission, L.P.
Transcontinental Gas Pipe Line Corp.
Total
Maximum daily
deliverability (dths)
94,557
8,384
102,941
Expiration
April 30, 2017
March 31, 2017
NJNG also has upstream storage contracts. The maximum daily deliverability and contract expiration dates as follows:
Company
Dominion Transmission Corporation
Steckman Ridge, L.P.
Central New York Oil & Gas
Total
Maximum daily
deliverability (dths)
128,714
38,000
25,337
192,051
Expiration
Various dates between 2017 and 2020
March 31, 2020
March 31, 2018
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 has an agreement where it released 10,000 dths/day of
Texas Eastern Transmission capacity, 20,000 dths/day of Dominion Transmission capacity, 10,728 dths/day of Tennessee Gas
Pipeline capacity and 1.6 million dths of Central New York Oil & Gas storage capacity to NJRES for the period of January 1,
2010 to March 31, 2016. NJNG can call upon a supply of up to 20,000 dths/day delivered to NJNG's Texas Eastern citygate.
NJRES manages the storage inventory and NJNG can call on that storage supply as needed at NJNG's Tennessee citygate or storage
point.
NJNG also has agreements where it releases 80,000 dths/day of its Texas Eastern Transmission capacity to NJRES for the
period of April 1, 2014 to March 31, 2016, and where it releases 80,000 dths/day of its Texas Eastern Transmission capacity to
NJRES for the period of November 1, 2014 to October 31, 2016. Under these agreements, NJNG can call upon a supply of up to
160,000 dths/day delivered to its Texas Eastern citygate as needed. See Note 15. Related Party Transactions in the accompanying
Consolidated Financial Statements for additional information regarding these transactions.
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 were part of its FRM program, its storage incentive program and its
BGSS clause. The FRM program was terminated effective November 1, 2015. 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.
Page 9
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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.
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 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. On November 13, 2015, NJNG filed a base rate petition with the BPU to increase its base tariff rates in the amount of
$147.6 million.
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 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.
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, 2015, NJNG had 38,424 residential and 10,249
commercial and industrial customers utilizing the transportation service.
Energy Services
NJRES is an unregulated wholesale provider of physical natural gas, producer and asset management services to a diverse
customer base across North America. NJRES provides physical natural gas services and has acquired contractual rights to natural
gas storage and transportation assets it utilizes to implement its strategic and opportunistic market strategies. The rights to these
assets were acquired in anticipation of delivering natural gas, performing asset management services for customers or in conjunction
with identifying strategic opportunities that exist in or between the market areas that it serves. These opportunities are driven by
price differentials between market locations and/or time periods. NJRES' activities are conducted in the market areas in which it
has strong expertise and includes the U.S. and Canada. NJRES differentiates itself in the marketplace based on price, reliability
and quality of service. Its competitors include wholesale marketing and trading companies, utilities, natural gas producers and
financial institutions. NJRES' portfolio of end-use customers includes regulated natural gas distribution companies, industrial
companies, electric generators, retail aggregators, wholesale marketers and natural gas producers.
Page 10
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
While focusing on maintaining a low-risk operating and counterparty credit profile, NJRES' activities specifically consist
of the following elements:
•
Providing natural gas portfolio management services to nonaffiliated and affiliated natural gas utilities, electric generation
facilities and natural gas producers;
• Managing strategies for new and existing natural gas storage and transportation assets to capture value from changes in
price due to location or timing differences as a means to generate financial margin (as defined below);
• Managing transactional logistics to minimize the cost of natural gas delivery to customers while maintaining security of
supply. Transactions utilize the most optimal and advantageous natural gas supply transportation routing available within
its contractual asset portfolio and various market areas; and
• Managing economic hedging programs that are designed to mitigate the impact of changes in market prices on financial
margin generated on its natural gas storage and transportation commitments.
Transportation and Storage Transactions
NJRES focuses on creating value from its physical assets, which are typically amassed through contractual rights to natural
gas storage and transportation capacity. These assets become more valuable when favorable price changes impact value between
or within market areas and across time periods. On a forward basis, NJRES may hedge these price differentials through the use
of financial instruments. In addition, NJRES may seek to optimize these assets on a daily basis, as market conditions warrant, by
evaluating natural gas supply and transportation availability within its portfolio. This enables NJRES to capture geographic pricing
differences across these various regions as delivered natural gas prices may change favorably as a result of market conditions.
NJRES initiates positions when intrinsic financial margin is present, and then enhances that financial margin as prices change
across regions or time periods.
NJRES also engages in park-and-loan transactions with storage and pipeline operators, where NJRES will either borrow
(receive a loan of) natural gas with an obligation to repay the storage or pipeline operator at a later date or “park” natural gas with
an obligation to withdraw 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. 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 financial margin exists, NJRES will enter into the transaction and hedge with natural
gas futures contracts, thereby locking in financial margin.
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 2015 and 2014, NJRES managed and sold 626.9 and 609.3 Bcf of natural
gas, respectively. In addition, as of September 30, 2015 and 2014, NJRES had 44.6 Bcf or $93.7 million of gas in storage and 56.5
Bcf or $191.3 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 natural gas is
generally higher during the winter months; however, during periods of milder temperatures, demand can decrease. In addition,
demand for natural gas can also be high during periods of extreme heat in the summer months, resulting from the need for additional
natural gas supply for gas-fired electric generation facilities. Accordingly, NJRES can be subject to variations in earnings and
working capital throughout 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 production has increased supply
dramatically. Changes in natural gas supply 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 producer and asset management services. NJRES has
added new counterparties and strategic storage and transportation assets to its portfolio, which currently includes an average of
approximately 40 Bcf of firm storage and 1.5 Bcf/day of firm transportation capacity, and it continues to expand its geographic
footprint.
Page 11
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Financial Margin
NJRES enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward
contracts, financial swaps and options to economically hedge the commodity price risk associated with its existing and anticipated
commitments for the purchase and sale of 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 storage and transportation costs, and excludes any accounting impact from changes 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 counterparty credit exposures. Accordingly, NJRES' counterparties are primarily investment
grade rated 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 operates distributed power projects, including commercial
and residential solar installations located in New Jersey, and wind farms located in Montana, Iowa and Kansas.
As of September 30, 2015, NJRCEV has placed solar assets with a capacity of 117.7 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®, which 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 companies operating in New Jersey. NJRCEV competes on price, quality and brand reputation, leveraging its partner
network and customer referrals.
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 the development rights to small to mid-size onshore 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 wind farm. NJRCEV invested approximately $20.3 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, a $42.1 million, 20 MW project in Carroll County, Iowa, which was completed in January 2015. On October 9, 2014,
NJRCEV acquired the development rights to the $85 million, 48.3 MW Alexander onshore wind project in Rush County, Kansas,
which is currently under construction and expected to be operational in the first quarter of fiscal 2016.
Both of the wind projects placed in service 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. NJRCEV expects the Alexander project to also qualify for PTCs.
Page 12
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
During fiscal 2014 and most of fiscal 2015, NJRCEV held a minority equity interest in OwnEnergy, an onshore wind
developer, which provided NJRCEV with the option to acquire wind farms that fit its investment profile. During the fourth quarter
of fiscal 2015, OwnEnergy was acquired by a power producer and NJRCEV realized a $3 million pre-tax gain in exchange for its
ownership interest, which is included in other income, net on the Consolidated Statements of Operations.
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
Our Midstream segment includes investments in FERC-regulated interstate natural gas transportation and storage assets and
is comprised of the following subsidiaries:
•
•
•
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; and
NJR Pipeline Company, which consists of its 20 percent equity investment in PennEast, through which NJR and five
other investors expect to construct a 118-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.
NJR Midstream Holdings Corporation, through its subsidiary, NJNR Pipeline Company, also held the Company's 5.53
percent ownership interest in Iroquois Gas Transmission L.P. until September 29, 2015, when NJNR Pipeline Company
exchanged its ownership interest in Iroquois to Dominion Midstream Partners, L.P. for approximately 1.84 million DM
Common Units.
OTHER BUSINESS OPERATIONS
Home Services and Other
Home Services and Other operations consist primarily of the following unregulated affiliates:
• NJRHS, which provides heating, ventilation and cooling service, sales and installation of appliances to approximately
117,000 service contract customers, as well as installation of solar equipment;
• NJRPS, which provides plumbing repair and installation services;
• CR&R, which holds commercial real estate. As of September 30, 2015, CR&R's real estate portfolio consisted of 35
acres of undeveloped land in Atlantic County with a net book value of $1.4 million and a 56,400-square-foot office
building on five acres of land in Monmouth County with a net book value of $7.9 million. CR&R, has committed to sell
approximately 19.1 acres of additional undeveloped land located in Atlantic County with a net book value of $756,000.
Since it is probable that the sale will be completed within the next 12 months, as of September 30, 2015, the Company
has classified the property as other current assets on the Consolidated Balance Sheets;
• NJR Investment, which held certain energy-related investments, primarily through equity instruments of public
companies. A request for dissolution was filed in August 2015 due to inactivity and all assets were moved to NJR in
September 2015;
• 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.
Page 13
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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 $150.9 million to $242.1 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. 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, 2015, NJNG recorded an MGP remediation liability and a
corresponding regulatory asset of $180.4 million on the Consolidated Balance Sheets, which represents its most likely possible
liability; however, actual costs may differ from these estimates. NJNG is currently recovering from customers approximately $8.5
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. The petition was approved by the BPU on May 19, 2015, with rates
effective June 1, 2015.
EMPLOYEE RELATIONS
As of September 30, 2015, the Company and its subsidiaries employed 991 employees compared with 968 employees as of
September 30, 2014. Of the total number of employees, NJNG had 424 and 410 and NJRHS had 104 and 113 Union or “Represented”
employees as of September 30, 2015 and 2014, 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.
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:
•
•
•
Annual reports on Form 10-K;
Quarterly reports on Form 10-Q; and
Current reports on Form 8-K.
In addition, on our website at http://njr360.client.shareholder.com/governance.cfm, the following documents are also
available free of charge:
• Corporate Governance Guidelines;
• Wholesale Trading Code of Conduct;
• NJR Code of Conduct; and
Page 14
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
• 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 2016 annual
meeting of shareholders. We expect to file that Proxy Statement with the SEC on or about December 10, 2015, 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;
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 unregulated subsidiaries,
and on the repayments of principal and interest from intercompany loans and reimbursement of expenses from our subsidiaries
Page 15
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
for our cash flows. Our ability to pay dividends on our common stock and to pay principal and interest on our outstanding debt
depends on the payment of dividends to us by our subsidiaries or the repayment of loans to us by our 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 could 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, particularly in the case of NJNG, which relies heavily upon capital
expenditures financed by its credit facility.
If we suffer a reduction in our credit and borrowing capacity or in our ability to issue parental guarantees, the business
prospects of NJRES, NJRCEV and Midstream, which rely on our creditworthiness, would be adversely affected. NJRES could
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.
NJRCEV could be required to seek alternative financing for its projects, and may be unable to obtain such financing, or able to
do so only on less favorable terms. In addition, NJNR Pipeline may not be able to finance its capital obligations to PennEast.
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, in the case of NJNG, an
interest coverage ratio. These debt obligations also contain provisions that put 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 provide 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 actuarial assumptions based upon 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
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 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, 2015 and placed in service before January 1, 2017. 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”).
NJNG's operations are subject to certain operating risks incidental to handling, storing, transporting and providing customers
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.
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
NJNG and NJRES rely on storage, transportation assets and suppliers that they do not own or control to deliver natural
gas.
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.
Inflation may cause increases in certain operating and capital costs. We continually review the adequacy of NJNG's base
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.
Future results at NJRES are subject to volatility in the natural gas market due to weather. Variations in weather may affect
earnings and working capital needs throughout the year. During periods of milder temperatures, demand and volatility in the
natural gas market may decrease, which can negatively impact NJRES' earnings and cash flows.
Changes in customer growth may affect earnings and cash flows.
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, while our estimate regarding customer growth is based in part upon information
from third parties, the estimate 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
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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
customers, the cash flows and earnings at NJRES, and ultimately NJR, could be adversely impacted.
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. 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, joint ventures or in an MLP decreases our ability to manage risk.
We have utilized joint ventures through partnerships for certain midstream investments, including Steckman Ridge and
PennEast, and we own a minority interest in DM, a MLP, through our investment in DM Common Units. Although we currently
have no specific plans to do so, we may acquire interests in other joint ventures or partnerships in the future. In these joint ventures
or partnerships, we may not have the right or power to direct the management and policies of the joint ventures or partnerships,
and other participants or investors 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.
Additionally, our investment in DM has risks that are unique to investments in MLPs. Holders of MLP common units have
limited control and voting rights on matters affecting the MLP, and investments in MLPs may have limited liquidity. Additionally,
if DM is treated as a corporation for federal income tax purposes as a result of a change in current law or a change in DM's business,
such treatment would result in a reduction in the after-tax return to us and may cause a reduction in the value of our investment
in DM Common Units.
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.
Construction, development and operation of energy investments, such as natural gas storage facilities, NJNG infrastructure
improvements such as SRL and NJ RISE, pipeline transportation systems such as PennEast, 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 environmental and other 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 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. 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 invest 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 solar projects is based substantially on our eligibility for ITCs and 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 solar projects. Legislative changes
or declines in the price of SRECs could also lead to an impairment of solar project assets.
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
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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, 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, 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 and the currently pending base rate case filed on November 13, 2015. There can be no assurance that NJNG will be able
to obtain rate increases and 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, deferred storm costs, 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
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 that are 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 disrupt 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 readily 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 unable 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 adversely affects 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.
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 perform other critical business processes. This
technology may fail due to cyber-attack, physical disruption, design and implementation defects or human error. Disruption or
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 built into our networks and technology, or the procedures we 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
successfully compete in today's challenging marketplace.
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, construction 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, changes in and compliance with laws such as the Pipeline Safety, Regulatory Certainty
and Job Creation Act of 2011 could increase federal regulatory oversight and 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 may also prevent changes in management. In addition, our Board of Directors is authorized to
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.
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 or covered by insurance,
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
ITEM 2. PROPERTIES
Natural Gas Distribution Segment (All properties are located in New Jersey)
NJNG owns approximately 7,080 miles of distribution main, 7,275 miles of service main, 226 miles of transmission main
and approximately 534,000 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 Mortgage
Indenture, dated as of September 1, 2014, as security for NJNG's mortgage bonds, which totaled $582.8 million as of September 30,
2015. In addition, under the terms of the Indenture, NJNG could have issued up to $830.7 million of additional first mortgage
bonds as of September 30, 2015.
Energy Services Segment
As of September 30, 2015, NJRES leases office space in Wall Township, New Jersey, as well as Houston, Texas and Charlotte,
North Carolina for its business activities.
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New Jersey Resources Corporation
Part I
ITEM 2. PROPERTIES (Continued)
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. In addition
to the lease agreements and easements, NJRCEV owns 79.5 acres of land in Vineland, New Jersey for its Vineland solar project.
NJRCEV owns solar panels with a total of 117.7 MW of capacity.
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, which was completed in January
2015. The Alexander wind project located in Rush County, Kansas is a 48.3 MW project currently under construction and expected
to be completed in the first quarter of fiscal 2016. In addition to the lease agreement and easements, NJRCEV owns 1.8 acres and
7.14 acres of land for its Carroll and Alexander wind projects, respectively. NJRCEV also owns a building on .16 acres in Rush
County, Kansas that is used for operation and maintenance purposes related to the Alexander wind project.
NJRCEV leases office space in Wall Township, New Jersey.
Midstream Segment
As of September 30, 2015, Steckman Ridge 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.
All Other Business Operations
As of September 30, 2015, CR&R's real estate portfolio consisted of 35 acres of undeveloped land in Atlantic County with
a net book value of $1.4 million and a 56,400-square-foot office building on five acres of land in Monmouth County with a net
book value of $7.9 million. CR&R also owns 19.1 acres of undeveloped land located in Atlantic County with a net book value of
$756,000, which the Company has committed to sell and was reclassified as held for sale as of September 30, 2015.
NJRHS leases service centers in Dover, Morris County and Wall, Monmouth County, New Jersey.
Capital Expenditure Program
See Item 7. Management Discussion and Analysis for a discussion of anticipated fiscal 2016 and 2017 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, and participating in various studies and investigations by outside consultants to
determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where
warranted, under Administrative Consent Orders or Memoranda of Agreement with the NJDEP.
NJNG may recover its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RA
approved by the BPU. In July 2014, the BPU approved a July 2013 filing that requested approval of NJNG's MGP expenditures
incurred through June 2013, as well as a recovery of $18.7 million annually, with rates effective December 1, 2013. In September
2014, NJNG requested approval of its MGP expenditures incurred through June 2014 with recovery of $8.5 million annually
related to the SBC RA factor. The petition was approved by the BPU on May 19, 2015, with rates effective June 1, 2015. As of
September 30, 2015, $18.9 million of previously incurred remediation costs, net of recoveries from customers and insurance
proceeds, are included in regulatory assets on the Consolidated Balance Sheets.
Page 23
New Jersey Resources Corporation
Part I
ITEM 3. LEGAL PROCEEDINGS (Continued)
NJNG periodically, and at least annually, performs an environmental review of the MGP sites, including a review of potential
liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures
to remediate and monitor the five MGP sites for which it is responsible, including potential liabilities for Natural Resource Damages
that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range
from approximately $150.9 million to $242.1 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, 2015, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $180.4 million
on the Consolidated Balance Sheets, 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 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.
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
below.
Name
Laurence M. Downes
Age
58
Officer
since Office held during last five years
1986 Chairman of the Board (September 1996 - present)
President and Chief Executive Officer (July 1995 - present)
Kathleen T. Ellis
Glenn C. Lockwood
Mariellen Dugan
Stephen Westhoven
62
54
49
47
2004
1990
2005
2004
Stanley M. Kosierowski
63
2008
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)
Amanda Mullan
49
2015 Vice President and Chief Human Resources Officer (April 2015 - present)
Senior Vice President of HR, N. America, Willis Group Holdings (April 2012 - April 2015)
Senior Vice President of HR, Dun & Bradstreet (July 2009 - April 2012)
Page 24
New Jersey Resources Corporation
Part II
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, 2015,
NJR had 43,911 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
2015
2014
High
Low
High
Low
Dividends Paid
2014
2015
$32.15
$33.73
$32.05
$30.07
$24.65
$28.73
$26.77
$26.89
$23.48
$25.24
$28.84
$28.90
$21.27
$21.88
$23.85
$24.32
$0.225
$0.225
$0.225
$0.225
$0.210
$0.210
$0.210
$0.210
On January 20, 2015, NJR’s Board of Directors approved a 2-for-1 stock split of the Company’s common stock for the
Company’s common stock holders of record on February 6, 2015. The additional shares were issued on March 3, 2015. All share-
related information for prior periods has been adjusted throughout this report on a retroactive basis to reflect the effects of the
stock split. As well, common stock and premium on common stock amounts have been adjusted as of the earliest period presented
on the Consolidated Balance Sheets.
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. The Share Repurchase Plan allows the Company to purchase its outstanding 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, 2015:
Period
07/01/15 - 07/31/15
08/01/15 - 08/31/15
09/01/15 - 09/30/15
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
or Programs
$
$
$
$
—
—
—
—
—
—
—
—
Maximum Number (or Approximate
Dollar Value) of Shares (or Units) That
May Yet Be Purchased Under the
Plans or Programs
2,662,653
2,662,653
2,662,653
2,662,653
Page 25
New Jersey Resources Corporation
Part II
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL STATISTICS
(Thousands, except per share data)
Fiscal Years Ended September 30,
SELECTED FINANCIAL DATA
Operating revenues
Gas purchases
Net income
Total assets
Common stock equity
Long-term debt (1)
COMMON STOCK DATA
Earnings per share-basic
Earnings per share-diluted
Dividends declared per share
NON-GAAP RECONCILIATION
Net income
Add:
2015
2014
2013
2012
2011
180,960 $
$ 2,733,987 $ 3,738,145 $ 3,198,068 $ 2,248,923 $ 3,009,209
$ 2,085,645 $ 3,139,525 $ 2,712,223 $ 1,841,408 $ 2,550,571
101,299
$
$ 3,339,038 $ 3,158,804 $ 3,004,783 $ 2,770,005 $ 2,649,444
776,257
$ 1,106,956 $
843,595 $
$
813,865 $
525,169 $
887,384 $
512,886 $
966,166 $
598,209 $
114,809 $
141,970 $
92,879 $
426,797
$2.12
$2.10
$0.915
$1.69
$1.67
$0.855
$1.38
$1.37
$0.810
$1.12
$1.12
$0.770
$1.23
$1.22
$0.720
$
180,960 $
141,970 $
114,809 $
92,879 $
101,299
Consolidated unrealized (gain) loss on derivative
instruments
Effects of economic hedging related to natural gas
inventory
Tax adjustments
Net financial earnings (2)
(38,681)
28,534
(9,418)
35,790
36,875
(8,225)
17,449
151,503 $
26,639
(20,286)
176,857 $
7,635
655
113,681 $
(4,891)
(11,361)
112,417 $
(28,604)
(3,037)
106,533
$
Net financial earnings per share-basic (2)
Net financial earnings per share-diluted (2)
$1.78
$1.76
$2.10
$2.08
$1.36
$1.36
$1.35
$1.35
$1.29
$1.28
Includes long-term capital leases of $35.7 million, $40.4 million, $43 million, $46.1 million and $47 million, respectively.
(1)
(2) NFE is a financial measure not calculated in accordance with GAAP. NFE eliminates the timing differences surrounding the recognition of certain gains or
losses, to effectively match the earnings effects of economic hedges associated with the physical sale or purchase of gas and, therefore, eliminates the impact
of volatility to GAAP earnings associated with the related derivative instruments. For further discussion of this financial measure, see the Energy Services
segment in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Page 26
New Jersey Resources Corporation
Part II
ITEM 6. SELECTED FINANCIAL DATA (Continued)
NJNG OPERATING STATISTICS
Fiscal Years Ended September 30,
Operating revenues ($ 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
2015
2014
2013
2012
2011
$ 466,464
106,505
77,974
650,943
10,049
660,992
120,978
$ 781,970
$ 469,831
110,740
86,131
666,702
9,384
676,086
143,329
$ 819,415
$ 467,269
99,736
73,745
640,750
9,066
649,816
138,171
$ 787,987
$ 363,780
85,870
60,599
510,249
9,124
519,373
108,340
$ 627,713
$ 579,038
113,429
57,126
749,593
9,643
759,236
212,488
$ 971,724
45.9
9.6
16.0
71.5
47.1
118.6
222.4
341.0
437,979
25,541
48,673
512,193
35
24
512,252
9.57
43.1
8.2
17.7
69.0
10.5
79.5
180.8
260.3
422,742
24,684
56,777
504,203
37
34
504,274
10.24
38.3
7.5
15.2
61.0
10.9
71.9
141.5
213.4
408,399
24,302
64,651
497,352
41
38
497,431
10.82
32.9
6.5
11.2
50.6
10.3
60.9
99.6
160.5
423,871
24,985
51,213
500,069
42
32
500,143
10.85
42.3
8.3
12.2
62.8
8.3
71.1
107
178.1
428,694
25,666
40,522
494,882
42
40
494,964
10.73
1,049
9,799
5,015
108.3%
649
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
(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.
Page 27
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 assets, 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, regulatory assets, income taxes, pension and postemployment benefits other than pensions,
asset retirement obligations 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. On November 13, 2015, NJNG filed a base rate petition with the BPU to increase its base tariff rates in the
amount of $147.6 million.
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, 2015, fair value of its derivative assets and liabilities reported on the Consolidated
Balance Sheets that is based on such pricing is immaterial.
Page 28
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 2015, 2014 and 2013.
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.
We have not designated any derivatives as fair value hedges as of September 30, 2015 and 2014.
Income Taxes and Credits
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 $436.5 million and $382 million and a valuation allowance of
$176,000 and $212,000 related to certain deferred state tax assets as of September 30, 2015 and 2014, 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 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 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, 2015 and 2014, 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 29
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Environmental Costs
At the end of each fiscal year, NJNG, with the assistance of an independent consulting firm, updates the environmental
review of its MGP sites, including its potential liability for investigation and remedial action. From this review, NJNG estimates
expenditures necessary to remediate and monitor these MGP sites. As of September 30, 2015, NJNG estimated these expenditures
will range from approximately $150.9 million to $242.1 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 $180.4 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, 2015 and 2014, $18.9 million and $30.9
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, mortality tables,
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)
$(34,644)
$ 43,944
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (3,438)
$
4,103
$ (1,954)
1,954
$
Page 30
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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
Asset Retirement Obligations
Increase/
(Decrease)
1.00 %
(1.00) %
1.00 %
(1.00) %
Increase/
(Decrease)
1.00 %
(1.00) %
Estimated
Increase/(Decrease) on PBO
(Thousands)
$(21,616)
$ 28,230
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (1,997)
2,458
$
(554)
$
557
$
Estimated
Increase/(Decrease) on PBO
(Thousands)
$ 26,025
$(20,427)
Estimated
Increase/(Decrease) to Expense
(Thousands)
3,683
$
$ (2,933)
The Company recognizes AROs related to the costs associated with cutting and capping NJNG's main and service gas
distribution pipelines, which is required by New Jersey law when taking such gas distribution pipeline out of service. The Company
also recognizes AROs associated with NJRCEV's solar and wind assets when there are decommissioning provisions in lease
agreements that require removal of the asset.
AROs are initially recognized when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair
value can be made. The discounted fair value is recognized as an ARO liability with a corresponding amount capitalized as part
of the carrying cost of the underlying asset. The obligation is subsequently accreted to the future value of the expected retirement
cost and the corresponding asset retirement cost is depreciated over the life of the related asset. Accretion expense associated with
NJRCEV's ARO is recognized as a component of operations and maintenance expense on NJR's Consolidated Statements of
Operations. Accretion amounts associated with NJNG's ARO are not reflected as an expense, but rather are deferred as a regulatory
asset and netted against NJNG's regulatory liabilities, for presentation purposes, on the Consolidated Balance Sheets.
Estimating future removal costs requires management to make significant judgments because most of the removal obligations
span long time frames and removal may be conditioned upon future events. Asset removal technologies are also constantly changing,
which makes it difficult to estimate removal costs. Accordingly, inherent in the estimate of the Company's AROs are various
assumptions including the ultimate settlement date, expected cash outflows, inflation rates, credit-adjusted risk-free rates and
consideration of potential outcomes where settlement of the ARO can be conditioned upon events. In the latter case the Company
develops possible retirement scenarios and assigns probabilities based on management’s reasonable judgment and knowledge of
industry practice. Accordingly, the ARO is subject to change. Revisions to the Company's estimates during fiscal 2015 resulted
in a decrease to NJNG's ARO of approximately $14.8 million, due primarily to changes in expected settlement dates, as well as
to the related inflation and discount rates used to measure the obligation over varying time periods.
Recently Issued Accounting Standards
Refer to Note 2. Summary of Significant Accounting Policies in the accompanying Consolidated Financial Statements for
discussion of recently issued accounting standards.
Management's Overview
Consolidated
NJR is an energy services holding company providing retail natural gas service in New Jersey and wholesale natural gas
and related energy services to customers in the U.S. and Canada, through its subsidiaries NJNG and NJRES. In addition, NJR
invests in distributed power projects, midstream assets and provides various repair, sales and installations services. A more detailed
description of NJR's organizational structure can be found in Item 1. Business.
Page 31
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Business Segments
NJR has four primary business segments as presented in the chart below:
In addition to the four business segments, NJR has non-utility operations that either provide corporate support services or
do not meet management's criteria to be treated as a separate business segment. These operations, which comprise Home Services
and Other, include: appliance repair services, sales and installations at NJRHS, energy-related ventures at NJR Energy and
commercial real estate holdings at CR&R.
A summary of the company's consolidated results in net income and assets by business segment and operations for the fiscal
years ended September 30, is as follows:
($ in thousands)
2015
2014
2013
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Home Services and Other
Intercompany (1)
Total
(1)
Net Income
$
Assets
Net Income
Assets
Net Income
Assets
76,287 $ 2,331,060 $
72,044
20,101
9,780
3,420
(672)
269,718
526,475
182,184
94,206
(64,605)
74,204 $ 2,143,684 $
44,394
12,654
7,498
2,798
422
457,080
380,707
153,891
82,413
(58,971)
$
180,960 $ 3,339,038 $
141,970 $ 3,158,804 $
73,846 $ 2,094,940
468,096
20,725
253,663
10,060
153,536
7,199
85,293
3,292
(50,745)
(313)
114,809 $ 3,004,783
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
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 2015, compared with fiscal 2014, was primarily driven by:
•
increases at NJRES due primarily to higher gross margin due to an increase in volumes purchased and sold, an increase
related to changes in the value of financial hedges, as well as a decrease in O&M expense, partially offset by a decrease
in average gas prices and an increase in income taxes;
Page 32
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
•
•
•
increases at NJRCEV due to increases in operating revenue due primarily to higher SREC market prices and sales volumes
and increases in sales of energy and capacity, as well as an increase in ITCs due to an increase in solar capital expenditures
placed into service and PTCs due to increased wind production, partially offset by increased costs related to depreciation
and O&M;
increases at NJNG due primarily to increased utility firm gross margin resulting primarily from customer growth and an
increase in other income, partially offset by increases in depreciation and O&M expenses; and
increases at our Midstream segment in equity in earnings due primarily to increases in storage service revenue and demand
for hub services at Steckman Ridge.
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 driven by 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.
The increase in assets during fiscal 2015 compared with fiscal 2014, was due primarily to additional solar and wind
expenditures at Clean Energy Ventures and utility plant expenditures at our Natural Gas Distribution segment, offset by decreases
in gas in storage and accounts receivable at Energy Services due primarily to lower commodity prices. 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.
Management of the Company uses NFE, a non-GAAP financial measure, when evaluating the operating results of the
Company. NJRES economically hedges its natural gas inventory with financial derivative instruments. 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 (gain) loss on derivative instruments
Effects of economic hedging related to natural gas inventory
Tax adjustments
NFE
Basic earnings per share
Basic NFE per share
2015
2014
$ 180,960 $ 141,970 $ 114,809
2013
(38,681)
(8,225)
17,449
(9,418)
7,635
655
$ 151,503 $ 176,857 $ 113,681
28,534
26,639
(20,286)
$
$
2.12 $
1.78 $
1.69 $
2.10 $
1.38
1.36
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
(1)
Consists of transactions between subsidiaries that are eliminated in consolidation.
Page 33
$
2015
51% $
76,287
28
42,122
13
20,101
6
9,780
3,420
2
(207) —
2014
74,204
79,735
12,654
7,498
2,798
42% $
45
7
4
2
(32) —
2013
73,846
19,311
10,060
7,199
3,292
65%
17
9
6
3
(27) —
$ 151,503 100% $ 176,857
100% $ 113,681
100%
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The decrease in NFE during fiscal 2015, compared with fiscal 2014, was driven primarily by a decrease at NJRES due
primarily to a decrease in financial margin. Fiscal 2014 experienced extreme cold weather patterns across the U.S., especially in
the Midwest, which created market volatility that did not recur to the same degree in fiscal 2015. The decrease was partially offset
by increases at NJRCEV, NJNG and our Midstream segment as previously discussed.
The increase in NFE during fiscal 2014, compared with fiscal 2013, was primarily driven by increases at NJRES due primarily
to the extreme cold weather.
Natural Gas Distribution Segment
Overview
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 to approximately 512,300 residential and commercial customers in its service territory
and also participates in the off-system sales and capacity release markets. The 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 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.
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.
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.
NJNG's operations are managed with the goal of providing safe and reliable service, growing its customer base, diversifying
its gross 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 businesses, as well
as timely recovery of all prudently incurred costs in order to provide safe and reliable service throughout NJNG's territory:
- NJNG filed a base rate case petition with the BPU on November 13, 2015 requesting an increase in base tariff rates
in the amount of $147.6 million;
•
continuing to invest in the safety and integrity of its infrastructure;
• managing its customer growth rate, which NJNG expects will be approximately 1.6 percent annually over the next two
years;
• 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;
utilizing BGSS incentive programs through BPU-approved mechanisms to reduce gas costs and generate margin;
and
administering and promoting NJNG's BPU-approved SAVEGREEN Project;
Page 34
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
• managing the volatility of wholesale natural gas prices through a hedging program designed to keep customers' BGSS
rates as stable as possible; and
•
working to manage its financial obligations related to remediation activities associated with its former 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 associated with customer growth and its associated PIM and infrastructure
programs.
Below is a summary of NJNG's capital expenditures, including estimates for expected investments over the next two fiscal
years:
)
s
n
o
i
l
l
i
M
(
$
$120
$100
$80
$60
$40
$20
$0
Customer growth
System maintenance
and other
SAFE
SRL
NJ RISE
Liquefaction/LNG
NGV Advantage
Superstorm Sandy
2015
2016
2017
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.
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, 2015, NJNG has received regulatory approval to recover
approximately $15.3 million annually through its base tariff rates related to AIP.
NJNG has also implemented its SAFE program whereby NJNG has approval to invest up to $130 million, exclusive of
AFUDC, to replace portions of its gas distribution infrastructure, consisting of unprotected steel and cast iron, over a four-year
period. The SAFE program was authorized by the BPU to earn an overall weighted average cost of capital of 6.9 percent, with a
return on equity of 9.75 percent. NJNG has included its SAFE infrastructure investments for recovery in its base rate case petition
filed on November 13, 2015.
Page 35
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
As of September 30, 2015, NJNG has opened two NGV stations to the public and development of an additional NGV station
continues in Middletown Township. 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. NJNG has included its NGV investments for recovery in its base rate case petition filed
with the BPU on November 13, 2015. Refer to Note 3. Regulation in the accompanying Consolidated Financial Statements, for a
discussion of SAFE deferred accounting methodology.
NJ RISE
On July 23, 2014, the BPU approved a Stipulation of Settlement related to the recovery of NJNG's NJ RISE capital
infrastructure program, 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 depreciation expense. 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. 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. In
the filing, NJNG proposed the recovery of its capital costs associated with NJ RISE through an annual adjustment to its base rate.
On May 29, 2015, NJNG filed a petition with the BPU requesting approval to recover costs through July 31, 2015. On October 15,
2015, the BPU approved a base rate increase resulting in a .07 percent increase to the average residential heat customer's bill,
effective November 1, 2015. Investments through July 31, 2015, will earn a weighted average cost of capital of 6.74 percent,
including a return on equity of 9.75 percent. Estimated capital expenditures through December 31, 2016, have been included for
recovery in NJNG’s base rate case petition filed with the BPU on November 13, 2015.
Liquefaction/LNG
NJNG is in the construction phase of its Liquefaction project, which when completed will allow NJNG to convert natural
gas into LNG to fill NJNG's existing LNG storage tanks. NJNG's base rate case petition filed with the BPU on November 13,
2015, includes capital cost recovery. NJNG estimates that the total costs for this project along with other plant upgrades will be
$35.7 million.
Southern Reliability Link
The SRL is an approximate 30-mile, 30-inch transmission main designed to support improved system integrity and reliability
in the southern portion of NJNG's service territory, estimated to cost between $175 million and $180 million. On April 2, 2015,
NJNG filed two petitions with the BPU to construct, operate and finalize the route for its Southern Reliability Link project. On
June 5, 2015, NJNG filed two petitions with the BPU to amend the previously proposed route. The capital investment cost associated
with the SRL has been included for recovery in NJNG’s base rate case petition, filed with the BPU on November 13, 2015.
Customer growth
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 2015, NJNG added 7,858 new customers, which represents a new customer growth rate of approximately 1.6
percent. During that same time period, NJNG converted 636 existing customers to natural gas heat and other services. This customer
growth represents an estimated increase of approximately $4.5 million annually to utility gross margin assuming normal weather
and usage. In addition, NJNG currently expects to add approximately 16,000 to 18,000 new customers during the two-year period
of fiscal 2016 and 2017. Based on information from municipalities and developers, as well as external industry analysts and
Page 36
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
management's experience, NJNG estimates that approximately 51 percent of the growth will come from new construction markets
and another 49 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 $4.4 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. On March 18, 2015, the BPU approved the June 2014 compliance filing associated with
SAVEGREEN to maintain the existing rate. On July 22, 2015, the BPU approved NJNG's petition filed in December 2014, allowing
the extension of SAVEGREEN through July 31, 2017, with an additional $75.2 million in investments and a weighted average
cost of capital of 6.69 percent.
Since inception, the BPU has approved total SAVEGREEN investments of approximately $219.3 million, of which, $117.5
million in grants, rebates and loans has been provided to customers, with a total annual recovery of approximately $20 million.
On July 31, 2015, NJNG submitted its 2015 SAVEGREEN rate recovery filing to maintain its existing SAVEGREEN recovery
rate. The recovery includes a weighted average cost of capital that ranges from 6.69 percent, with a return on equity of 9.75 percent,
to 7.76 percent, with a return on equity of 10.3 percent.
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 customer 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 the CIP. In May 2014, the BPU approved the continuation of the CIP program with no expiration date; however,
it is subject to review in the 2017 tariff rate filing. On April 15, 2015, the BPU approved on a final basis a reduction to NJNG's
CIP rates effective October 1, 2014, which resulted in a 4.3 percent reduction to the average residential heat customer's bill. On
June 1, 2015, NJNG filed a petition with the BPU to increase its CIP rates resulting in a 0.08 percent increase to the average
residential heat customer's bill to be effective October 1, 2015. The BPU provisionally approved this rate on September 11, 2015.
NJNG's total utility firm gross margin includes the following adjustments related to the CIP mechanism:
(Thousands)
Weather (1)
Usage
Total
(1)
2015
2014
2013
$
$
(9,268) $
3,132
(6,136) $
(10,396) $
6,580
(3,816) $
4,463
11,284
15,747
Compared with the CIP 20-year average, weather was 8.3 percent and 9.6 percent colder-than-normal during fiscal 2015 and fiscal 2014, respectively
and .1 percent warmer-than-normal during 2013.
As of September 30, 2015 and 2014, NJNG has $5.2 million and $5.8 million, respectively, in regulatory liabilities on the
Consolidated Balance Sheets related to CIP to be returned to customers 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.
Page 37
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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:
Tetco M-3 Daily Prices
2014-2015
2013-2014
2012-2013
$80
$70
$60
$50
$40
$30
$20
$10
$0
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
(1) Data source from Platts, a division of McGraw Hill Financial.
The maximum daily price was $21.09, $81.30 and $11.59 and the minimum daily price was $0.77, $1.61 and $3.11 for the
fiscal years ended September 30, 2015, 2014 and 2013, respectively. 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 natural 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 natural 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.
NJNG 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. In June 2014, NJNG filed its fiscal 2015 BGSS/CIP filing 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, which was approved by the BPU
in April 2015. On June 1, 2015, NJNG filed a petition with the BPU to continue its existing BGSS rate for residential and small
commercial customers, which was provisionally approved by the BPU on September 11, 2015. NJNG’s petition included a
notification to provide estimated bill credits to NJNG's residential and small commercial customers during the months of November
2015 through February 2016, as a result of the decline in the wholesale price of natural gas. On October 27, 2015, NJNG notified
the BPU that the estimated annual bill credits will be approximately $76 million and will result in an approximate 17 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.
Page 38
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (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 and storage incentive programs, and through October 31, 2015, the FRM
program. These programs 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. On March 27, 2015, NJNG filed a letter petition with
the BPU requesting the continuation of its existing BGSS Incentive Programs. On October 15, 2015, the BPU issued an order
approving the continuation of the BGSS Incentive Programs with modification to the storage incentive program and termination
of the FRM Program, effective November 1, 2015.
Utility gross margin from incentive programs was $17.7 million, $16 million and $8.8 million during the fiscal years ended
September 30, 2015, 2014 and 2013, respectively. A more detailed discussion of the impacts to 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.
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 impact NJNG's results. In an April 2014 BPU Order, NJNG received regulatory approval
to enter into interest rate risk management transactions related to long-term debt securities. On June 1, 2015, NJNG entered into
a treasury lock transaction to fix a benchmark treasury rate of 3.26 percent associated with the forecasted $125 million debt issuance
expected in May 2018. This forecasted debt issuance coincides with the maturity of NJNG's existing $125 million, 5.6 percent
notes on May 15, 2018. The change in fair value of NJNG's treasury lock agreement is recorded as a component of regulatory
assets or liabilities on the Consolidated Balance Sheets since the Company believes that the market value upon settlement will be
recovered in future rates. Upon settlement, any gain or loss will be amortized in earnings over the life of the future debt issuance.
A more detailed discussion of NJNG's debt 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.
Environmental Remediation
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 $180.4 million as of September 30, 2015, a
increase of $3.4 million, compared with the prior fiscal year. NJNG is currently authorized to recover remediation costs of
approximately $8.5 million annually, which is based on expenditures incurred through June 30, 2014.
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 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.
Page 39
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Other regulatory filings and a more detailed discussion of the filings in this section can be found in Note 3. Regulation in
the accompanying Consolidated Financial Statements.
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.
NJNG's operating results for the fiscal years ended September 30, are as follows:
(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
Depreciation and amortization
Other taxes not reflected in utility gross margin
Operating income
Other income, net
Interest expense, net of capitalized interest
Income tax provision
Net income
2015
2014
2013
$ 781,970 $ 819,415 $ 787,987
355,779
402,552
414,594
42,929
75,779
307,483
129,774
43,085
4,577
47,440
72,164
297,259
124,717
40,540
4,573
48,037
48,417
276,939
113,174
37,999
4,373
130,047
127,429
121,393
4,318
18,534
2,832
16,683
39,544
76,287 $
39,374
74,204 $
$
2,847
14,995
35,399
73,846
(1)
(2)
(3)
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
by January 2014.
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.
Page 40
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating revenues decreased 4.6 percent during fiscal 2015 and increased 4 percent during fiscal 2014. Gas purchases
decreased 11.6 percent during fiscal 2015 and decreased 2.9 percent during fiscal 2014. A description of the factors contributing
to the increases (decreases) in operating revenues and gas purchases during fiscal 2015 and 2014, are as follows:
2015 v. 2014
2014 v. 2013
(Millions)
Average BGSS rates (1)
Firm sales
Off-system sales
CIP adjustments
SAVEGREEN rates
AIP
Other
Total (decrease) increase
(1)
Operating
revenue
Gas
purchases
(47.2)
24.5
(20.0)
—
—
—
(4.1)
(46.8)
(50.5) $
36.2
(20.3)
(2.3)
—
—
(0.5)
(37.4) $
Operating
revenue
Gas
purchases
$
$
(47.4) $
65.5
7.7
(19.6)
14.2
6.5
4.5
31.4 $
(44.4)
33.1
7.0
—
—
—
(7.7)
(12.0)
$
$
Operating revenue includes changes in sales tax of $3.3 million and $3 million during fiscal 2015 and 2014, respectively.
Other includes changes in rider rates, including those related to NJCEP and other programs and Superstorm Sandy.
Fiscal 2015 compared with fiscal 2014
The decreases in operating revenues and gas purchases during fiscal 2015 were due primarily to:
•
•
•
•
lower BGSS rates due to the BPU approved October 2014 decrease of 5 percent, to the average residential heat customer's
bill;
lower off-system sales due primarily to a 51.9 percent decrease in the average price of gas sold, partially offset by a 76.8
percent increase in volumes;
a decrease in CIP adjustments of $2.3 million related primarily to usage; partially offset by
increased firm sales due to the transfer of customers from transportation as well as customer growth.
Fiscal 2014 compared with fiscal 2013
The increase in operating revenue during fiscal 2014 was due primarily to:
•
•
•
•
increased firm sales due to an increase in usage related primarily to weather being 8.9 percent colder, based on degree
days, during fiscal 2014 than fiscal 2013;
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; partially offset by
a decrease in CIP adjustments of $14.9 million related to the colder weather and $4.7 million related to usage; and
lower BGSS rates during fiscal 2014, which was also the cause of the decrease in gas purchases during fiscal 2014.
The following provides more information on the components of Utility Gross Margin and associated throughput (Bcf) of
natural gas delivered to customers:
($ in thousands)
Utility gross margin/throughput
Residential
Commercial, industrial and other
Firm transportation
Total utility firm gross margin/throughput
BGSS incentive programs
Interruptible/off-tariff agreements
Total utility gross margin/throughput
(1)
2015
2014
2013
Margin
Bcf
Margin
Bcf
Margin
Bcf
$ 182,407
47,162
55,614
285,183
17,707
4,593
$ 307,483
45.9
9.6
16.0
71.5
222.4
47.1 (1)
341.0
$ 173,879
43,357
60,811
278,047
15,957
3,255
$ 297,259
43.1
8.2
17.7
69.0
180.8
10.5
260.3
$ 167,530
42,282
55,169
264,981
8,777
3,181
$ 276,939
38.3
7.5
15.2
61.0
141.5
10.9
213.4
As of December 2014, margin includes a BPU approved off-tariff agreement with TAQA Gen-X, LLC.
Page 41
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
A description of the factors contributing to the increases in utility firm gross margin during fiscal 2015 and 2014, are as
follows:
(Thousands)
Customer growth
AIP
SAVEGREEN
Total increase
2015 v. 2014
2014 v. 2013
$
5,911
$
—
1,225
7,136
$
5,080
6,103
1,883
$ 13,066
The increase in utility firm gross margin during fiscal 2015 was due primarily to increases in revenue related to customer
growth, which includes residual customers impacted by Superstorm Sandy that are still returning. The increase in utility firm gross
margin during fiscal 2014, was due primarily to increases in revenue related to infrastructure investments along with customer
growth. The transfer of customers between sales and transportation service has no impact on NJNG's total utility firm gross margin
since distribution tariff rates are the same for these customer classes.
NJNG's total customers as of September 30, include the following:
Firm customers
Residential
Commercial, industrial & other
Residential transport
Commercial transport
Total firm customers
Other
Total customers
2015
2014
2013 (1)
437,979
422,742
408,399
25,541
38,424
10,249
24,684
46,282
10,495
24,302
54,253
10,398
512,193
504,203
497,352
59
71
79
512,252
504,274
497,431
(1)
Excludes customers whose service was impacted by the effects of Superstorm Sandy.
NJNG added 7,858, 7,599 and 7,456 new customers and converted 636, 627 and 619 existing customers to natural gas heat
and other services during the fiscal years ended September 30, 2015, 2014 and 2013, respectively. The customer growth during
fiscal 2015 represents an estimated annual increase of approximately 1 Bcf in sales to firm customers, which, assuming normal
weather and usage, would contribute approximately $4.5 million annually to utility gross margin.
BGSS Incentive Programs
A description of the factors contributing to the increases (decreases) in utility gross margin generated by NJNG's BGSS
incentive programs during fiscal 2015 and 2014, are as follows:
(Thousands)
Capacity release
Storage
Off-system sales
FRM
Total increase
2015 v. 2014
$ 3,484
(1,066)
(336)
(332)
$ 1,750
2014 v. 2013
$ 1,681
4,602
637
260
$ 7,180
Page 42
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Fiscal 2015 compared with fiscal 2014
The increase in utility gross margin generated by NJNG's BGSS incentive programs was due primarily to an increase in
capacity release value, partially offset by a decrease in the storage incentive program as well as a decrease in off-system sales due
primarily to a decrease in the average price of gas sold, offset by an increase in volumes.
Fiscal 2014 compared with fiscal 2013
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
as a result of increased market area volatility.
Operation and Maintenance Expense
A summary and description of the factors contributing to the increases (decreases) in O&M expense during fiscal 2015 and
2014, are as follows:
(Thousands)
Shared corporate costs
Maintenance and repairs
Consulting
Compensation and benefits
Other
Total increase
2015 v. 2014
$ 3,754
1,317
(662)
320
328
$ 5,057
2014 v. 2013
$
6
1,783
2,718
6,698
338
$ 11,543
Fiscal 2015 compared with fiscal 2014
The increase in O&M expense during fiscal 2015 was due primarily to:
•
•
•
increased shared corporate costs;
increased maintenance and repair costs due primarily to increased contractor expense and increased software maintenance
costs; and
increased compensation as a result of additional complement and overtime, partially offset by decreased incentives as
well as decreased pension costs related to a voluntary early retirement program in fiscal 2014 that did not recur in fiscal
2015; partially offset by
•
a decrease in consulting expenses due to reduced tax, customer service and technical consulting.
Fiscal 2014 compared with fiscal 2013
The increase in O&M expense 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;
an increase in consulting expenses due to additional tax, customer service and technical consulting; and
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.
Page 43
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Income
Operating income increased $2.6 million, or 2 percent, in fiscal 2015, compared with fiscal 2014, due primarily to the
increase in total utility gross margin of $10.2 million, as previously discussed, partially offset by an increase of $2.5 million in
depreciation expense as a result of additional utility plant being placed into service along with the increase in O&M expense as
previously discussed.
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 a $2.5 million increase in depreciation
expense as a result of additional utility plant being placed into service and an increase in O&M expense, as previously discussed.
Net Income
Net income increased $2.1 million to $76.3 million in fiscal 2015, compared with fiscal 2014, due primarily to the increase
in operating income as discussed above and an increase in other income, net, due primarily to AFUDC related to infrastructure
projects. The increases were partially offset by higher interest expense associated with increased long-term debt outstanding and
income tax provision due primarily to an increase in the apportioned state tax rate, partially offset by the tax benefits related to
AFUDC and cost of retiring assets.
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.
Energy Services Segment
Overview
NJRES is an unregulated wholesale provider of physical natural gas, producer and asset management services to a diverse
customer base across North America. The market areas in which it operates includes the U.S. and Canada.
NJRES focuses on creating value from its physical natural gas assets and services, which are typically amassed through
contractual rights to natural gas storage and transportation 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 enter 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 date, all of which were contemplated as part of an entire forecasted transaction. The financial derivative
contracts, primarily exchange-traded futures, options, and swap contracts, are used to lock in transactional cash flows and help
manage volatility in commodity market prices. Typically, periods of increased market volatility provide NJRES with additional
opportunistic revenue generating strategies that allow the Company to capture margin by improving the respective time or locational
spreads on a forward basis.
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 physical commodity contracts and financial derivative instruments are included in earnings
as a component of operating revenue and/or gas purchases, and gas purchases respectively, 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.
Page 44
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Results
NJRES' financial results for the fiscal years ended September 30, are summarized as follows:
(Thousands)
Operating revenues
Gas purchases (including demand charges (1))
Gross margin
Operation and maintenance
Depreciation and amortization
Other taxes
Operating income
Other income
Interest expense, net
Income tax provision
Net income
2015
2014
$ 1,934,307 $ 2,930,817 $ 2,356,578
2,307,072
2,814,300
1,795,719
2013
138,588
25,403
90
1,237
111,858
438
1,209
116,517
42,607
59
1,496
72,355
222
1,725
39,043
72,044 $
26,458
44,394 $
$
49,506
14,390
44
1,298
33,774
1
2,534
10,516
20,725
(1) Costs associated with pipeline and storage capacity that are expensed over the term of the related contracts, which typically vary from less than one year to
10 years.
As of September 30, NJRES' portfolio of financial derivative instruments was composed of:
(in Bcf)
Net short futures contracts
Net long options
Operating Revenues and Gas Purchases
2015
91.1
1.2
2014
62.1
1.2
2013
64.2
1.5
During fiscal 2015, operating revenues decreased $996.5 million and gas purchases decreased $1 billion, due primarily to a
decrease in average gas prices, partially offset by an increase of $68.7 million in unrealized gains and losses on derivative instruments
and related transactions as a result of timing differences in the settlement of certain economic hedges along with an increase in
volumes purchased and sold.
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.
Gross Margin
Gross margin during fiscal 2015 was higher by approximately $22.1 million, compared with fiscal 2014, due primarily to
an increase in volumes purchased and sold and an increase of $103.5 million related to changes in the value of financial hedges
during fiscal 2015, compared with fiscal 2014, partially offset by a decrease in average gas prices.
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.
Operation and Maintenance Expense
O&M expense decreased $17.2 million, or 40.4 percent, during fiscal 2015, compared with fiscal 2014, due primarily to
decreases in incentive compensation and shared services costs, which normalized from the unusual increases that occurred during
fiscal 2014. O&M expense 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.
Page 45
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Net Income
Net income increased $27.7 million during fiscal 2015, compared with fiscal 2014, due primarily to the increase in gross
margin and the decrease in O&M expense discussed above, partially offset by increased income tax expense related to the increase
in gross margin. Net income increased $23.7 million, during fiscal 2014, compared with fiscal 2013, due primarily to the increase
in gross margin, partially offset by the increase in O&M expense discussed above as well as increased income tax expense.
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
The following table is a computation of NJRES' financial margin for the fiscal years ended September 30:
(Thousands)
Operating revenues
Less: Gas purchases
Add:
2015
2014
$ 1,934,307 $ 2,930,817 $ 2,356,578
2,307,072
2,814,300
1,795,719
2013
Unrealized (gain) loss on derivative instruments and related transactions (1)
Effects of economic hedging related to natural gas inventory
Financial margin
(39,408)
(8,225)
90,955 $
29,251
26,639
172,407 $
(9,872)
7,635
47,269
$
(1)
Includes unrealized (gains) losses related to an intercompany transaction between NJNG and NJRES that have been eliminated in consolidation of
approximately $465,000, $(454,000) and $287,000 for the fiscal years ended September 30, 2015, 2014 and 2013, respectively.
A reconciliation of operating income, the closest GAAP financial measurement to NJRES' financial margin, is as follows
for the fiscal years ended September 30:
(Thousands)
Operating income
Add:
Operation and maintenance
Depreciation and amortization
Other taxes
Subtotal - Gross margin
Add:
Unrealized (gain) loss on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Financial margin
Page 46
2015
$ 111,858 $
2014
72,355 $
2013
33,774
25,403
90
1,237
138,588
42,607
59
1,496
116,517
14,390
44
1,298
49,506
(39,408)
(8,225)
90,955 $ 172,407 $
29,251
26,639
(9,872)
7,635
47,269
$
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Financial margin decreased $81.5 million during fiscal 2015, compared with fiscal 2014, due primarily to greater market
volatility during fiscal 2014 resulting from the extreme cold weather patterns experienced across the U.S., especially in the Midwest,
which did not recur to the same extent during fiscal 2015 resulting in lower average natural gas prices, partially offset by higher
sales volumes.
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.
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
Add:
Unrealized (gain) loss on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Tax adjustments
Net financial earnings
2015
2014
$ 72,044 $ 44,394 $ 20,725
2013
(39,408)
(8,225)
17,711
(9,872)
7,635
823
$ 42,122 $ 79,735 $ 19,311
29,251
26,639
(20,549)
NFE decreased $37.6 million during fiscal 2015, compared with fiscal 2014, due primarily to a decrease in financial margin
of $81.5 million, partially offset by lower O&M and taxes related to the decrease in financial margin, as previously discussed.
NFE increased $60.4 million during fiscal 2014, compared with fiscal 2013, due primarily to an increase in financial margin
of $125.1 million, offset by higher O&M and taxes related to the increase in operating income, as previously discussed.
Future results are subject to NJRES' ability to expand its wholesale sales and service activities and are contingent upon many
other factors, including an adequate number of appropriate and credit qualified counterparties, volatility in the natural gas market
due to weather or other factors, availability of transportation and storage arbitrage opportunities, sufficient liquidity in the overall
energy trading market, supply and demand for natural gas and continued access to liquidity in the capital markets. Assuming a
return to more normal weather patterns, the Company expects NJRES to generate a smaller portion of NJR's NFE in the future
than in fiscal 2015 and 2014.
Clean Energy Ventures Segment
Overview
Our Clean Energy Ventures segment actively pursues opportunities in the clean energy markets, including solar and onshore
wind. Clean Energy Ventures has entered into various agreements to install solar net-metered systems for residential and commercial
customers, as well as large commercial grid-connected projects. In addition, Clean Energy Ventures has entered into various long-
term PPAs and financial hedges to sell energy from wind and solar projects.
Solar projects placed in service and related ITC eligible expenditures for the fiscal years ended September 30, are as follows:
($ in Thousands)
Placed in service
Grid-connected
Net-metered:
Commercial
Residential
Total placed in service
(1)
2014
Projects MW Costs(1) Projects MW Costs(1) Projects MW Costs(1)
2013
2015
4
26.1 $ 66,424
3
16.7 $ 42,459
1
6.7 $
19,407
1
829
834
1,382
0.4
7.8
24,973
34.3 $ 92,779
1
1,049
1,053
995
0.3
10.4
32,002
27.4 $ 75,456
3
959
963
4.8
8.6
20.1 $
13,693
28,693
61,793
Represents the portion of capital expenditures eligible for ITCs.
Page 47
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Since its inception, Clean Energy Ventures has placed a total of 117.7 MW of solar capacity into service and as of
September 30, 2015, has .04 MW under construction. The Company estimates total solar-related capital expenditures for projects
to be placed in service during fiscal 2016 to be between $80 million and $100 million. As part of its solar investment portfolio,
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 lease payments.
Once a solar installation commences operations and is properly registered, each MWh of electricity produced creates an
SREC that represents the renewable energy attribute of the solar-electricity generated that can be sold to third parties, including
certain load-serving entities that are required to comply with the solar carve out of New Jersey's renewable portfolio standard. In
addition, under current federal tax guidelines, projects that are placed in service through December 31, 2016, qualify for a 30
percent federal ITC.
SREC activity for the fiscal years ended September 30, is as follows:
Inventory balance as of October 1,
SRECs generated
SRECs sold
Inventory balance as of September 30,
2015
29,970
126,133
(122,900)
33,203
2014
2013
11,351
81,668
(63,049)
29,970
28,358
57,231
(74,238)
11,351
NJRCEV hedges a portion of its expected SREC production through the use of forward sales contracts. As of September 30,
2015, NJRCEV has hedged approximately 99 percent and 97 percent of its SREC inventory and projected SREC production related
to its in-service commercial and residential assets for energy years 2016 and 2017, respectively. Energy years are compliance
periods for New Jersey's renewable portfolio standard that run from June 1 to May 31.
Onshore Wind
Clean Energy Ventures invests in small to mid-size onshore wind projects that fit its investment profile, including the
following as of September 30, 2015:
•
•
•
a $20.3 million, 9.7 MW project in Two Dot, Montana that was completed in June 2014;
a $42.1 million, 20 MW project in Carroll County, Iowa that was completed in January 2015; and
an $85 million, 48.3 MW project in Rush County, Kansas that is currently under construction and expected to be
completed in the first quarter of fiscal 2016.
Both of the completed wind projects are eligible for PTCs for a 10-year period following commencement of operation and
have power purchase agreements of various terms in place, which govern the sale of energy, capacity and renewable energy credits.
NJRCEV expects the Rush County, Kansas project to also qualify for PTCs.
During fiscal 2014 and most of fiscal 2015, NJRCEV held a minority equity interest in OwnEnergy, an onshore wind
developer, which provided NJRCEV with the option to acquire wind farms that fit its investment profile. During the fourth quarter
of fiscal 2015, OwnEnergy was acquired by a power producer and NJRCEV realized a $3 million pre-tax gain in exchange for its
ownership interest, 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, permitting
and regulatory processes, 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, may result in a failure to qualify for ITCs and along with changes in SREC prices could have a significant adverse impact
on that period's earnings. Wind projects for which physical work of a significant nature has not yet begun, or have not qualified
for the “safe harbor,” which is currently available for projects completed by December 31, 2016, could fail to qualify for PTCs,
and could have a significant adverse impact on 10 years of forward earnings. In addition, since the primary contributors toward
the value of qualifying power projects are tax incentives and SRECs, changes in the federal statutes related to the ITC or PTC or
in the marketplace and/or relevant legislation surrounding renewable energy credits, could also significantly affect earnings.
Page 48
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Results
NJRCEV's financial results for the fiscal years ended September 30, are summarized as follows:
(Thousands)
Operating revenues
Operation and maintenance
Depreciation and amortization
Other taxes
Operating (loss)
Other income, net
Interest expense, net
Income tax (benefit)
Net income
Operating Revenues
2015
2014
2013
$
$
32,513 $
15,248
17,297
726
(758)
1,526
7,635
(26,968)
20,101 $
14,575 $
10,668
11,295
285
(7,673)
3,690
5,300
(21,937)
12,654 $
11,988
8,831
8,477
153
(5,473)
1,209
3,387
(17,711)
10,060
Operating revenues for the fiscal years ended September 30, consisted of the following:
22,483
22,500
20,000
17,500
15,000
12,500
10,000
7,500
5,000
2,500
)
s
d
n
a
s
u
o
h
T
(
$
0
1,094
9,506
9,608
6,329
1,388
2,479
2,488
3,701
2013
2014
2015
Sunlight Advantage
Electricity sales and
other
SREC sales
The average SREC sales price was $183 in fiscal 2015, $152 in fiscal 2014 and $128 in fiscal 2013.
There are no direct production costs associated with the revenue generation by our solar assets. All related costs are included
as a component of O&M expenses on the Consolidated Statements of Operations, including such expenses as facility maintenance
and various fees.
Operation and Maintenance Expense
O&M expense increased $4.6 million during fiscal 2015, compared with fiscal 2014, due primarily to:
•
•
additional maintenance, leasing and administrative costs associated with wind and solar projects placed in service;
increased shared corporate costs; and
•
increases in compensation and incentives.
Page 49
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
O&M expense increased $1.8 million during fiscal 2014, compared with fiscal 2013, due primarily to:
•
•
•
increases in compensation and incentives;
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.
Depreciation Expense
Depreciation expense increased $6 million in fiscal 2015 and $2.8 million in fiscal 2014, as a result of increases in solar
and wind capital additions.
Income Tax Benefit
Income tax benefit during fiscal 2015, 2014 and 2013, includes $27.8 million, $22.6 million and $18.5 million, respectively,
of ITCs associated with solar projects that were completed and placed into service during the corresponding fiscal year. NJRCEV
recognized $22.1 million related to tax credits, net of deferred taxes related to the 15 percent tax basis adjustments taken on the
ITC eligible projects, during fiscal 2015, compared with $18 million, net of deferred taxes, recognized during fiscal 2014. Income
tax benefit during fiscal 2015 and 2014 includes $2 million and $137,000, respectively, of PTCs associated with wind projects.
There were no PTCs during fiscal 2013.
Net Income
Net income in fiscal 2015 increased $7.4 million, compared with fiscal 2014, due primarily to:
•
•
•
•
•
•
increases in operating revenue due primarily to an increase in SREC sales volume and market prices and increases in
sales of energy and capacity from new and existing projects; and
an increase in ITCs due to an increase in solar capital expenditures placed into service;
an increase in PTCs due primarily to increased wind production as a result of more MW in service; partially offset by
increased costs related to depreciation and O&M as discussed above;
an increase in interest expense due to higher debt associated with its capital expenditures; and
a decrease in other income, net, which was due primarily to the receipt of a one-time credit support payment related to
a change in ownership at the site of one of NJRCEV’s commercial solar projects in fiscal 2014, offset by the gain on the
sale of its investment in OwnEnergy.
Net income during fiscal 2014 increased $2.6 million, compared with fiscal 2013, due primarily to:
•
•
•
•
an increase in ITCs due primarily to an increase in solar capital expenditures placed into service;
an increase in other income, net, 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;
partially offset by
increased costs related to depreciation and O&M as discussed above; and
an increase in interest expense due to higher debt associated with its capital expenditures.
Page 50
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 and a 20 percent ownership interest in PennEast, a
natural gas pipeline, which the Company estimates will be completed and operational by November 2017. As of September 30,
2015, NJR's net investments in Steckman Ridge and PennEast were $125.6 million and $6.4 million, respectively.
During fiscal 2015 and 2014, NJR Midstream Holdings Corporation, through its subsidiary, NJNR Pipeline Company, also
held the Company's 5.53 percent ownership interest in Iroquois Gas Transmission L.P. On September 29, 2015, NJNR Pipeline
Company exchanged its ownership interest in Iroquois to Dominion Midstream Partners, L.P. for approximately 1.84 million DM
Common Units, with a market value totaling $46.1 million. The exchange generated a pre-tax gain of $24.6 million that is recognized
as a component of deferred revenue and gains on the Consolidated Balance Sheets and will be recognized into income if and when
the partnership units are sold in the future. See Note 2. Summary of Significant Accounting Policies - Available for Sale Securities
in the accompanying Consolidated Financial Statements for a more detailed discussion.
Operating Results
The financial results of our Midstream segment for the fiscal years ended September 30, are summarized as follows:
(Thousands)
Equity in earnings of affiliates
Operation and maintenance
Interest expense, net
Income tax provision
Net income
2015
2014
2013
$
$
$
$
$
17,487 $
1,136 $
(260) $
6,849 $
9,780 $
14,078 $
860 $
446 $
5,227 $
7,498 $
13,868
547
897
4,993
7,199
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:
(Thousands)
Steckman Ridge
Iroquois
PennEast
Total equity in earnings of affiliates
2015
2014
2013
$
$
12,330 $
5,164
(7)
17,487 $
9,250 $
4,828
—
14,078 $
8,671
5,197
—
13,868
Equity in earnings of affiliates increased $3.4 million during fiscal 2015, compared with fiscal 2014, and increased $210,000
during fiscal 2014, compared with fiscal 2013, due primarily to increases in storage service revenue and demand for hub services
at Steckman Ridge.
O&M expense increased $276,000 during fiscal 2015, compared with fiscal 2014, due primarily to increased charitable
donations. O&M expense increased $313,000 during fiscal 2014, compared with fiscal 2013, due primarily to increased shared
services costs.
Interest expense, net decreased $706,000 during fiscal 2015, compared with fiscal 2014, and decreased $451,000 during
fiscal 2014, compared with fiscal 2013, due primarily to proceeds generated by investments that are being used to reduce
intercompany loans.
Net income in fiscal 2015 increased $2.3 million, compared with fiscal 2014, and increased $299,000 in fiscal 2014, compared
with fiscal 2013, due primarily to the increase in equity in earnings of affiliates and the decrease in interest expense, net, partially
offset by the increase in O&M expenses.
Page 51
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Home Services and Other Operations
Overview
The financial results of Home Services and Other consist primarily of the operating results of NJRHS, CR&R, and NJR
Energy. NJRHS provides service, sales and installation of appliances to approximately 117,000 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.
Operating Results
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
Energy and other taxes
Income tax provision
Net income
2015
2014
2013
$
$
$
$
$
48,703 $
39,601 $
3,815 $
1,551 $
3,420 $
46,687 $
37,522 $
3,508 $
2,460 $
2,798 $
47,954
37,443
3,508
2,550
3,292
Operating revenue increased $2 million during fiscal 2015, compared with fiscal 2014, due primarily to increased contract
revenue at NJRHS as a result of existing customers upgrading to the premier plan and expanded service contract product line, as
well as increased solar installations, partially offset by a decrease in generator sales and installations. 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.
O&M expense increased $2.1 million during fiscal 2015, compared with fiscal 2014, due primarily to increased shared
corporate costs as well as increased advertising and solar installations expenses at NJRHS, partially offset by decreased generator
installation expense. O&M expense remained relatively flat during fiscal 2014, compared with fiscal 2013.
Energy and other taxes increased $307,000 during fiscal 2015, compared with fiscal 2014, due primarily to increased payroll
taxes. Energy and other taxes remained relatively flat during fiscal 2014, compared with fiscal 2013.
Income taxes decreased $909,000 during fiscal 2015, compared with fiscal 2014, due primarily to a prior year reserve
adjustment at NJR. Income taxes remained relatively flat during fiscal 2014, compared with fiscal 2013.
Net income during fiscal 2015, increased $622,000, compared with fiscal 2014, due primarily to the factors noted above,
partially offset by an after tax gain of $186,000 during fiscal 2014 associated with the sale of 25.4 acres of undeveloped land at
CR&R. Net income during fiscal 2014 decreased $494,000, compared with fiscal 2013, due primarily to decreased revenues,
partially offset by the after tax gain of $186,000 during fiscal 2014, as discussed 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.
NJR's consolidated capital structure at September 30, was as follows:
Common stock equity
Long-term debt
Short-term debt
Total
Page 52
2015
54%
42
4
100%
2014
51%
31
18
100%
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Common stock equity
NJR satisfies its external common equity requirements, if any, through issuances of its common stock, including the proceeds
from stock issuances under its DRP. The DRP allows NJR, at its option, to use treasury shares or newly issued shares to raise
capital. NJR raised $16.7 million and $14.1 million of equity through the DRP by issuing approximately 461,000 and 292,000
shares of treasury stock during fiscal 2015 and 2014, respectively. During fiscal 2015, NJR also raised approximately $19.8
million of equity by issuing 344,000 new shares through the waiver discount feature of the DRP. NJR issued no new shares
through the waiver discount feature during fiscal 2014.
On January 20, 2015, NJR’s Board of Directors approved a 2-for-1 stock split of the Company’s common stock for the
Company’s common stock holders of record on February 6, 2015. The additional shares were issued on March 3, 2015. All share-
related information for prior periods has been adjusted throughout this report on a retroactive basis to reflect the effects of the
stock split. As well, common stock and premium on common stock amounts have been adjusted as of the earliest period presented
on the Consolidated Balance Sheets.
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. As of September 30, 2015, the Company repurchased a total of 16.8 million of
those shares and may repurchase an additional 2.7 million shares under the approved program. There were 348,200 common
stock shares repurchased during fiscal 2015 on a split-adjusted basis.
Debt
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, 2015, 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 and our Midstream segment's PennEast contributions. 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 on 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, 2015, NJR and NJNG had revolving credit facilities totaling $425 million and $250 million,
respectively, as described below, with $369.2 million and $222.3 million, respectively, available under the facilities. Due to the
seasonal nature of natural gas prices and demand and because inventory levels are built up during their natural gas injection
seasons (April through October), NJR and NJNG's short-term borrowings tend to peak towards the end of the injection season.
Page 53
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Short-term borrowings were as follows:
($ 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
Ended
Twelve Months
Ended
September 30, 2015
$
$
$
$
$
$
39,350
1.17%
7,836
0.79%
39,350
27,000
0.20%
5,243
0.07%
27,000
$
$
$
$
$
$
39,350
1.17%
69,596
0.74%
184,700
27,000
0.20%
91,734
0.11%
190,000
In August 2012, NJR entered into a $325 million Amended and Restated Credit Agreement, expiring 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 potential
margin calls that may arise in NJRES' normal course of business. On September 28, 2015, NJR entered into a $425 million
Amended and Restated Credit Agreement, which refinanced the earlier $425 million revolving credit facility that was scheduled
to expire on August 22, 2017, but has now been terminated. The New NJR Credit Facility is scheduled to terminate on
September 28, 2020, subject to two mutual options for a one-year extension beyond that date. Certain of NJR's unregulated
subsidiaries have guaranteed to the lenders all of NJR's obligations under the New NJR Credit Facility.
The New NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters
of credit. The New NJR Credit Facility also includes an accordion feature, which would allow NJR, in the absence of a default
or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the
New NJR Credit Facility in minimum $5 million increments up to a maximum of $100 million. In addition, borrowings under
the New NJR Credit Facility are conditioned upon compliance with a maximum leverage ratio (consolidated total indebtedness
to consolidated total capitalization as defined in the New NJR Credit Facility) of not more than .65 to 1.00 at any time. As of
September 30, 2015, the consolidated total indebtedness to total capitalization ratio, as defined in the New NJR Credit Facility,
was 46 percent.
As of September 30, 2015, NJR had $39.4 million outstanding under the New NJR Credit Facility. Neither NJNG nor its
assets are obligated or pledged to support the New NJR Credit Facility.
During fiscal 2015, NJR's average interest rate under the New NJR Credit Facility and the replaced credit facility was 0.74
percent, resulting in interest expense of $563,000. Based on average borrowings under the facilities of $69.6 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 $536,000 during fiscal 2015.
As of September 30, 2015, NJR has six letters of credit outstanding totaling $16.5 million. One letter of credit for $12
million is on behalf of NJRES and five letters of credit are on behalf of NJRCEV totaling $4.5 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, 2015.
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 December 27, 2015 to August 21, 2016.
Page 54
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NJR's $100 million uncommitted Line of Credit Agreement with Santander Bank, N.A. expired on October 24, 2015, and
was not renewed.
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, a $250 million, five-year, revolving, unsecured credit facility expiring in May 2019.
The NJNG Credit Facility permits the borrowing of revolving loans and swing loans, as well as the issuance of letters of credit.
It also permits an increase to the facility, from time to time, with the existing or new lenders, in a minimum of $15 million
increments up to a maximum of $50 million at the lending banks' discretion. 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, 2015, NJNG's consolidated
total indebtedness to total capitalization ratio was 46 percent. As of September 30, 2015, 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 $222.3 million. During fiscal 2015, NJNG's weighted average interest rate on outstanding commercial paper
was .11 percent, resulting in interest expense of $150,000. Based on average borrowings under the facility of $91.7 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 $927,000 during fiscal 2015.
As of September 30, 2015, 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, 2016.
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's 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.
Page 55
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
Long-Term Debt
NJR
As of September 30, 2015, $100 million remains available for borrowing under the MetLife Facility, which is an unsecured,
uncommitted private placement shelf note agreement with MetLife allowing 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.
NJR has outstanding $25 million of 2.51 percent senior notes due September 15, 2018, which were issued under a now-
expired facility with MetLife.
On November 7, 2014, NJR issued $100 million in 3.48 percent senior notes due November 7, 2024, under our Prudential
Facility, which fully utilized the remaining capacity under the facility. The notes issued under the Prudential Facility are guaranteed
by certain unregulated subsidiaries of NJR.
NJR has $50 million of 6.05 percent senior unsecured notes, issued through the private placement market, maturing in
September 2017.
NJNG
NJNG and the Trustee are parties to the Mortgage Indenture, which secures all of the outstanding FMB issued under the
Old Mortgage Indenture. The Mortgage Indenture provides a direct first mortgage lien upon substantially all of the operating
properties and franchises of NJNG (other than excepted property, such as cash on hand, choses-in-action, securities, rent, natural
gas meters and certain materials, supplies, appliances and vehicles), subject only to certain permitted encumbrances. The Mortgage
Indenture contains provisions subjecting after-acquired property (other than excepted property and subject to pre-existing liens,
if any, at the time of acquisition) to the lien thereof.
As of September 30, 2015, NJNG's long-term debt consisted of $485.8 million in fixed-rate debt issuances secured by the
Mortgage Indenture, with maturities ranging from 2018 to 2045, $97 million in secured variable rate debt with maturities ranging
from 2027 to 2041 and $35.7 million in capital leases with various maturities ranging from 2016 to 2021.
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 April 15, 2015, NJNG issued $50 million of 2.82 percent senior notes due April 15, 2025, and $100 million of 3.66
percent senior notes due April 15, 2045, in the private placement market pursuant to a note purchase agreement entered into on
February 12, 2015. The notes are secured by an equal principal amount of NJNG's FMB (Series SS and TT, respectively) issued
under NJNG's Mortgage Indenture. The proceeds of the notes were used for general corporate purposes, to refinance or retire
debt and to fund capital expenditure requirements. 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.
NJR is not obligated directly or contingently with respect to the NJNG notes or the FMB.
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);
Page 56
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
•
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 exceptions and qualifications set forth in the applicable note
purchase agreements.
In addition, the FMB issued by NJNG under the Mortgage Indenture are subject to certain default provisions. Events of
Default, as defined in the Mortgage Indenture, consist mainly of:
•
•
•
•
failure for 30 days to pay interest when due;
failure to pay principal or premium when due and payable;
failure to make sinking fund payments when due;
failure to comply with any other covenants of the Mortgage Indenture after 30 days' written notice from the Trustee;
failure to pay or provide for judgments in excess of $30 million in aggregate amount within 60 days of the entry
•
thereof; or
•
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 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 Mortgage Indenture. The interest rate on defaulted principal and interest, to the
extent permitted by law, on the FMB issued under the 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. EDA Bonds are special, limited obligations of the EDA payable solely from payments made by NJNG
pursuant to a Loan Agreement and are secured by the pledge of $97 million principal amount of the FMB issued by the Company.
EDA Bonds accrue interest for five years at a variable rate determined monthly, which rate was 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 FMB) match the respective principal amounts, interest rates and maturity dates of the EDA
Bonds. The weighted average interest rate on the EDA Bonds as of September 30, 2015, was .69 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.
Sale-Leaseback
NJNG received $7.2 million, $7.6 million and $7.1 million in fiscal 2015, 2014 and 2013, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2015, 2014 and 2013, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $768,000, $956,000 and $752,000, respectively. NJNG expects to
continue this sale-leaseback program on an annual basis, subject to market conditions.
Page 57
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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, 2015:
Total
Up to
1 Year
4-5
Years
After
5 Years
(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)
38,263 $
830,733
$ 1,152,627 $
14,031
3,616
53,226
4,600
36,624
48,652
—
—
66,350
—
—
14,293
—
—
49,123
18,000
102,160
180,400
—
—
147,598
196,053
783,029
1,280,502
—
—
234,793
7,170
19,914
207,906
290,861 $ 1,763,332
$ 3,435,470 $
These obligations include an interest component, as defined under the related governing agreements or in accordance with the applicable tax statute.
Expenditures are estimated, see Note 13. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
29,784 $
13,254
2,554
66,350
14,293
49,123
15,300
64,834
86,859
230,355
110,511
683,217 $
2-3
Years
253,847 $
22,325
4,874
—
—
—
44,940
82,764
214,561
4,438
70,311
698,060 $
The Company plans to make a discretionary contribution of $30 million during the first quarter of fiscal 2016, to improve
the funded status of the pension plans based on current actuarial assumptions, which includes the most recent mortality table
change. The Company does not expect to be required to make additional contributions to fund the pension plans over the following
two fiscal years based on current actuarial assumptions, however, funding requirements are uncertain and can depend significantly
on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered
dependents. In addition, as in the past, NJR may elect to make discretionary contributions to the plans in excess of the minimum
required amount. NJR made no discretionary contributions to the pension plans in fiscal 2015 or fiscal 2014. 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 $3 million to $5 million annually
over the next five years subject to review in NJNG's base rate case petition filed with the BPU on November 13, 2015. Additional
contributions may vary based on market conditions and various assumptions.
As of September 30, 2015, there were NJR guarantees covering approximately $286.3 million of natural gas purchases and
NJRES demand fee commitments 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
2015, committed and spent capital expenditures totaled $179 million. In fiscal 2016 and 2017, NJNG's total capital expenditures
are projected to be $291.1 million and $230.5 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, 2015, 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. These costs have been included for recovery in the base rate case petition filed with the BPU
on November 13, 2015.
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, 2015, NJNG's future MGP expenditures are estimated to total $180.4 million. For a more detailed
description of MGP see Note 13. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory
constraints, environmental regulations, unforeseen events and the ability to access capital.
Page 58
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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
2015, capital expenditures spent related to the purchase and installation of the solar equipment were $61.2 million. An additional
$20.2 million has been committed or accrued for solar projects to be placed into service during fiscal 2016 and beyond. The
Company estimates solar-related capital expenditures placed in service in fiscal 2016 to be between $80 million and $100 million.
In October 2014, NJRCEV acquired the development rights to an $85 million, 48.3 MW wind project in Rush County,
Kansas that is currently under construction.
During fiscal 2015, a total of $89.8 million has been spent and, as of September 30, 2015, an additional $20.8 million has
been committed or accrued for wind projects. In fiscal 2016, 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.
We expect our expenditures related to our investment in the PennEast pipeline project to total between $40 million and $50
million in fiscal 2016.
NJRES does not currently anticipate any significant capital expenditures in fiscal 2016 and 2017.
Off-Balance-Sheet Arrangements
The Company's off-balance-sheet arrangements consist of guarantees covering approximately $286.3 million of natural
gas purchases and demand fee commitments, see Note 13. Commitments and Contingent Liabilities, and eight outstanding letters
of credit totaling $17.2 million, as noted above, see Note 8. Debt.
Cash Flow
Operating Activities
Cash flows from operating activities during fiscal 2015, totaled $387.9 million compared with $356.8 million during fiscal
2014. Operating cash flows are primarily affected by variations in working capital, which can be impacted by several factors,
including:
•
•
•
•
•
•
•
•
seasonality of NJR's business;
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.
Lower average commodity prices were the primary contributor to the increase of $31.1 million in operating cash flows
during fiscal 2015, compared with fiscal 2014. In fiscal 2014, unusually cold weather and volatility resulted in periods of significant
increases in natural gas prices, as well as increased demand for natural gas, resulting in higher sales volumes at NJRES.
Page 59
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The increase of $242.8 million during fiscal 2014, compared with fiscal 2013, was due primarily to unusually cold weather
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.
Investing Activities
Cash flows used in investing activities totaled $321.7 million during fiscal 2015, compared with $282.6 million during fiscal
2014. The increase of $39.1 million was due primarily to an increase in capital expenditures of $50.1 million related to wind
projects at NJRCEV, $16.3 million related to utility plant, including cost of removal at NJNG and $5.2 million for the investment
in PennEast. The increases were partially offset by a decrease of $34.6 million in capital expenditures related to solar projects at
NJRCEV along with proceeds of $6 million from the sale of land at CR&R during fiscal 2014, that did not recur in fiscal 2015.
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, as previously discussed.
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
2015 and fiscal 2014, NJNG's capital expenditures, including cost of removal, totaled $168.9 million and $152.6 million,
respectively.
The Company enters into various agreements to install, own and operate solar equipment including both residential and
commercial projects and onshore wind projects. During fiscal 2015 and fiscal 2014, capital expenditures spent on these projects
totaled $151 million and $135.5 million, respectively.
Home Services and Other capital expenditures in past years were made primarily in connection with investments made to
preserve the value of real estate holdings. As of September 30, 2015, CR&R owned 35 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 and has committed to sell approximately 19.1 acres
of undeveloped land located in Atlantic County, with a net book value of $756,000, during fiscal 2016.
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 2015 totaled $63.4 million, compared with $75 million during fiscal
2014. The decrease of $11.6 million was due primarily to an increase in proceeds from the issuance of common shares, including
$19.8 million related to 344,000 new shares issued through the waiver discount feature of the DRP, partially offset by an increase
in the purchase of treasury stock and payments of common stock dividends. NJNG also issued $150 million and NJR issued a
$100 million in senior notes during fiscal 2015, each of which was used to reduce short-term borrowings.
Cash flows (used in) financing activities during fiscal 2014 totaled $(75) million, compared with $78.1 million generated
from financial activities 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.
Page 60
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NJNG received $7.2 million, $7.6 million and $7.1 million for fiscal 2015, 2014 and 2013, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2015, 2014 and 2013, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $768,000, $956,000 and $752,000, 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.
The table below summarizes NJNG's current credit ratings issued by two rating entities, S&P and Moody's, as of
September 30, 2015:
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 our access to capital markets
would be reduced. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
Commodity Market Risks
Natural gas is a nationally traded commodity. Its prices are determined effectively by the NYMEX, ICE 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.
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
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 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.
Page 61
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and
sales from September 30, 2014 to September 30, 2015:
(Thousands)
NJNG
NJRES
Total
Balance
September 30,
2014
$
377
(1,414)
$ (1,037)
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
$ (34,016) $ (22,758)
87,911
65,153
113,900
79,884
$
$
Balance
September 30,
2015
$ (10,881)
24,575
$ 13,694
There were no changes in methods of valuations during the year ended September 30, 2015.
The following is a summary of fair market value of financial derivatives as of September 30, 2015, 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
2016
2017
$
1,385 $
10,994
$ 12,379 $
874
443
1,317
$
2018 - 2020 After 2020
$ —
—
$ —
—
(2)
(2)
$
Total
Fair Value
$
2,259
11,435
$ 13,694
The following is a summary of financial derivatives by type as of September 30, 2015:
NJNG
NJRES
Total
(1) Million British thermal unit
Volume
Bcf
25.8
(91.1)
1.2
Price per
MMBtu (1)
$1.56 - $4.07
$1.26 - $5.27
$0.24 - $0.24
Futures
Futures
Options
Amounts included
in Derivatives
(Thousands)
$ (10,881)
23,806
$
769
$ 13,694
The following table reflects the changes in the fair market value of physical commodity contracts from September 30, 2014
to September 30, 2015:
(Thousands)
NJRES - Prices based on other external data
Balance
September 30,
2014
$ (15,484)
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
(14,492)
(27,267)
Balance
September 30,
2015
$ (2,709)
The following table reflects the changes in the fair market value of interest rate contracts from September 30, 2014 to
September 30, 2015:
(Thousands)
NJNG - Prices based on other external data
Foreign Currency Market Risks
Balance
September 30,
2014
$
—
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
(4,228)
—
Balance
September 30,
2015
$
(4,228)
The following table reflects the changes in the fair market value of financial derivatives related to foreign currency hedges
from September 30, 2014 to September 30, 2015:
(Thousands)
NJRES
Balance
September 30,
2014
$
(155)
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
(402)
(557)
Balance
September 30,
2015
$
—
There were no changes in methods of valuations during the fiscal year ended September 30, 2015.
Page 62
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
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 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 $12.3 million. This analysis does not include potential changes to reported credit adjustments embedded in the
$18.4 million reported fair value.
Derivative Fair Value Sensitivity Analysis
(Thousands)
Percent increase in NYMEX natural gas futures prices
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
0%
Henry Hub Futures and Fixed Price Swaps
10%
5%
(6,155) $ (12,311) $ (18,466) $ (24,621)
(6,255)
12,211 $
6,055 $
(100) $
15%
20%
— $
18,366 $
0%
(5)%
(10)%
(15)%
(20)%
— $
18,366 $
6,155 $
24,521 $
12,311 $
30,677 $
18,466 $
36,832 $
24,621
42,987
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, 2015. 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.
NJRES' counterparty credit exposure as of September 30, 2015, is as follows:
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
NJNG's counterparty credit exposure as of September 30, 2015, is as follows:
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Page 63
Gross Credit
Exposure
Net Credit
Exposure
$ 100,949
10,555
8,090
2,482
$ 122,076
$
$
75,165
872
1,777
—
77,814
Gross Credit
Exposure
Net Credit
Exposure
$
$
2,757
100
78
6,269
9,204
$
$
2,403
—
7
71
2,481
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
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, 2015, 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, 2015, the EDA Bonds had a weighted average interest rate of .69 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 2015, assuming that they were outstanding for the entire year.
As of September 30, 2015, 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 64
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, 2015. In making this assessment, management used the criteria for effective internal control
over financial reporting described in the Internal Control-Integrated Framework (2013) set forth by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of September 30, 2015,
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, 2015, which appears herein.
November 24, 2015
Page 65
New Jersey Resources Corporation
Part II
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, 2015 and 2014, 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, 2015. Our audits also included
the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial
statement schedule 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, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2015, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, 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, 2015, based on the criteria established in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated November 24, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 24, 2015
Page 66
New Jersey Resources Corporation
Part II
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 internal control over financial reporting of New Jersey Resources Corporation and subsidiaries (the
“Company”) as of September 30, 2015, based on criteria established in Internal Control - Integrated Framework (2013) 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, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) 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 schedule as of and for the year ended September 30, 2015 of the
Company and our report dated November 24, 2015 expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 24, 2015
Page 67
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(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
Interest expense, net of capitalized interest
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF
AFFILIATES
Income tax provision
Equity in earnings of affiliates
NET INCOME
EARNINGS PER COMMON SHARE
Basic
Diluted
DIVIDENDS DECLARED PER COMMON SHARE
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic
Diluted
2015
2014
2013
$
781,970 $
819,415 $
1,952,017
2,733,987
2,918,730
3,738,145
787,987
2,410,081
3,198,068
304,953
1,767,841
12,851
209,453
75,779
61,399
53,260
2,485,536
248,451
6,545
27,721
319,897
2,807,008
12,620
215,180
72,164
52,742
57,344
3,536,955
201,190
7,551
25,463
400,307
2,299,974
11,942
173,473
48,417
47,310
57,414
3,038,837
159,231
4,783
23,979
227,275
59,724
13,409
180,960 $
183,278
51,840
10,532
141,970 $
140,035
35,575
10,349
114,809
$
$2.12
$2.10
$0.915
85,186
86,265
$1.69
$1.67
$0.855
84,198
84,922
$1.38
$1.37
$0.81
83,316
83,628
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
Fiscal years ended September 30,
Net income
Other comprehensive income, net of tax
Unrealized gain (loss) on available for sale securities, net of tax of $(1,135), $426 and
$(330), respectively (1)
Net unrealized gain (loss) on derivatives, net of tax of $(56), $61 and $23, respectively
Adjustment to postemployment benefit obligation, net of tax of $3,688, $2,162 and
$(5,934), respectively
Other comprehensive (loss) income
Comprehensive income
(1) Available for sale securities are included in other noncurrent assets on the Consolidated Balance Sheets.
See Notes to Consolidated Financial Statements
Page 68
2015
2014
$ 180,960 $ 141,970 $ 114,809
2013
1,603
93
(618)
(105)
479
(39)
8,710
(5,496)
(3,800)
(3,250)
(3,973)
9,150
$ 177,160 $ 137,997 $ 123,959
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Fiscal years ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash flows from operating activities
Unrealized (gain) loss 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
(Payment to) withdrawal from restricted cash construction fund
Proceeds from sale of investment
Proceeds from sale of property
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 (payments of) 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
Cash paid for:
Interest (net of amounts capitalized)
Income taxes
Accrued capital expenditures
Deferred gain on non-cash exchange of investments
See Notes to Consolidated Financial Statements
Page 69
2015
2014
2013
$ 180,960
$ 141,970
$ 114,809
(38,681)
61,399
—
(3,825)
2,859
45,934
(6,805)
6,663
(1,034)
(5,778)
81,817
38,716
25,695
387,920
(140,797)
(151,002)
(209)
(28,078)
(5,780)
2,620
(1,499)
3,016
—
—
(321,729)
37,299
881
7,216
250,000
(37,039)
(10,589)
(76,532)
(234,650)
(63,414)
2,777
2,151
4,928
32,529
114,638
18,979
(54,525)
202
(18,161)
(14,714)
18,452
(1,545)
(14,038)
81,817
24,208
28,790
28,676
24,601
$
$
$
$
$
$
$
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
$
$ (72,244)
(55,755)
6,100
72,415
(16)
(8,182)
726
15,348
(24,059)
5,351
$ (60,316)
22,458
22,447
9,655
$
$
$
— $
20,414
12,039
(7,103)
—
$
$
$
$
$
$
$
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands)
September 30,
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
Other current assets
Total current assets
NONCURRENT ASSETS
Investments in equity investees
Regulatory assets
Derivatives, at fair value
Available for sale securities
Other noncurrent assets
Total noncurrent assets
Total assets
See Notes to Consolidated Financial Statements
Page 70
2015
2014
$
1,908,024 $
155,553
481,003
77,705
2,622,285
(437,097)
1,791,009
139,624
347,285
55,625
2,333,543
(409,135)
(56,927)
2,128,261
(40,298)
1,884,110
4,928
2,151
155,273
189,970
6,372
(5,189)
24,258
7,231
(5,357)
26,862
163,905
277,516
7,138
36,810
40,743
12,990
56,296
40,987
8,165
22,269
64,223
27,339
36,451
25,911
544,511
682,731
132,002
410,155
4,334
59,475
60,300
153,010
377,575
5,654
10,672
45,052
666,266
3,339,038 $
591,963
3,158,804
$
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CAPITALIZATION AND LIABILITIES
(Thousands)
September 30,
CAPITALIZATION
Common stock, $2.50 par value; authorized 150,000,000 shares;
outstanding 2015 — 85,531,423; 2014 — 84,356,310
Premium on common stock
Accumulated other comprehensive (loss), net of tax
Treasury stock at cost and other; shares 2015 — 2,804,847; 2014 — 2,932,775
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
Restricted broker margin accounts
Customers' credit balances and deposits
Total current liabilities
NONCURRENT LIABILITIES
Deferred income taxes
Deferred investment tax credits
Deferred revenue and gains
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
See Notes to Consolidated Financial Statements
Page 71
2015
2014
$
220,838 $
209,931
(9,394)
(92,164)
777,745
1,106,956
843,595
218,223
199,739
(5,594)
(121,031)
674,829
966,166
598,209
1,950,551
1,564,375
11,138
66,350
151,375
1,601
99,651
20,528
1,326
12,154
14,293
32,791
4,103
20,790
34,505
301,000
205,901
1,398
104,005
19,001
2,721
6,072
14,285
79,863
—
22,335
436,100
791,086
499,616
423,213
4,940
29,334
5,529
180,400
137,414
67,533
19,145
8,476
5,262
4,042
6,690
177,000
86,674
61,326
30,495
8,641
952,387
803,343
$
3,339,038 $
3,158,804
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Thousands)
Number
of
Shares
Common
Stock
Premium
on
Common
Stock
Accumulated
Other
Comprehensive
(Loss) Income
Treasury
Stock And
Other
Retained
Earnings
Total
Balance at September 30, 2012
83,239 $ 214,581 $ 168,941
$ (10,771)
$ (116,551) $ 557,665 $ 813,865
Net income
Other comprehensive income
Common stock issued under stock plans
1,916
3,214
Tax benefits from stock plans
Cash dividend declared ($.81 per share)
Treasury stock and other
(1,232)
9,150
23,848
2,175
114,809
114,809
12,934
(25,021)
(67,590)
141,970
9,150
39,996
2,175
(67,590)
(25,021)
887,384
141,970
(3,973)
17,437
(184)
(4,443)
966,166
180,960
(3,800)
33,247
(1,344)
Balance at September 30, 2013
83,923
217,795
194,964
(1,621)
(128,638)
604,884
Net income
Other comprehensive (loss)
Common stock issued under stock plans
762
428
Tax benefits from stock plans
Cash dividend declared ($.855 per share)
Treasury stock and other
(329)
(3,973)
4,959
(184)
12,050
(4,443)
Balance at September 30, 2014
84,356
218,223
199,739
(5,594)
(121,031)
674,829
(72,025)
(72,025)
Net income
Other comprehensive (loss)
Common stock issued under stock plans
1,508
2,615
Tax benefits from stock plans
Cash dividend declared ($.915 per share)
Treasury stock and other
(333)
11,536
(1,344)
180,960
(3,800)
19,096
(78,044)
(78,044)
9,771
9,771
Balance at September 30, 2015
85,531 $ 220,838 $ 209,931
$
(9,394)
$ (92,164) $ 777,745 $ 1,106,956
See Notes to Consolidated Financial Statements
Page 72
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
1.
NATURE OF THE BUSINESS
New Jersey Resources Corporation provides regulated gas distribution services and operates certain unregulated businesses
primarily through the following subsidiaries:
New Jersey Natural Gas Company provides natural gas utility service to approximately 512,300 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 physical wholesale energy and energy management services.
NJR Clean Energy Ventures Corporation, the Company's 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, and NJR Pipeline Company,
which holds the Company's 20 percent ownership interest in PennEast. During fiscal 2015 and 2014, NJR Midstream Holdings
Corporation, through its subsidiary, NJNR Pipeline Company, also held the Company's 5.53 percent ownership interest in Iroquois
Gas Transmission L.P. On September 29, 2015, NJNR Pipeline Company exchanged its ownership interest in Iroquois to Dominion
Midstream Partners, L.P. for approximately 1.84 million DM Common Units. Steckman Ridge, PennEast and DM comprise the
Midstream segment. See Note 6. Investment in Equity Investees for more information.
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.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Other financial investments or contractual interests that lack the characteristics of a voting interest entity, which are commonly
referred to as variable interest entities, are evaluated by 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, 2015, 2014 and 2013.
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 73
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Gas in Storage
Gas in storage is reflected at average cost on the Consolidated Balance Sheets, and represents natural gas and LNG that will
be utilized in the ordinary course of business.
The following table summarizes gas in storage, at average cost by company, as of September 30:
($ in thousands)
NJRES
NJNG
Total
Demand Fees
2015
Gas in Storage Bcf
93,696
70,209
$ 163,905
44.6
21.4
66.0
$
2014
Gas in Storage Bcf
$ 191,250
86,266
$ 277,516
56.5
21.3
77.8
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:
(Millions)
NJRES
NJNG
Total
2015
2014
2013
$
$
130.6 $
80.5
211.1 $
122.0 $
92.0
214.0 $
123.0
92.1
215.1
NJRES expenses demand charges ratably over the term of the contract.
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, interest rate contracts, 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 in gas purchases and changes in the fair value of their physical forward contracts in gas
purchases or operating revenues, as appropriate, on the Consolidated Statements of Operations. NJRES designates its foreign
exchange contracts as cash flow hedges of Canadian dollar denominated gas purchases. Changes in the fair value of the effective
portion of these hedges are recorded to 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 2014 and 2015.
The Derivatives and Hedging Topic of the ASC also provides for a NPNS scope exception for qualifying physical commodity
contracts that are intended for purchases and sales during the normal course of business and for which physical delivery is probable.
NJR applies this normal scope exception to physical commodity contracts at NJNG and forward SREC 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. Gains and/or losses on NJNG's derivatives used to economically hedge its regulated natural gas supply
obligations, as well as its exposure to interest rate variability, are recoverable through its BGSS, a component of its tariff.
Accordingly, the offset to the change in fair value of these derivatives is recorded as a regulatory asset or liability on the Consolidated
Balance Sheets.
See Note 4. Derivative Instruments for additional details regarding natural gas trading and hedging activities.
Page 74
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Fair values of exchange-traded instruments, including futures, swaps, and certain options, are based on unadjusted, quoted
prices in active markets. NJR’s non-exchange-traded financial instruments, foreign currency derivatives, over-the-counter physical
commodity contracts at NJRES, and NJNG’s Treasury Lock agreement are valued using observable, quoted prices for similar or
identical assets when available. In establishing the fair value of contracts for which a quoted basis price is not available at the
measurement date, management utilizes available market data and pricing models to estimate fair values. Fair values are subject
to change in the near term and reflect management's best estimate based on a variety of factors. Estimating fair values of instruments
that do not have quoted market prices requires management's judgment in determining amounts that could reasonably be expected
to be received from, or paid to, a third party in settlement of the instruments. These amounts could be materially different from
amounts that might be realized in an actual sale transaction.
Revenues
Revenues from the sale of natural gas to NJNG customers are recognized in the period that gas is delivered and consumed
by customers, including an estimate for unbilled revenue.
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. Changes in the
fair value of derivatives that economically hedge the forecasted purchases of natural gas are recognized in gas purchases as they
occur.
Income Taxes
The Company computes income taxes using the asset and liability method, whereby deferred income taxes are generally
determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse. See Note 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 75
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company invests in property that qualifies for PTCs. PTCs are recognized as reductions to current federal income tax
expense as PTCs are generated through the production activities of the assets. Changes to the federal statutes related to PTCs could
have a negative impact on earnings and cash flows.
Capitalized and Deferred Interest
NJNG's base rates include the ability to recover AFUDC on its 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
September 30:
($ in thousands)
AFUDC:
Debt
Equity
Total
Weighted average interest rate
2015
2014
2013
$
$
$
$
2,472
3,825
6,297
4.63%
$
$
1,057
1,562
2,619
3.30%
921
2,037
2,958
1.05%
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 2.54 percent, 2.65 percent and 2.84
percent for the fiscal years ended September 30, 2015, 2014 and 2013, respectively. Accordingly, other income included $61,000,
$586,000 and $653,000 in the fiscal years ended September 30, 2015, 2014 and 2013, respectively.
Sales Tax Accounting
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:
(Millions)
Sales tax
TEFA (1)
Total
(1) TEFA was phased out in January 2014.
Cash and Cash Equivalents
2015
2014
2013
$
$
44.1 $
—
44.1 $
47.4 $
1.4
48.8 $
44.4
5.0
49.4
Cash and cash equivalents consists of cash on deposit and temporary investments with maturities of three months or less,
and excludes restricted cash of $2.5 million and $1 million as of September 30, 2015 and 2014, 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.
Page 76
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Depreciation is computed on a straight-line basis over the useful life of the assets for unregulated assets and using rates
based on the estimated average lives of the various classes of depreciable property for NJNG. The composite rate of depreciation
used for NJNG was 2.31 percent of average depreciable property in fiscal 2015, 2.44 percent in fiscal 2014 and 2.43 percent in
fiscal 2013. The Company has recorded $61.4 million, $52.7 million and $47.3 million in depreciation expense during fiscal 2015,
2014 and 2013, respectively.
Property, plant and equipment was comprised of the following as of September 30:
(Thousands)
Property Classifications
Distribution facilities
Transmission facilities
Storage facilities
Solar property
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
38 to 74 years
35 to 56 years
34 to 47 years
20 to 25 years
25 years
5 to 35 years
2015
2014
$ 1,695,898 $ 1,567,648
281,488
41,669
333,506
42,559
66,673
2,333,543
(449,433)
$ 2,128,261 $ 1,884,110
289,599
41,669
395,704
137,292
62,123
2,622,285
(494,024)
During fiscal 2014, 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 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 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. In fiscal 2014, 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.
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, 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.
No other impairments were identified for the fiscal years ended September 30, 2015, 2014 and 2013.
Investments in Equity Investees
The Company accounts for its investments in Steckman Ridge, PennEast and Iroquois (through September 29, 2015), using
the equity method of accounting, where its respective ownership interests are 50 percent or less and/or it has significant influence
over operating and management decisions, but is not the primary beneficiary, as defined under ASC 810, Consolidation. The
Company's share of earnings is recognized as equity in earnings of affiliates on the Consolidated Statements of Operations. See
Note 6. Investment in Equity Investees for more information.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Available for Sale Securities
The Company has certain investments in equity securities of a publicly traded energy company that have a fair value of
$10.1 million and $10.7 million as of September 30, 2015 and 2014, respectively, which are included in available for sale securities
on the Consolidated Balance Sheets. 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 $7.5 million, $4.4 million after tax, and
$8.1 million, $4.8 million after tax, as of September 30, 2015 and 2014, respectively.
On September 29, 2015, NJR Midstream Holdings Corporation exchanged its 5.53 percent equity method investment in
Iroquois to DM for approximately 1.84 million DM Common Units. Since the exchange was, in substance, a contribution of real
estate into another real estate venture, the Company recorded a deferred gain of $24.6 million based on the difference between
the carrying amount of its investment of Iroquois, $21.5 million, and the fair value of the DM Common Units on the closing date
of the transaction, $46.1 million. The deferred gain will be recognized in other income on the Consolidated Statements of Operations
if and when the units are sold in the future.
NJR classified the DM Common Units as available for sale securities and, therefore, any changes in fair value are recognized
in accumulated other comprehensive income, a component of common stock equity. As of September 30, 2015, the units have a
fair value of $49.4 million and the Company recognized an unrealized gain of $3.3 million, $1.9 million after tax.
Reclassifications of realized gains out of other comprehensive income into income are determined based on average cost.
There were no sales of securities during fiscal 2015 and 2014.
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
2015
2014
$ 107,461
41,130
1,084
5,598
$ 155,273
69% $ 142,566
26
41,281
1
594
4
5,529
100% $ 189,970
75%
22
—
3
100%
(1)
Does not include unbilled revenues of $6.4 million and $7.2 million as of September 30, 2015 and 2014, respectively.
Loan Receivable
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 $6.2 million and $3.9 million in other current assets and
$36.2 million and $27.3 million in other noncurrent assets as of September 30, 2015 and 2014, 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 in arrears for more than 60 days.
There was no allowance for doubtful accounts established during fiscal 2015 and 2014.
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
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
Common Stock Split
On January 20, 2015, NJR’s Board of Directors approved a 2 for 1 stock split of the Company’s common stock for the
Company’s common stock holders of record on February 6, 2015. The additional shares were issued on March 3, 2015, resulting
in an increase in average shares outstanding from approximately 42.7 million to approximately 85.4 million. All share-related
information for prior periods has been adjusted throughout this report on a retroactive basis to reflect the effects of the stock split.
As well, common stock and premium on common stock amounts have been adjusted as of the earliest period presented on the
Consolidated Balance Sheets.
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 at September 30, 2013
Other comprehensive income, net of tax
Unrealized gain
on available for
sale securities
$
5,400
Net unrealized
gain on
derivatives
$
12
Adjustment to
postemployment
benefit obligation
$
(7,033)
Total
$ (1,621)
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 (loss), net of tax of
$426, $61, $2,162, $2,649
Balance at September 30, 2014
Other comprehensive income, net of tax
Other comprehensive income (loss), before reclassifications,
net of tax of ($1,135), $146, $4,362, $3,373
Amounts reclassified from accumulated other
comprehensive income, net of tax of $0, ($202), ($674),
($876)
Net current-period other comprehensive income, net of tax
of ($1,135), ($56), $3,688, $2,497
Balance at September 30, 2015
$
$
(618)
(273)
(5,006)
(5,897)
168 (1)
1,756 (2)
1,924
—
(618)
4,782
(105)
(93)
$
1,603
(256)
—
1,603
6,385
349 (1)
93
—
$
(3,250)
(10,283)
(3,973)
$ (5,594)
(6,483)
(5,136)
987 (2)
1,336
(5,496)
(15,779)
(3,800)
$ (9,394)
$
$
(1) Consists of realized losses related to foreign currency derivatives, which are reclassified to gas purchases on the Consolidated Statements of Operations.
(2)
Included in the computation of net periodic pension cost, a component of O&M expense on the Consolidated Statements of Operations. For more details,
see Note 10. Employee Benefit Plans.
Pension and Postemployment Plans
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 Employee Retirement Income Security Act, as amended, and not more than can be deducted for
federal income tax purposes. Plan assets consist of equity securities, fixed-income securities and short-term investments. NJR
made no discretionary contributions to the pension plans in fiscal 2015 or fiscal 2014.
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 $6 million, $5 million and $6 million in aggregate to these plans in fiscal 2015, 2014 and 2013, respectively.
See Note 10. Employee Benefit Plans, for a more detailed description of the Company's pension and postemployment plans.
Page 79
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2015, 2014 and 2013.
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 became 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 there was no impact to its financial position upon adoption.
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 changed 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, became effective for annual periods beginning on or after December 15,
2014 and interim periods within those years. The Company does not expect this standard to have any 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. In August 2015, the FASB issued ASU No. 2015-14, which defers the implementation of the
new guidance for one year. The new guidance will become effective for fiscal years, and interim periods within those years,
beginning after December 15, 2017. 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 this standard to have any impact to its financial position, results
of operations and cash flows upon adoption.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Extraordinary and Unusual Items
In January 2015, the FASB issued ASU No. 2015-01, an amendment to ASC 225, Income Statement, which eliminates the
concept of extraordinary items and, therefore, removes the requirement for separate presentation, net of tax, after income from
continuing operations. 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 this standard to have any impact on its financial position, results of
operations and cash flows upon adoption.
Consolidation
In February 2015, the FASB issued ASU No. 2015-02, an amendment to ASC 810, Consolidation, which changes the
consolidation analysis required under GAAP and reevaluates whether limited partnerships and similar entities must be
consolidated. The new guidance will become effective for fiscal years, and interim periods within those years, beginning after
December 15, 2015. Upon adoption, the amendment will be applied on a full or modified retrospective basis. The Company is
currently evaluating the provisions of ASU No. 2015-02 to understand the impact, if any, on its financial position, results of
operations and cash flows upon adoption.
Interest
In April 2015, the FASB issued ASU No. 2015-03, an amendment to ASC 835, Interest - Imputation of Interest, which
simplifies the presentation of debt issuance costs by requiring them to be presented in the balance sheet as a deduction from the
carrying amount of the liability. The amendments do not affect the recognition and measurement guidance for debt issuance costs.
In August 2015, the FASB issued ASU No. 2015-15, which clarified that the amendments contained within ASU No. 2015-03 do
not require companies to modify their accounting for costs incurred in obtaining revolving credit facilities. The amended guidance
becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Upon adoption,
the amendment will be applied on a retrospective basis. The Company is currently evaluating the amendments to understand the
impact on its financial position, results of operations and cash flows upon adoption.
Intangibles
In April 2015, the FASB issued ASU No. 2015-05, an amendment to ASC 350, Intangibles - Goodwill and Other - Internal-
Use Software, which clarifies the accounting for fees in a cloud computing arrangement. The amendments provide guidance on
how an entity should evaluate the accounting for fees paid in a cloud computing arrangement to determine whether an arrangement
includes the sale or license of software. The amended guidance becomes effective for fiscal years, and interim periods within those
years, beginning after December 15, 2015. Upon adoption, the amendments can be applied on a prospective or retrospective basis.
The Company is currently evaluating the amendment to understand the impact on its financial position, results of operations and
cash flows upon adoption.
Inventory
In July 2015, the FASB issued ASU No. 2015-11, which requires entities to measure most inventory “at the lower of cost
and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of
cost or market. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15,
2016. The Company is currently evaluating the amendments to understand the impact on its financial position, results of operations
and cash flows upon adoption.
Derivatives and Hedging
In August 2015, the FASB issued ASU No. 2015-13, which clarifies that electricity sales occurring within nodal markets do
not constitute net settlement and qualify for the Normal Purchases and Normal Sales scope exception contained within the derivative
accounting guidance. The guidance was effective upon issuance and did not impact the Company's financial position, results of
operations or cash flows.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Business Combinations
In September 2015, the FASB issued ASU No. 2015-16, which simplifies the accounting for adjustments made to provisional
amounts recorded during a business combination by requiring companies to recognize such adjustments in the period in which
they are determined. Companies will also be required to present separately on the face of the income statement, or disclose, the
portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods
if the adjustment to the provisional amounts had been recorded as of the acquisition date. The guidance is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2015. The Company does not expect the standard to have
any impact on its financial position, results of operations and cash flows upon adoption.
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.
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. In addition, NJNG is in process of implementing certain audit recommendations with BPU Staff.
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. The impact of the ratemaking process and decisions
authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as
regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory
liabilities in accordance with accounting guidance applicable to regulated operations.
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.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Regulatory assets and liabilities included on the Consolidated Balance Sheets as of September 30, are comprised of the
following:
(Thousands)
Regulatory assets-current
New Jersey Clean Energy Program
Underrecovered gas costs
Derivatives at fair value, net
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
Overrecovered gas costs
Derivatives at fair value, net
Total current regulatory liabilities
Regulatory liabilities-noncurrent
Cost of removal obligation
Derivatives at fair value, net
New Jersey Clean Energy Program
Other noncurrent regulatory liabilities
Total noncurrent regulatory liabilities
2015
2014
14,293 $
—
9,965
24,258 $
14,285
12,577
—
26,862
18,886 $
180,400
17,460
5,153
26,882
140,636
15,201
5,537
410,155 $
5,167 $
6,987
—
12,154 $
54,880 $
—
11,956
697
67,533 $
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
$
$
$
$
$
$
$
$
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. On November 13, 2015, NJNG filed a base rate case petition with the BPU.
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. Underrecovered 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,
overrecovered gas costs represent a regulatory liability that generally occurs when NJNG's BGSS rates are higher than actual costs
and requests approval to be returned to customers including interest, when applicable, in accordance with NJNG's approved BGSS
tariff.
Conservation Incentive Program
The CIP permits NJNG to recover utility gross margin variations related to customer usage resulting from customer
conservation efforts and mitigates the impact of weather on its gross margin. Such utility gross margin variations are recovered
in the year following the end of the CIP usage year, without interest, and are subject to additional conditions, including an earnings
test, a revenue test and an evaluation of BGSS related savings.
Page 83
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 2016. NJNG recovers the costs associated with its portion
of the NJCEP obligation, through its SBC rider. The recovery rates are set by the BPU and updated only by a filing made by the
Company. In addition, the Company's future recoveries for this program will be reduced in the next SBC rate filing through the
amortization of the regulatory liability.
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.
Deferred Income Taxes
In 1993, NJNG adopted the provisions of ASC 740, Income Taxes, which changed the method used to determine deferred
tax assets and liabilities. Upon adoption, NJNG recognized a transition adjustment and corresponding regulatory asset representing
the difference between NJNG's existing deferred tax amounts compared with the deferred tax amounts calculated in accordance
with the change in method prescribed by ASC 740. NJNG recovers the regulatory asset associated with these tax impacts through
future base rates, without interest.
Derivatives
Derivatives are utilized by NJNG to manage the price risk associated with its natural gas purchasing activities and to participate
in certain BGSS incentive programs. The gains and losses associated with NJNG's derivatives are recoverable through its BGSS,
as noted above, without interest. See Note 4. Derivatives.
SAVEGREEN
NJNG administers certain programs that supplement the state's NJCEP and that allow NJNG to promote clean energy to its
residential and commercial customers, as described further below. NJNG will recover related expenditures and a weighted average
cost of capital through a tariff rider, as approved by the BPU, over a two to 10-year period depending upon the specific program
incentive.
Postemployment and Other Benefit Costs
Postemployment and Other Benefit Costs represents NJNG's underfunded postemployment benefit obligations that the
Company began recognizing in fiscal 2006, as a result of changes in the accounting provisions of ASC 715, Compensation and
Benefits, as well as a $2.9 million fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated
with Medicare Part D, both of which are deferred as regulatory assets and are recoverable, without interest, in base 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 deferred 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. These costs are included for recovery in NJNG's base rate case petition filed with the BPU on
November 13, 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. 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
Page 84
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2015,
NJNG has recorded $3.7 million of PIM in other regulatory assets. NJNG has included the PIM deferred expenses for recovery
in the base rate case petition filed with the BPU on November 13, 2015.
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 2014 and 2015:
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. On June 1, 2015, NJNG filed a petition proposing to continue its existing BGSS rate and notified the
BPU that NJNG will provide bill credits to residential and small commercial customers from November 2015 through February
2016, as a result of the decline in the wholesale price of natural gas. On October 27, 2015, NJNG notified the BPU that the estimated
annual bill credits will be approximately $76 million and will result in an approximate 17 percent decrease to the average residential
heat customer's bill. Commodity prices were relatively stable during fiscal 2014, 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. 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.
In addition, the CIP baseline usage per customer will be reviewed and adjusted in the November 13, 2015, base rate case filing
before the BPU. NJNG's annual BGSS and CIP filings are summarized as follows:
•
•
•
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, 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 effective October 1, 2014. Additionally, on October 1, 2014, NJNG
implemented a decrease to its BGSS price resulting in a 5 percent decrease to the average residential heat customer's
bill. On April 15, 2015, the BPU approved the BGSS and CIP rates on a final basis.
June 2015 BGSS/CIP filing — NJNG proposed to continue its existing BGSS rate and to increase its CIP rates resulting
in a .08 percent increase to the average residential heat customer's bill effective October 1, 2015. The BPU provisionally
approved this rate on September 11, 2015.
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 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
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 infrastructure costs incurred in the approved SAFE
Program includes the deferral of infrastructure costs subject to review in NJNG's base rate case petition filed with the BPU on
November 13, 2015.
In June 2012, the BPU approved a pilot program for NJNG to invest up to $10 million to build NGV refueling stations. On
April 23, 2014, the BPU approved NJNG's request to include a cost recovery filing to the BPU within the Company's base rate
case petition, which was filed with the BPU on November 13, 2015. As of September 30, 2015, NJNG has opened two NGV
stations to the public and development of an additional NGV station continues in Middletown Township.
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 depreciation expense. 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 rates. In July 2014, the BPU approved a Stipulation of
Settlement related to the recovery of the proposed NJ RISE capital infrastructure program. On May 29, 2015, NJNG filed a petition
with the BPU requesting approval to recover costs through July 31, 2015. On October 15, 2015, the BPU approved a base rate
increase resulting in a .07 percent increase to the average residential heat customer's bill, effective November 1, 2015. Investments
through July 31, 2015 will earn a weighted average cost of capital of 6.74 percent, including a return on equity of 9.75 percent.
Additional estimated capital expenditures through December 31, 2016, has been included for recovery in NJNG's base rate case
petition, which was filed with the BPU on November 13, 2015.
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing
programs that include off-system sales, capacity release, storage incentive programs and the FRM program (through October 31,
2015). The Company is permitted to annually propose a process to evaluate and discuss alternative incentive programs, should
performance of the existing incentives or market conditions warrant re-evaluation. On March 27, 2015, NJNG filed a letter petition
with the BPU to continue its existing BGSS Incentive Programs. On October 15, 2015, the BPU issued an order approving the
continuation of the BGSS Incentive Programs with modification to the storage incentive program, beginning with the 2015 storage
injection period, and termination of the FRM Program, effective November 1, 2015.
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 or approval, NJNG recovers costs associated with the programs
over a two to 10-year period through a tariff rider mechanism. As of September 30, 2015, the BPU has approved total SAVEGREEN
investments of approximately $219.3 million, of which, $117.5 million in grants, rebates and loans has been provided to customers,
with a total annual recovery of approximately $20 million. The recovery includes a weighted average cost of capital that ranges
from 6.69 percent, with a return on equity of 9.75 percent, to 7.76 percent, with a return on equity of 10.3 percent.
SAVEGREEN investments and costs are filed with the BPU on an annual basis and include the following:
• On December 17, 2014, NJNG filed a petition with the BPU to extend SAVEGREEN through June 30, 2018, with minor
modifications. On July 22, 2015, the BPU approved the petition allowing the extension of SAVEGREEN through July 31,
2017, with an additional $75.2 million in investments and a weighted average cost of capital of 6.69 percent.
• On March 18, 2015, the BPU approved the June 2014 compliance filing associated with SAVEGREEN to maintain the
existing rate.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
• On July 31, 2015, NJNG submitted its 2015 SAVEGREEN rate recovery filing to maintain its existing SAVEGREEN
recovery 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:
•
•
•
•
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 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.
In June 2014, the BPU approved NJNG's funding obligations for NJCEP for the period from July 2014 to June 2015,
of approximately $15.6 million. Accordingly, NJNG recorded the obligation and corresponding regulatory asset on the
Consolidated Balance Sheets.
September 2014 SBC filing — On May 19, 2015 the BPU approved a decrease to NJNG's SBC rate, resulting in a 3.3
percent decrease to the average residential heat customer's bill, effective June 1, 2015, and approved the recovery of
NJNG's MGP expenditures incurred through June 2014. The rate includes a reduction in the SBC RA factor to $8.5
million annually and in the NJCEP factor to $16.3 million annually.
• On June 19, 2015, NJNG submitted its annual USF compliance filing proposing to decrease the statewide USF rate,
resulting in a .6 percent decrease to the average residential heat customer’s total bill effective October 1, 2015. The rate
was approved by the BPU on September 11, 2015.
Other Regulatory Initiatives
In November 2012, NJNG filed a petition with the BPU requesting deferred 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, 2015, 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, which are included for
recovery in NJNG's base rate case petition, which was filed with the BPU on November 13, 2015.
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 transportation
service agreement between TAQA Gen-X, LLC and NJNG that allows NJNG to deliver natural gas for consumption by Red Oak
Power, LLC, through September 2022. Construction to connect to the plant commenced during the fourth quarter of fiscal 2014,
and service began in the first quarter of fiscal 2015. The project cost approximately $1.4 million, which will be reimbursed by
TAQA Gen-X, LLC through monthly demand charges that will be billed beginning the first quarter of fiscal 2016.
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.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The SRL is an approximate 30-mile, 30-inch transmission main designed to support improved system integrity and reliability
in the southern portion of NJNG's service territory, estimated to cost between $175 million and $180 million. On April 2, 2015,
NJNG filed two petitions with the BPU to construct, operate and finalize the route for its SRL project. On June 5, 2015, NJNG
filed two petitions with the BPU to amend the previously proposed route. The capital investment costs associated with SRL have
been included for recovery in the base rate case petition filed with the BPU on November 13, 2015.
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 and/or sales. 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 NJR's derivative instruments, see Note 5.
Fair Value.
Since NJRES chooses not to designate its financial commodity and physical forward commodity derivatives as accounting
hedges or to elect NPNS, 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 U.S. dollar. NJRES may utilize 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 may be used to hedge future forecasted cash payments
associated with transportation and storage contracts along with purchases of natural gas. The Company designates these foreign
currency 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 of
September 30, 2015, the Company had no open foreign currency hedges.
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. The average cost of natural gas is amortized in current
period earnings based on the current BPU BGSS factor and therm sales.
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 during the period. NJRCEV recognizes the related revenue upon transfer of the SREC
certificate to the counterparty.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
In an April 2014 BPU Order, NJNG received regulatory approval to enter into interest rate risk management transactions
related to long-term debt securities. On June 1, 2015, NJNG entered into a treasury lock transaction to fix a benchmark treasury
rate of 3.26 percent associated with the forecasted $125 million debt issuance expected in May 2018. This forecasted debt issuance
coincides with the maturity of NJNG's existing $125 million, 5.6 percent notes due May 15, 2018. The change in fair value of
NJNG's treasury lock agreement is recorded as a component of regulatory assets or liabilities on the Consolidated Balance Sheets
since NJNG believes that the market value upon settlement will be recovered in future rates. Upon settlement, any gain or loss
will be amortized in earnings over the life of the future debt issuance.
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)
Derivatives designated as hedging instruments:
NJRES:
Foreign currency contracts
Derivatives - current
Balance Sheet Location
Derivatives - noncurrent
Fair value of derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
NJNG:
Financial commodity contracts
Derivatives - current
Interest rate contracts
NJRES:
Derivatives - noncurrent
Derivatives - noncurrent
Physical forward commodity contracts Derivatives - current
Derivatives - noncurrent
Financial commodity contracts
Derivatives - current
Fair value of derivatives not designated as hedging instruments
Derivatives - noncurrent
Total fair value of derivatives
Offsetting of Derivatives
Fair Value
2015
2014
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
$
$
$
— $
—
— $
— $
—
— $
— $
—
— $
155
—
155
207
—
—
$ 10,163
925
4,228
$
2,525
$
2,205
82
—
25
—
4,854
1,718
35,682
9,281
—
13,347
2,626
$ 45,087
$ 45,087
386
$ 38,330
$ 38,330
15,391
35
46,307
5,537
$ 69,877
$ 69,877
30,778
132
46,725
6,533
$ 86,398
$ 86,553
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 on
the Consolidated Balance Sheets.
Page 89
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the reported gross amounts, the amounts that NJR has the right to offset but elects not to,
financial collateral, as well as the net amounts NJR could present on the Consolidated Balance Sheets but elects not to.
(Thousands)
As of September 30, 2015:
Derivative assets:
NJRES
Physical forward commodity contracts
Financial commodity contracts
Total NJRES
NJNG
Financial commodity contracts
Interest rate contracts
Total NJNG
Derivative liabilities:
NJRES
Physical forward commodity contracts
Financial commodity contracts
Total NJRES
NJNG
Financial commodity contracts
Interest rate contracts
Total NJNG
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
Amounts
Presented in
Balance Sheets (1)
Offsetting
Derivative
Instruments (2)
Financial Collateral
Received/Pledged (3) Net Amounts (4)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
6,562
38,308
44,870
207
—
207
9,271
13,733
23,004
11,088
4,228
15,316
15,426
51,844
67,270
2,607
30,910
53,258
155
84,323
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1,326)
(13,734)
(15,060)
(207)
—
(207)
(1,326)
(13,733)
(15,059)
(207)
—
(207)
(11,531)
(51,844)
(63,375)
(2,230)
(12,058)
(51,844)
—
(63,902)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
3,841
3,841
—
—
—
(1,200)
—
(1,200)
(10,881)
—
(10,881)
—
—
—
(377)
(1,200)
(1,414)
—
(2,614)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,236
28,415
33,651
—
—
—
6,745
—
6,745
—
4,228
4,228
3,895
—
3,895
—
17,652
—
155
17,807
Financial commodity contracts
—
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.
Offsetting derivative instruments include: transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with
ISDA netting.
Financial collateral includes cash balances at FCMs, as well as cash received from or pledged to other counterparties.
Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.
(2,230)
2,230
—
$
$
$
$
(1)
(2)
(3)
(4)
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.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations as of
September 30:
(Thousands)
Derivatives not designated as hedging instruments:
NJRES:
Location of gain (loss) recognized in
income on derivatives
Amount of gain (loss) recognized
in income on derivatives
2014
2015
2013
Physical commodity contracts
Physical commodity contracts
Financial commodity contracts
Operating revenues
Gas purchases
Gas purchases
Total unrealized and realized (losses) gains
$
$
32,568
(34,438)
109,082
107,212
$ (48,977)
(83,847)
(118,872)
$ (251,696)
$
1,117
(17,194)
41,183
$ 25,106
The table above does not include gains (losses) associated with NJNG's financial derivatives that totaled $(33.4) million,
$10.1 million and $1.8 million for the fiscal years ended September 30, 2015, 2014 and 2013, respectively, and the treasury rate
lock of $(4.2) million for the fiscal year ended September 30, 2015. NJNG’s derivative contracts are part of the Company's risk
management activities that relate to its natural gas purchases, BGSS incentive programs and debt financing. These transactions
are entered into pursuant to regulatory guidance and at settlement the resulting gains and/or losses are payable to and/or recoverable
from customers. 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 had no open foreign currency hedge transactions as of September 30, 2015. However, NJRES
previously designated 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:
Foreign currency contracts
Amount of Gain or
(Loss) Recognized in
OCI on Derivatives
(Effective Portion) (1)
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)
2015
2014
2015
2014
2015
2014
$
(402) $
(432) $
557 $
266 $
— $
—
NJNG and NJRES had the following outstanding long (short) derivatives as of September 30:
NJNG
NJRES
Futures
Futures
Financial Options
Physical
Volume (Bcf)
2015
2014
25.8 (1)
(91.1)
1.2
48.2
17.3
(62.1)
1.2
28.6
(1)
Not included is the notional amount of $125 million related to NJNG’s treasury lock agreement.
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 (liabilities) assets
2015
2014
$
$
12,990 $
(4,103) $
1,057
26,282
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Wholesale Credit Risk
NJNG and NJRES are exposed to credit risk as a result of their wholesale marketing activities. In addition, NJRCEV engages
in sales of electricity, capacity and SRECs. 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 or SRECs), 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, 2015. 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
$ 103,706
10,655
8,168
8,751
$ 131,280
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.
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, 2015 and 2014, is $4.2 million and $39,000, 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, 2015 and 2014, the Company would have been required to post an additional $4.2 million and
$7,000, 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.
Page 92
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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:
(Thousands)
NJNG
Carrying value (1)
Fair market value
NJR
Carrying value
Fair market value
2015
2014
$
$
$
$
582,845 $
584,240 $
225,000 $
233,079 $
432,845
453,773
125,000
133,136
(1)
Excludes capital leases of $46.9 million and $49.9 million as of September 30, 2015 and 2014, respectively.
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, 2015
and 2014, 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
Level 2
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.
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). NJNG's treasury lock is also considered Level 2
as valuation is based on quoted market interest and swap rates as inputs to the valuation model. Inputs are verifiable
and do not require significant management judgment. For some physical commodity contracts the Company utilizes
transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent
to market data received from an independent source. There are no significant judgments or adjustments applied to the
transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered
to be a “model,” it would still be considered to be a Level 2 input as:
1)
2)
3)
The data is widely accepted and public
The data is non-proprietary and sourced from an independent third party
The data is observable and published
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
Page 93
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 sources for its price inputs are CME/NYMEX and ICE.
NJRES uses 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 or other pricing services.
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.
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(Thousands)
As of September 30, 2015:
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
Interest rate contracts
Total liabilities at fair value
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
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
—
38,515
59,475
1,572
$ 99,562
$
—
24,821
—
$ 24,821
$
—
54,451
10,672
1,299
$ 66,422
$
—
55,488
—
$ 55,488
$
$
6,572
—
—
—
6,572
$
9,281
—
4,228
$ 13,509
$ 15,426
—
—
—
$ 15,426
$ 30,910
—
155
$ 31,065
$ —
—
—
—
$ —
$ —
—
—
$ —
$ —
—
—
—
$ —
$ —
—
—
$ —
$
6,572
38,515
59,475
1,572
$ 106,134
$
9,281
24,821
4,228
$ 38,330
$ 15,426
54,451
10,672
1,299
$ 81,848
$ 30,910
55,488
155
$ 86,553
(1)
(2)
Included in other noncurrent assets on the Consolidated Balance Sheets.
Includes various money market funds in Level 1.
Page 94
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
6.
INVESTMENTS IN EQUITY INVESTEES
Investments in equity investees includes NJR's equity method and cost method investments.
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 an 118-mile pipeline that will extend
from northeast Pennsylvania to western New Jersey.
On September 29, 2015, NJNR Pipeline exchanged its 5.53 percent ownership interest in Iroquois to DM for approximately
1.84 million DM Common Units. The units are accounted for as available for sale securities on the Consolidated Balance Sheets.
The exchange resulted in a pre-tax gain of approximately $24.6 million that was deferred and will be recognized into income if
and when the units are sold in the future.
As of September 30, NJR's equity method investments include the following:
(Thousands)
Steckman Ridge (1)
Iroquois
PennEast
Total
2015
125,649 $
—
6,353
132,002 $
$
$
2014
128,413
24,042
555
153,010
Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2015 and 2014, which accrue interest at a variable rate that resets
(1)
quarterly and are due October 1, 2023.
NJRES and NJNG have 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
During fiscal 2014 and most of fiscal 2015, NJRCEV held a minority equity interest in OwnEnergy, an onshore wind
developer, which provided NJRCEV with the option to acquire wind farms that fit its investment profile. During the fourth quarter
of fiscal 2015, OwnEnergy was acquired by a power producer and NJRCEV realized a $3 million pre-tax gain in exchange for its
ownership interest, which is included in other income, net on the Consolidated Statements of Operations.
7.
EARNINGS PER SHARE
The following table presents the calculation of the Company's basic and diluted earnings per share for the fiscal years ended
September 30:
(Thousands, except per share amounts)
Net income, as reported
Basic earnings per share
Weighted average shares of common stock outstanding-basic
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)
2015
2014
$ 180,960 $ 141,970 $ 114,809
2013
85,186
$2.12
85,186
1,079
86,265
$2.10
84,198
$1.69
84,198
724
84,922
$1.67
83,316
$1.38
83,316
312
83,628
$1.37
(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 2015, 2014 and 2013.
Page 95
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
8.
DEBT
NJNG and NJR finance working capital requirements and capital expenditures through the issuance of various long-term
debt and other financing arrangements, including unsecured credit and private placement debt shelf facilities. Amounts available
under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit.
The following table presents the long-term debt of the Company as of September 30:
(Thousands)
NJNG
First mortgage bonds:
4.50%
4.60%
4.90%
5.60%
Variable
Variable
Variable
3.15%
3.58%
4.61%
2.82%
3.66%
Capital lease obligation-buildings
Capital lease obligation-meters
Less: Current maturities of long-term debt
Series II
Series JJ
Series KK
Series LL
Series MM
Series NN
Series OO
Series PP
Series QQ
Series RR
Series SS
Series TT
Total NJNG long-term debt
NJR
6.05%
1.94%
2.51%
3.25%
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Less: Current maturities of long-term debt
3.48%
Total NJR long-term debt
Total long-term debt
Maturity date:
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
April 15, 2025
April 15, 2045
June 1, 2021
Various dates
September 24, 2017
September 17, 2015
September 17, 2018
September 17, 2022
November 7, 2024
2015
2014
$
10,300 $
10,500
15,000
125,000
9,545
41,000
46,500
50,000
70,000
55,000
50,000
100,000
16,700
30,188
(11,138)
618,595
10,300
10,500
15,000
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
50,000
100,000
50,000
25,000
25,000
50,000
—
— (25,000)
125,000
$ 843,595 $ 598,209
225,000
Annual long-term debt redemption requirements, excluding capital leases, as of September 30, are as follows:
(Millions)
2016
2017
2018
2019
2020
Thereafter
NJNG
NJR
$
$
$
$
$
$
— $
— $
125.0 $
— $
— $
457.8 $
—
50.0
25.0
—
—
150.0
NJNG First Mortgage Bonds
NJNG and Trustee, entered into the Mortgage Indenture, dated September 1, 2014, which secures all of the outstanding First
Mortgage Bonds issued under the Old Mortgage Indenture. The Mortgage Indenture provides a direct first mortgage lien upon
substantially all of the operating properties and franchises of NJNG (other than excepted property, such as cash on hand, choses-
in-action, securities, rent, natural gas meters and certain materials, supplies, appliances and vehicles), subject only to certain
permitted encumbrances. The Mortgage Indenture contains provisions subjecting after-acquired property (other than excepted
property and subject to pre-existing liens, if any, at the time of acquisition) to the lien thereof.
NJNG's Mortgage Indenture no longer contains a restriction on 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, 2015, NJNG's equity to total capitalization ratio is 54.2 percent and
has the ability to issue up to $830.7 million of FMB under the terms of the Mortgage Indenture.
Page 96
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 and 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 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. 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, 2015, the interest rate on the EDA Bonds was .69 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 FMB 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.
On April 15, 2015, NJNG issued $50 million of 2.82 percent senior notes due April 15, 2025, and $100 million of 3.66
percent senior notes due April 15, 2045, secured by FMB in the private placement market pursuant to a note purchase agreement
entered into on February 12, 2015. The proceeds of the notes were used for general corporate purposes, to refinance or retire debt
and to fund capital expenditure requirements.
NJNG Sale-Leasebacks
NJNG has entered into a sale-leaseback for its headquarters building, which has a 25.5-year term that expires in June 2021,
subject to an option by NJNG to renew the lease for additional five-year terms a maximum of four times. The present value of the
agreement's minimum lease payments is reflected as both a capital lease asset and a capital lease obligation, which are included
in utility plant and long-term debt, respectively, on the Consolidated Balance Sheets.
NJNG received $7.2 million, $7.6 million and $7.1 million for fiscal 2015, 2014 and 2013, 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 2015, 2014 and 2013, NJNG
exercised early purchase options with respect to meter leases by making final principal payments of $768,000, $956,000 and
$752,000, respectively. This sale-leaseback program is expected to continue on an annual basis.
Contractual commitments for capital lease payments, as of the fiscal years ended September 30, are as follows:
(Millions)
2016
2017
2018
2019
2020
Thereafter
Subtotal
Less: Interest component
Total
Page 97
Lease Payments
$ 13.3
12.1
10.2
7.4
6.6
3.6
53.2
(6.3)
$ 46.9
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJR Long-term Debt
NJR has two unsecured, uncommitted private placement debt shelf note agreements. These debt shelf note agreements are
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. The notes issued under the Prudential Facility are guaranteed by certain
unregulated subsidiaries of NJR. NJR has $50 million at 3.25 percent outstanding under this agreement, which will mature on
September 17, 2022. On November 7, 2014, NJR issued another $100 million in senior notes at 3.48 percent under this facility
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, 2015,
$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, 2015, NJR had two series of notes outstanding under this agreement, $25 million
at 1.94 percent, which matured 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, 2015 and 2014.
A summary of NJR's and NJNG's short-term bank facilities as of September 30, are as follows:
(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 revolving credit facilities (3)
Amount available at end of period
NJNG
Bank revolving credit facilities (4)
Commercial paper outstanding at end of period
Weighted average interest rate at end of period
Amount available at end of period (5)
2015
2014
$ 425,000
$ 39,350
$ 425,000
$ 148,000
1.17%
1.08%
$ 369,176
$ 100,000
$ 100,000
$ 256,484
—
$
$
—
$ 250,000
$ 27,000
$ 250,000
$ 153,000
.20%
0.12%
$ 222,269
$
96,269
(1)
(2)
(3)
(4)
(5)
Committed credit facilities, which require commitment fees of .075 percent and .1 percent on the unused amounts as of September 30, 2015 and 2014,
respectively.
Letters of credit outstanding total $16.5 million and $20.5 million as of September 30, 2015 and 2014, respectively, which reduces amount available by
the same amount.
Uncommitted credit facilities, which require no commitment fees.
Committed credit facilities, which require commitment fees of .075 percent on the unused amounts.
Letters of credit outstanding total $731,000 and $731,000 as of September 30, 2015 and 2014, respectively, which reduces amount available by the same
amount.
NJR Short-term Debt
NJR had a $325 million unsecured committed credit facility expiring 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. On September 28, 2015, NJR terminated and refinanced the facility with a new $425 million unsecured, committed
Page 98
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
credit facility scheduled to expire on September 28, 2020, subject to two mutual options for a one-year extension beyond that 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, 2015, NJR has six letters of credit outstanding totaling $16.5 million. One letter of credit for $12 million
is issued on behalf of NJRES and five letters of credit, which total $4.5 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, 2015.
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 December 27, 2015 to August 21, 2016.
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.
On October 24, 2014, NJR entered into a $100 million uncommitted line of credit agreement, with Santander Bank, N.A.,
which expired on October 24, 2015.
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, 2015, NJNG has two letters of credit outstanding for $731,000. NJNG's letters of credit are used as
collateral for remediation projects and expire on August 11, 2016. 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, 2015, 2.9 million and 31,704 shares remain available for future issuance to employees and directors,
respectively.
Page 99
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
Stock Options
The following table summarizes the stock option activity for the past three fiscal years:
Outstanding at September 30, 2012
Granted
Exercised
Forfeited
Outstanding at September 30, 2013
Granted
Exercised
Forfeited
Outstanding at September 30, 2014
Granted
Exercised
Forfeited
Outstanding at September 30, 2015
Exercisable at September 30, 2015
Exercisable at September 30, 2014
Exercisable at September 30, 2013
2015
2014
2013
$
$
2,473 $
1,899
2,509 $
1,664
5,273
13,643
1,049
1,081
1,326
17,816
(7,278)
9,645
(3,940)
5,705 $ 10,538 $
3,456
(1,412)
2,044
Shares
163,250
Weighted Average
Exercise Price
$14.36
—
(30,000)
—
133,250
—
(85,000)
—
48,250
—
(48,250)
—
—
—
48,250
133,250
—
$12.54
—
$14.77
—
$13.13
—
$15.00
—
$15.00
—
—
—
$15.00
$14.77
There are no costs related to outstanding options for the stock options listed above. During fiscal 2015 and fiscal 2014, NJR
received proceeds of $724,000 and $1.2 million, respectively, from the exercise of stock options.
Performance Shares
In fiscal 2015, the Company granted to various officers 41,214 performance shares, which are market condition awards that
vest on September 30, 2017, subject to the Company meeting certain performance conditions. In fiscal 2015, the Company also
granted to various officers 61,576 performance shares, of which 34,622 vest on September 30, 2017 and 26,954 vest annually
over a three year period beginning on September 30, 2015, both of which are subject to the Company meeting certain performance
conditions. In fiscal 2014, the Company granted to various officers 69,154 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 78,574 performance shares, of which 50,480 vest in September 30, 2016 and 28,094 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 99,808 performance shares, which are market condition awards
that vested on September 30, 2015. There is $3.2 million of deferred compensation related to unvested performance shares that
is expected to be recognized over the next two years.
Page 100
New Jersey Resources Corporation
Part II
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
past three fiscal years:
Non-vested and outstanding at September 30, 2012
Granted
Vested
Cancelled/forfeited (2)
Non-vested and outstanding at September 30, 2013
Granted
Vested (3)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2014
Granted
Vested (4)
Cancelled/forfeited(5)
Non-vested and outstanding at September 30, 2015
Weighted Average
Grant Date
Fair Value
$16.63
$15.37
—
$13.12
$18.35
$20.28
$23.59
—
$18.30
$28.25
$17.10
$17.98
$23.40
Shares (1)
169,486
99,808
—
(112,650)
156,644
147,728
(56,836)
—
247,536
102,790
(112,446)
(23,416)
214,464
(1)
(2)
(3)
(4)
(5)
The number of common shares issued related to certain performance shares may range from zero to 150 percent of the number of shares shown in the
table above based on the Company's achievement of performance goals.
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 85,254 shares, excluding accumulated dividends. 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 10, 2015, the number of common shares related to performance
shares earned was 120 percent, or 112,918 shares, excluding accumulated dividends. The number represented on this line is the target number of 100
percent. See footnote (1) above. Also included in the vested number are 9,364 shares certified by the Leadership and Compensation Committee on
November 11, 2014 and 8,984 shares certified by the Leadership and Compensation Committee on November 10, 2015.
As certified by the Company's Leadership and Compensation Committee on November 10, 2015, 9,364 shares were canceled due to not achieving a
certain performance target. The remainder were forfeitures due to individuals departing the company.
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 2015, the Company granted 48,542 shares of restricted stock that vest annually over a three year period beginning
in October 2015. In fiscal 2015, the Company also granted 10,236 shares of restricted stock that will vest October 15, 2017 and
3,194 that vested September 30, 2015. In fiscal 2014, the Company granted 33,356 shares of restricted stock that vest annually
over a three year period beginning in October 2014. In fiscal 2013, the Company granted 4,278 shares of restricted stock that
vested in October 2015. There is $798,000 of deferred compensation related to unvested restricted stock shares that is expected
to be recognized over the next two years.
Page 101
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the restricted stock activity under the NJR 2007 Stock Award and Incentive Plan for the
past three fiscal years:
Non-vested and outstanding at September 30, 2012
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2013
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2014
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2015
Deferred Retention Stock
Weighted Average
Grant Date
Fair Value
$20.20
$20.31
$19.55
$20.37
$20.53
$22.78
$20.37
$20.37
$22.60
$29.41
$24.45
$26.79
$27.17
Shares
118,692
4,278
(39,359)
(5,100)
78,511
33,356
(68,460)
(1,916)
41,491
61,972
(18,170)
(3,801)
81,492
Total Fair Value
of Vested Shares
(in Thousands)
—
—
$
888
—
—
—
$ 1,534
—
$
—
—
510
—
—
Deferred retention stock awards vest immediately when granted, with shares delivered at a future date in accordance with
the terms of the underlying agreements. The expense for these awards is recognized in the fiscal year in which services are rendered.
The related shares are granted upon approval by the Board of Directors, which generally occurs subsequent to the fiscal year end.
The following table summarizes the deferred retention stock award under the NJR 2007 Stock Award and Incentive Plan for
the past three fiscal years:
Outstanding at September 30, 2012
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2013
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2014
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2015
Weighted Average
Grant Date
Fair Value
$23.59
$20.31
—
$21.72
$21.69
$22.88
—
$21.47
$21.95
$29.32
$23.62
$24.69
$27.03
Shares
98,342
134,590
—
(9,346)
223,586
57,970
—
(4,774)
276,782
462,790
(95,098)
(11,744)
632,730
Total Fair Value
of Vested Shares
(in Thousands)
—
—
—
—
—
—
—
—
—
—
$ 2,519
—
—
Page 102
New Jersey Resources Corporation
Part II
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 2015, the company
issued 26,122 shares for the annual retainer with a weighted average fair value of $30.63 per share. The shares vested immediately
and are amortized to expense over a 12-month period. As of September 30, 2015, there is $200,000 of expense remaining to be
recognized through December 31, 2015. In January 2014 and January 2013, the company issued 31,696 and 32,524 shares for the
annual retainer with weighted average fair values of $22.40 and $19.99, 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 60 consecutive months of employment. The Company also provides postemployment
medical and life insurance benefits to employees who meet certain eligibility requirements.
All represented employees of NJRHS hired on or after October 1, 2000, non-represented employees hired on or after October
1, 2009, and NJNG represented employees hired on or after January 1, 2012, are covered by an enhanced defined contribution
plan instead of the defined benefit plan. Participation in the postemployment medical and life insurance plan was also frozen to
new employees as of the same dates, with the exception of new NJRHS represented employees, for which benefits were frozen
beginning April 3, 2012.
The Company maintains an unfunded nonqualified PEP that was established to provide employees with the full level of
benefits as stated in the qualified plan without reductions due to various limitations imposed by the provisions of federal income
tax laws and regulations. There were no plan assets in the nonqualified plan due to the nature of the plan.
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 2015 and 2014, the Company had no minimum funding requirements.
The Company made no discretionary contributions to the pension plans in fiscal 2015 or 2014. The Company plans to make a
discretionary contribution of $30 million during the first quarter of fiscal 2016 to improve the funded status of the pension plans
based on current actuarial assumptions, which includes the most recent mortality table change. The Company does not expect to
be required to make additional contributions to fund the pension plans over the following two fiscal years based on current actuarial
assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions,
returns on plan assets and changes in the demographics of eligible employees and covered dependents.
There are no Federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts
due to regulatory agreements with the BPU. The Company contributed $5.7 million and $5 million, in fiscal 2015 and 2014,
respectively, and estimates that it will contribute between $3 million to $5 million over the next five years. Additional contributions
may be required based on market conditions and changes to assumptions.
Page 103
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the
Consolidated Balance Sheets as of September 30:
(Thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Special termination benefits
Actuarial loss
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
Funded status
Amounts recognized on Consolidated Balance Sheets
Postemployment employee benefit (liability)
Current
Noncurrent
Total
(1)
Includes the Company's PEP.
Pension (1)
OPEB
2015
2014
2015
2014
227,699 $
7,485
10,199
47
—
17,418
(6,861)
255,987 $
211,653 $
(5,813)
97
(6,814)
199,123 $
(56,864) $
198,826 $
6,143
10,066
47
2,814
21,440
(11,637)
227,699 $
200,236 $
22,923
85
(11,591)
211,653 $
(16,046) $
127,773 $
4,253
5,739
60
—
3,891
(3,349)
138,367 $
56,909 $
(1,799)
5,672
(3,513)
57,269 $
(81,098) $
112,771
3,923
5,734
38
648
6,792
(2,133)
127,773
49,555
4,590
4,970
(2,206)
56,909
(70,864)
(71) $
(56,793)
(56,864) $
(100) $
(15,946)
(16,046) $
(477) $
(80,621)
(81,098) $
(136)
(70,728)
(70,864)
$
$
$
$
$
$
$
The Company recognizes a liability for its underfunded benefit plans as required by the Compensation - Retirement Benefits
Topic of the ASC. The Company records the offset to regulatory assets for the portion of liability relating to NJNG and to accumulated
other comprehensive income for the portion of the liability related to its unregulated operations.
The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income
as of September 30:
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
Amounts arising during the period:
Net actuarial loss
Amounts amortized to net periodic costs:
Net actuarial (loss)
Prior service (cost) credit
Net transition obligation
Balance at September 30, 2015
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
56,664 $
41,812
$
14,427 $
(2,142)
10,563
4,277
6,243
2,098
(5,326)
(107)
—
61,794 $
(2,607)
303
(11)
43,774
(3,085)
(4)
—
17,581 $
$
107
54
—
117
30,579
9,563
9,742
1,103
(5,305)
(108)
—
86,960 $
(2,911)
311
—
50,737
(1,680)
(3)
—
25,640 $
$
(32)
54
—
1,242
$
$
Page 104
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The amounts in regulatory assets and accumulated other comprehensive income not yet recognized as components of net
periodic benefit cost as of September 30 are:
Regulatory Assets
Accumulated Other Comprehensive Income
(Loss)
Pension
OPEB
Pension
(Thousands)
Net actuarial loss
Prior service cost (credit)
Net transition obligation
Total
2015
86,070 $
890
—
86,960 $
2014
60,797 $
997
—
61,794 $
2015
52,462 $
(1,725)
—
50,737 $
2014
45,809 $
(2,035)
—
43,774 $
2015
25,632 $
8
—
25,640 $
2014
17,570 $
11
—
17,581 $
$
$
OPEB
2015
2014
1,495 $
(253)
—
1,242 $
425
(308)
—
117
Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as
components of net periodic benefit cost in fiscal 2016 are as follows:
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
$
5,606 $
108
5,714 $
3,175
(311)
2,864
$
$
1,675 $
3
1,678 $
99
(54)
45
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
2015
2014
$ 255,987 $ 227,699
$ 217,937 $ 198,058
$ 199,123 $ 211,653
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 $
$
2015
7,485 $
10,199
(17,090)
6,985
111
—
7,690 $
—
7,690 $
Pension
2014
2013
2015
OPEB
2014
2013
6,143 $
10,066
(15,475)
5,596
111
—
6,441 $
2,814
9,255 $
6,871 $
8,942
(14,825)
7,646
108
—
8,742 $
—
8,742 $
4,253 $
5,739
(4,977)
2,943
(364)
—
7,594 $
—
7,594 $
3,923 $
5,734
(4,174)
2,500
(357)
11
7,637 $
648
8,285 $
4,686
5,148
(3,653)
3,857
(355)
26
9,709
—
9,709
The weighted average assumptions used to determine benefit costs during the fiscal year and obligations as of September 30,
are as follows:
Benefit costs:
Discount rate
Expected asset return
Compensation increase
Obligations:
2015
4.55%
8.75%
3.25%
Pension
2014
5.15%
8.25%
3.25%
Discount rate
Compensation increase
4.50%
4.55%
3.25/3.50% (1) 3.25/3.50% (1)
(1)
Percentages for represented and nonrepresented plans, respectively.
2013
2015
OPEB
2014
2013
4.30%
8.50%
3.25%
4.55%
8.75%
3.50%
5.15% 4.60/4.55% (1)
3.25%
3.50%
5.15%
8.25%
3.50%
4.55%
3.50%
4.30%
8.50%
3.25%
5.15%
3.25%
Page 105
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
Effect of a 1 percentage point increase in the HCCTR on:
Year-end benefit obligation
Total service and interest cost
Effect of a 1 percentage point decrease in the HCCTR on:
Year-end benefit obligation
Total service and interest costs
2015
2014
2013
6.7%
4.8%
2022
7.1%
4.8%
2022
7.3%
4.8%
2022
$ 26,025
$
2,026
$ 20,965
1,885
$
$ 18,008
2,156
$
$ (20,427)
$ (1,593)
$ (16,932)
$ (1,493)
$ (14,629)
$ (1,675)
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
2016
Target
Allocation
40%
20
40
100%
Assets at
September 30,
2015
38%
19
43
100%
2014
39%
20
41
100%
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the
following years:
(Thousands)
2016
2017
2018
2019
2020
2021 - 2025
Pension
OPEB
$
$
$
$
$
$
7,958 $
8,383 $
9,106 $
9,807 $
10,542 $
67,414 $
3,755
4,122
4,524
5,005
5,513
35,509
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.
Page 106
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The estimated subsidy payments are:
Fiscal Year
2016
2017
2018
2019
2020
2021 - 2025
Estimated Subsidy Payment
(Thousands)
$210
$231
$253
$276
$304
$2,067
Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:
(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
Total assets at fair value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Pension
OPEB
2015
2014
2015
2014
$
— $
50
$
2,237
$
1,154
63,285
11,827
37,353
70,358
12,475
41,833
8,857
—
—
—
20,532
57,269
$ 199,123
10,029
—
—
—
21,054
55,854
$ 211,653
$
17,460
3,762
10,261
2,617
7,148
4,179
3,960
5,645
—
57,269
19,092
3,733
10,309
2,798
6,522
3,960
3,761
5,580
—
56,909
$
The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2015 and 2014, and there have been no changes
in valuation methodologies as of September 30, 2015. The following is a description of the valuation methodologies used for
assets measured at fair value:
Money Market funds — Represents bank balances and money market funds that are valued based on the net asset value of
shares held at year end.
Registered Investment Companies — Equity and fixed income funds valued at the net asset value of shares held by the plan
at year end as reported on the active market on which the individual securities are traded.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with
other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
Defined Contribution Plan
The Company offers a Savings Plan to eligible employees. As of January 1, 2015, the Company matches 65 percent of
participants' contributions up to 6 percent of base compensation. Represented NJRHS employees, non-represented employees
hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are eligible for an employer
special contribution of between 3 and 4 percent of base compensation, depending on years of service, into the Savings Plan on
Page 107
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was $2.6 million in fiscal 2015,
$2.2 million in fiscal 2014 and $1.9 million in fiscal 2013. The amount contributed for the employer special contribution of the
Savings Plan was $461,000 in fiscal 2015, $374,000 in fiscal 2014 and $193,000 in fiscal 2013.
11. ASSET RETIREMENT OBLIGATIONS
The Company recognizes AROs when the legal obligation to retire an asset has been incurred and a reasonable estimate of
fair value can be made. Accordingly, 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. NJR also recognizes AROs related to NJRCEV's solar and wind assets when there are decommissioning provisions in
NJRCEV's lease agreements that require removal of the asset.
Accretion amounts associated with NJNG's ARO are not reflected as an expense, but rather are deferred as a regulatory asset
and netted against NJNG's regulatory liabilities, for presentation purposes, on the Consolidated Balance Sheets. Accretion amounts
associated with NJRCEV's ARO are recognized as a component of operations and maintenance expense on NJR's Consolidated
Statements of Operations.
The following is an analysis of the change in the Company's AROs for the fiscal year ended September 30:
(Thousands)
Balance at October 1
Accretion
Additions
Revisions in estimated cash flows
Retirements
Balance at period end
2015
2014
$
$
30,495
2,262
2,185
(14,763)
(1,034)
19,145
$
$
28,711
2,012
925
—
(1,153)
30,495
The fiscal 2015 revision in estimated cash flows in the table above reflects a more accurate projection of settlement of NJNG's
AROs associated with its main and service assets, which is more in line with the calculated survival curves used in a recent NJNG
deprecation study. The change in settlement timing, as well as related changes in the inflation and discount rates used to measure
the expected retirement costs, resulted in the $14.8 million decrease in NJNG's ARO liability.
Accretion for the next five years is estimated to be as follows:
(Thousands)
Fiscal Year Ended September 30,
2016
2017
2018
2019
2020
Total
12.
INCOME TAXES
Estimated Accretion
$ 1,211
1,273
1,340
1,403
1,469
$ 6,696
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, 2015, 2014 and 2013 is as follows:
(Thousands)
Statutory income tax expense
Change resulting from
State income taxes
Depreciation and cost of removal
Investment/production tax credits
Basis adjustment of solar assets due to ITC
Other
Income tax provision
Effective income tax rate
Page 108
2015
$ 84,239
2014
$ 67,834
2013
$ 52,661
8,233
(5,149)
(30,096)
4,861
(2,364)
$ 59,724
7,785
(4,437)
(23,083)
3,959
(218)
$ 51,840
5,168
(5,769)
(18,749)
3,225
(961)
$ 35,575
24.8%
26.8%
23.6%
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The income tax provision (benefit) from operations consists of the following:
(Thousands)
Current
Federal
State
Deferred
Federal
State
Investment/production tax credits
Income tax provision
2015
2014
2013
$ 20,492 $ 37,904 $ 12,248
1,763
11,096
5,473
56,480
7,375
(30,096)
34,127
6,186
(18,749)
$ 59,724 $ 51,840 $ 35,575
24,963
960
(23,083)
The temporary differences, which give rise to deferred tax assets and (liabilities), consist of the following:
(Thousands)
Deferred tax assets
Investment tax credits (1)
Deferred service contract revenue
Incentive compensation
Fair value of derivatives
State net operating losses
Conservation incentive plan
Underrecovered gas costs
Other
Total deferred tax assets
Deferred tax liabilities
Property related items
Remediation costs
Equity investments
Post employment benefits
Fair value of derivatives
Under-recovered gas costs
Other
Total deferred tax liabilities
$
$
$
$
2015
2014
24,770
3,440
10,369
—
12,757
2,091
2,827
12,762
69,016
(440,420)
(7,641)
(37,930)
(2,976)
(3,180)
—
(13,409)
(505,556)
(436,540)
$
$
$
$
$
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)
Total net deferred tax liabilities
(1)
and $22.1 million and $7.5 million for NJRCEV for fiscal 2015 and fiscal 2014, respectively, which is ITC carryforward.
Includes $2.7 million and $2.8 million for NJNG for fiscal 2015 and fiscal 2014, respectively, which is being amortized over the life of the related assets
$
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, North Carolina,
Louisiana, Montana, Kansas, Iowa and the City of New York. The Company neither files in, nor believes it has a filing requirement
in, any foreign jurisdictions, except Canada.
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
fiscal 2013.
The State of New Jersey is currently conducting a sales and use tax examination for the period from July 1, 2011 through
June 30, 2015, and a corporate business tax examination for the period from October 1, 2009 through September 30, 2013. All
periods subsequent to those ended September 30, 2010, are statutorily open to examination in all applicable states with the exception
of New York. In New York, all periods subsequent to September 30, 2012, 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.
Page 109
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2015 and 2014, based on its analysis, the Company determined
there was no need to recognize any liabilities associated with uncertain tax positions.
As of September 30, 2015, the Company has state income tax net operating losses of approximately $218.1 million, which
generally have a life of 20 years. The company has recorded a deferred state tax asset of approximately $12.8 million on the
Consolidated Balance Sheets, reflecting the tax benefit associated with the loss carryforwards. In addition, as of September 30,
2015 and 2014, the Company has recorded a valuation allowance of $176,000 and $212,000, respectively, because it believes that
it is more likely than not that the net operating losses related to CR&R and NJR will expire unused.
In addition, as of September 30, 2015, the Company has an ITC/PTC carryforward of approximately $22.1 million, which
has a life of 20 years. This carryforward will begin to expire in fiscal 2035. The Company expects to utilize this entire carryforward
in fiscal 2016.
The deferred tax assets will expire as follows:
(Thousands)
Fiscal years 2016 - 2019
Fiscal years 2020 - 2024
Fiscal years 2025 - 2029
Fiscal years 2030 - 2035
Total
$
—
—
43
34,814
$ 34,857
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 annual fixed charges of approximately $86.9 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 are 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.
Commitments as of September 30, 2015, for natural gas purchases and future demand fees for the next five fiscal year periods
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
Total (1)
(1)
2016
2017
2018
2019
2020
Thereafter
$ 230,355 $
27,734
82,777
$ 340,866 $
4,438 $
12,162
35,118
51,718 $
— $
7,591
15,440
23,031 $
— $
4,473
7,513
11,986 $
— $
3,672
4,256
7,928 $
$
64,834 $
29,019
57,840
71,248 $
25,332
81,767
5,345
89,431
$ 151,693 $ 178,347 $ 118,978 $ 101,277 $
94,776 $
$ 492,559 $ 230,065 $ 142,009 $ 113,263 $ 102,704 $
11,079
90,198
11,516 $
15,871
91,591
— $
— $
—
3,270
3,900
7,170
—
—
783,029
783,029
790,199
Does not include amounts related to intercompany asset management agreements between NJRES and NJNG.
Page 110
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
As of September 30, 2015, the Company's future minimum lease payments under various operating leases will not be more
than $2.4 million annually for the next five years and $36.6 million in the aggregate for all years thereafter.
Guarantees
As of September 30, 2015, there were NJR guarantees covering approximately $286.3 million of natural gas purchases and
NJRES demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
Legal Proceedings
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of five MGP sites, dating back to gas operations in the late 1800s and early 1900s,
which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative
proceedings with the NJDEP, and participating in various studies and investigations by outside consultants, to determine the nature
and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under
Administrative Consent Orders or Memoranda of Agreement with the NJDEP.
NJNG may recover its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a 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 and to recover $8.5 million annually related to the SBC RA factor. The petition was approved by the BPU on
May 19, 2015, with rates effective June 1, 2015. As of September 30, 2015, $18.9 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 $150.9 million to $242.1 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, 2015, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $180.4 million on the
Consolidated Balance Sheets, 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 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 non-recoverable costs would be charged to income in the period of such
determination.
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, the ultimate disposition of these matters will not have a material effect on its financial condition, results of
operations or cash flows.
Page 111
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
14. BUSINESS SEGMENT AND OTHER OPERATIONS DATA
NJR organizes its businesses based on its products and services as well as the 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;
and 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
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
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Interest income (2)
Natural Gas Distribution
Energy Services
Clean Energy Ventures
Midstream
Subtotal
Home Services and Other
Eliminations
Total
2015
2014
2013
$
781,970 $
819,415 $
787,987
1,872,781
2,858,703
2,351,084
61,526
72,114
5,494
32,513
14,575
11,988
2,748,790
3,764,807
3,156,553
46,723
45,452
47,009
1,980
(63,506)
945
(6,439)
$ 2,733,987 $ 3,738,145 $ 3,198,068
1,235
(73,349)
$
$
$
43,085 $
90
40,540 $
59
17,297
11,295
6
6
60,478
51,900
952
(31)
61,399 $
846
(4)
52,742 $
336 $
438
26
977
1,777
217
(1,414)
$
580 $
999 $
222
—
950
2,171
1
(950)
1,222 $
37,999
44
8,477
6
46,526
786
(2)
47,310
653
1
—
1,065
1,719
2
(884)
837
(1)
(2)
Includes sales to Canada, which accounted for 3.7, 3.3 and 5.9 percent of total operating revenues during fiscal 2015, 2014 and 2013, respectively.
Included in other income, net on the Consolidated Statement of Operations.
Page 112
New Jersey Resources Corporation
Part II
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
Eliminations
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
Midstream
Total
Page 113
2015
2014
2013
18,534 $
1,209
16,683 $
1,725
7,635
717
28,095
49
(423)
27,721 $
39,544 $
39,043
(26,968)
6,849
58,468
1,551
(295)
59,724 $
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
2,534
3,387
1,962
22,878
1,101
—
23,979
35,399
10,516
(17,711)
4,993
33,197
2,550
(172)
35,575
17,487 $
(4,078)
13,409 $
14,078 $
(3,546)
10,532 $
13,868
(3,519)
10,349
76,287 $
42,122
74,204 $
79,735
20,101
9,780
12,654
7,498
148,290
174,091
3,420
(207)
151,503 $
2,798
(32)
176,857 $
73,846
19,311
10,060
7,199
110,416
3,292
(27)
113,681
168,875 $
151,002
152,566 $
135,543
319,877
288,109
209
320,086 $
1,179
289,288 $
137,083
59,125
196,208
1,042
197,250
5,780
5,780 $
555
555 $
—
—
$
$
$
$
$
$
$
$
$
$
$
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company's 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 NFE
Less:
Unrealized (gain) loss on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Tax adjustments
Consolidated net income
2015
151,503 $
2014
176,857 $
$
2013
113,681
(38,681)
(8,225)
17,449
180,960 $
28,534
26,639
(20,286)
141,970 $
(9,418)
7,635
655
114,809
$
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
2015
2014
2013
$ 2,331,060 $ 2,143,684 $ 2,094,940
468,096
457,080
269,718
526,475
182,184
380,707
153,891
253,663
153,536
3,309,437
3,135,362
2,970,235
94,206
(64,605)
85,293
(50,745)
$ 3,339,038 $ 3,158,804 $ 3,004,783
82,413
(58,971)
(1)
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
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, 2015, 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 October 31,
2020. Demand fees, net of eliminations, associated with both Steckman Ridge and Iroquois were $6.6 million, $6.2 million and
$6.1 million during the fiscal years ended September 30, 2015, 2014 and 2013, respectively. As of September 30, 2015, NJRES
had demand fees payable of $375,000 and $403,000 to Steckman Ridge and Iroquois, respectively, which are included in gas
Page 114
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
purchases payable. As of September 30, 2014, fees payable to Steckman Ridge and Iroquois were $187,000 and $389,000
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 $6.3 million, $6.4 million and $5.9
million during the fiscal years ended September 30, 2015, 2014 and 2013, respectively. NJNG had demand fees payable to
Steckman Ridge in the amount of $775,000 as of September 30, 2015 and $775,000 as of September 30, 2014. NJNG had fees
payable to Iroquois of $48,000 and $48,000 as of September 30, 2015 and September 30, 2014, 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 retains the right to
purchase market priced or fixed price storage gas from NJRES. As of September 30, 2015, NJNG and NJRES had three asset
management agreements with expiration dates ranging from March 2016 through October 2016.
In the fourth quarter of fiscal 2014, NJNG entered into a 15-year transportation precedent agreement for committed 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 2015 and 2014 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.
(Thousands, except per share data)
2015
Operating revenues
Gross margin (1)
Operating income (loss)
Net income (loss)
Earnings (loss) per share
Basic
Diluted
2014
Operating revenues
Gross margin (1)
Operating income (loss)
Net income (loss)
Earnings (loss) per share
Basic
Diluted
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
$ 824,124 $ 1,013,090 $ 458,467 $ 438,306
$ 225,787 $ 145,189 $
82,177
82,806 $
$ 168,697 $
60,903 $
$ 123,320 $
51,217 $
(9,309) $
(7,460) $
6,257
4,197
$1.46
$1.44
$0.71
$0.71
$(0.09)
$(0.09)
$0.05
$0.05
$ 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) $
$
$
$0.09
$0.09
$2.06
$2.04
$(0.17)
$(0.17)
$(0.29)
$(0.29)
(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 (which was phased out in January 2014) and regulatory rider expenses.
The sum of quarterly amounts may not equal the annual amounts due to rounding.
Page 115
New Jersey Resources Corporation
Part II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure 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.
Attestation Report of Registered Public Accounting Firm
The attestation report required under this ITEM 9A is contained in ITEM 8 of this 10-K under the caption Report of
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, 2015, that has materially affected, or is reasonably likely to materially
affect, internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
Page 116
New Jersey Resources Corporation
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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 2016 Annual
Meeting of Shareholders, which will be filed with SEC pursuant to Regulation 14A within 120 days after September 30, 2015.
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 Code 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 117
New Jersey Resources Corporation
Part IV
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 122
Page 118
New Jersey Resources Corporation
Part IV
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and qualifying accounts and reserves for each of the three years in the period ended
September 30, 2015
Page
120
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.
Page 119
New Jersey Resources Corporation
Part IV
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2015, 2014 and 2013
Valuation allowance for Deferred tax assets
CLASSIFICATION
2015
Allowance for doubtful accounts
2014
Allowance for doubtful accounts
2013
Regulatory asset
Allowance for doubtful accounts
(1)
Uncollectible accounts written off, less recoveries and adjustments.
ADDITIONS
CHARGED
TO
EXPENSE OTHER
(1)
ENDING
BALANCE
BEGINNING
BALANCE
$
$
$
$
5,357
2,859
(3,027) $
5,189
5,330
2,504
(2,477) $
5,357
71
4,797
(71)
2,627
— $
(2,094) $
—
5,330
Page 120
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.
Date: November 24, 2015
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:
November 24, 2015
November 24, 2015
/s/ Laurence M. Downes
Laurence M. Downes
Chairman, President and
Chief Executive Officer
Director
/s/ Lawrence R. Codey
Lawrence R. Codey
Director
November 24, 2015
/s/ Alfred C. Koeppe
Alfred C. Koeppe
Director
November 24, 2015
/s/ Glenn C. Lockwood
Glenn C. Lockwood
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
November 24, 2015
November 24, 2015
/s/ Donald L. Correll
Donald L. Correll
Director
/s/ Robert B. Evans
Robert B. Evans
Director
November 24, 2015
/s/ M. William Howard, Jr.
M. William Howard, Jr.
Director
November 24, 2015
November 24, 2015
November 24, 2015
/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 24, 2015
/s/ Jane M. Kenny
Jane M. Kenny
Director
November 24, 2015
/s/ George R. Zoffinger
George R. Zoffinger
Director
Page 121
EXHIBIT INDEX
New Jersey Resources Corporation
Part IV
Exhibit
Number
3.1
3.2
4.1
4.2
4.2(a)
4.2(b)
4.3
4.4
4.5
4.5(a)
4.5(b)
4.6
4.6(a)
4.7
4.7(a)
4.8
Exhibit Description
Restated Articles of Incorporation of New Jersey Resources Corporation, as amended through March 1, 2015
(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, as filed on January 23, 2014, and
Exhibit 3.1 to the Current Report on Form 8-K, as filed on March 3, 2015)
Bylaws of New Jersey Resources Corporation, as amended through July 15, 2015 (incorporated by reference to
Exhibit 3.2 to the Current Report on Form 8-K, as filed on July 17, 2015)
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)
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)
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,
2014)
First Supplemental Indenture dated as of April 1, 2015, between NJNG and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015, as filed on May 7, 2015)
$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)
$425,000,000 Amended and Restated Credit Agreement dated as of September 28, 2015, 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, and PNC Capital Markets
LLC, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K as filed on October 2, 2015)
$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)
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)
Second Amendment to the Prudential Facility dated as of September 28, 2015, between the Company and
Prudential Investment Management, Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K as filed on October 2, 2015)
$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)
First Amendment to Note Purchase Agreement dated as of September 28, 2015, by and among the Company,
New York Life Insurance Company and New York Life Insurance and Annuity Company (incorporated by
reference to Exhibit 10.5 to the Current Report on Form 8-K, as filed on October 2, 2015)
$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)
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)
$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)
Page 122
New Jersey Resources Corporation
Part IV
Exhibit
Number
4.8(a)
4.9
4.10
4.11
4.12
4.13
Exhibit Description
First Amendment to the $100,000,000 Shelf Note Purchase Agreement dated as of September 28, 2015, between
New Jersey Resources Corporation and Metropolitan Life Insurance (incorporated by reference to Exhibit 10.4 to
the Current Report on Form 8-K, as filed on October 2, 2015)
$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)
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)
4.13(a)
First Amendment to Shelf Note Purchase Agreement dated as of September 28, 2015, between New Jersey
Resources Corporation and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.3 to
the Current Report on Form 8-K, as filed on October 2, 2015)
4.14
10.1*
$150,000,000 Note Purchase Agreement dated as of February 12, 2015, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K, as filed on February 17, 2015)
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)
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, 2015)
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 Performance Shares Agreement (TSR) (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, as filed on December 23, 2014)
Page 123
New Jersey Resources Corporation
Part IV
Exhibit
Number
10.10*
Exhibit Description
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)
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*
10.12*
10.13*
10.14*
10.15*
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)
2007 Stock Award and Incentive Plan Form of Performance Shares Agreement (NFE) (incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K, as filed on December 23, 2014)
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)
2007 Stock Award and Incentive Plan Form of Performance-Based Restricted Stock Agreement (FY 2015)
(incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, as filed on December 23, 2014)
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 10.3 to the Current Report on Form 8-K, as filed on December 23, 2014)
10.16*
10.17*
10.18
10.19
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)
2007 Stock Award and Incentive Plan Form of Restricted Stock Agreement (incorporated by reference to Exhibit
10.4 to the Current Report on Form 8-K, as filed on December 23, 2014)
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)
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)
10.24
Contribution Agreement by and among NJNR Pipeline Company, Dominion Midstream Partners, LP and Iroquois
GP Holding Company, LLC dated August 14, 2015 (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K, as filed on August 17, 2015)
21.1+
Subsidiaries of the Registrant
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, 2015, 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.
Page 124
SHAREOWNER INFORMATION
ANNUAL MEETING
The Annual Shareowners Meeting will be held at 9:30 a.m. on January
• Increase your holdings in NJR by reinvesting all or some of your cash
20, 2016 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, Director — Corporate Communications,
at 732-938-1031. Correspondence can be sent to New Jersey Resources,
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.
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 800-817-3955.
Dividends on common stocks are currently declared quarterly by the
Board of Directors. Future dividends are dependent on a number of factors,
including our earnings, financial condition, shareowner equity levels,
our cash flow and business requirements, as determined 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’
General written inquiries and address changes may be sent to:
bank accounts so the funds are available the same day they are paid.
Wells Fargo Shareowner Services
P.O. Box 64874, St. Paul, MN 55164-0874
or
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN 55120-4100
Please contact WFSS for details.
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:
Shareowners can view their account information online at
• Annual Report and Form 10-K
shareowneronline.com.
NEW JERSEY RESOURCES DIRECT STOCK PURCHASE AND
DIVIDEND REINVESTMENT PLAN
The New Jersey Resources Direct Stock Purchase and Dividend
Reinvestment Plan, NJR Direct, provides a convenient and economical
method for new eligible investors to make an initial investment in shares
of common stock and for existing shareowners to invest in additional
shares of common stock or reinvest all or some of their common stock
• Form 10-Q
• Form 8-K
• Quarterly Earnings News Release
• Audit Committee Charter
• Corporate Governance Guidelines
• Leadership Development and Compensation Committee Charter
• Nominating/Corporate Governance Committee Charter
• NJR Code of Conduct
cash dividends. This is neither an offer to sell nor a solicitation of an offer
These documents, as well as other filings made with the Securities and Exchange
to buy securities. The Plan is administered by WFSS.
Commission, also are available through njresources.com.
As a participant in NJR Direct, you can:
Information in this Annual Report should not be considered a solicitation of
the sale or purchase of securities.
• 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
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