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A L L T OG E T H E R
2 0 1 6 A n n u a l R e p o r t
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www.njresources.com
We are a caring team of mothers
and fathers, sisters and
brothers, daughters and sons. We are
family and friends. We are
homeowners and neighbors. We are
co-workers and customers. We are
investors and environmental
stewards. We are volunteers and
valued partners. We are committed
to the wonderful communities
we serve. And together, we are proud
to work for New Jersey Resources —
a company dedicated to creating a
more reliable, resilient future.
New Jersey Resources | Page 1
W E A R E C O M M I T T E D
to enhancing our customers’ quality of life by meeting their
expectations for reliability and value in an environmentally
responsible way — every day.
S a f e , R e l i a b l e a n d
C o m p e t i t i v e l y P r i c e d S e r v i c e
C u s t o m e r S a t i s f a c t i o n
G r o w t h
Q u a l i t y
V a l u i n g E m p l o y e e s
C o r p o r a t e C i t i z e n s h i p
S u p e r i o r R e t u r n
Contents:
Financial Performance
Letter from the Chairman
Features
Corporate Profile
Directors and Officers
Presenting Our 2016 Form 10-K
Form 10-K
Shareowner Information
3
4
12
24
26
28
31
IBC
New Jersey Resources | Page 2
F i n a n c i a l P e r f o r m a n c e
DIVIDENDS PER SHARE
PAYOUT RATIO (On an NFE‡ basis)
$0.86
$0.92
$0.98
$0.77
$0.81
$1.00
$0.75
$0.50
$0.00
57%
59%
61%
51%
41%
75%
50%
25%
0%
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
PERFORMANCE GRAPH*
VALUE OF $10,000 INVESTED§ (9/30/11)
$250
$200
$150
$100
$50
$18,253
$16,200
$11,107
$11,112
$13,197
Company
Peer Group†
S&P 500
NJR
S&P 500
Utilities
$20,000
$15,000
$10,000
$5,000
$0
2011
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
* The performance graph shows a comparison of the five-year cumulative
return, including reinvestment of dividends, assuming $100 invested
on September 30, 2011, in New Jersey Resources (NJR) stock, the New
Company Peer Group and the S&P 500 Index.
† The nine companies in the Company Peer Group noted above are
comprised of: Atmos Energy Corporation, Spire, Inc. (formerly, The
Laclede Group, Inc.), Northwest Natural Gas Company, ONE Gas, Inc.,
Piedmont Natural Gas Company, Inc., South Jersey Industries, Inc.,
Southwest Gas Corporation, Vectren Corporation and WGL Holdings,
Inc. AGL Resources, Inc. (AGL), Questar Corporation and UIL Holdings,
Inc. (UIL) are no longer in the Company Peer Group since they no longer
exist as a result of acquisitions by merger. Accordingly, AGL, Questar
Corporation and UIL are no longer in our line of business or industry.
‡ Net financial earnings (NFE) is a financial measure not calculated in
accordance with generally accepted accounting principles (GAAP) of
the United States as it excludes all unrealized and certain realized gains
and losses associated with derivative instruments, net of applicable tax
adjustments. For further discussion and a reconciliation to GAAP of this
non-GAAP financial measure, please see our fiscal 2016 Form 10-K.
§ Assumes Dividends Reinvested
** Solar Renewable Energy Certificates (SRECs) represent the financial value
of the environmental benefit created by solar energy.
†† Utility gross margin is a non-GAAP financial measure, which is defined
as natural gas revenues less natural gas costs, sales and other taxes and
regulatory rider expenses, and may not be comparable to the definition of
gross margin used by others in the natural gas distribution business and
other industries. For further discussion and a reconciliation to GAAP of this
non-GAAP financial measure, please see our fiscal 2016 Form 10-K.
‡‡ Concentric Energy Advisors issued a report on October 14, 2016, regarding
PennEast Pipeline Company, LLC, reaffirming the need for the project. A
copy of the report may be found at penneastpipeline.com.
§§ PJM Interconnection delivered to FERC on October 20, 2016, a presentation
underscoring the need for additional natural gas transmission, citing
PennEast Pipeline as an example. A copy of the report may be found at
penneastpipeline.com.
Information Regarding Forward-Looking Statements — This annual report
contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, Section 21E of the Securities Exchange
Act of 1934, as amended, and the Private Securities Litigation Reform Act of
1995. New Jersey Resources (NJR or the Company) cautions readers that the
assumptions forming the basis for forward-looking statements include many
factors that are beyond NJR’s ability to control or estimate precisely, such
as estimates of future market conditions and the behavior of other market
participants. Words such as “anticipates,” “estimates,” “expects,” “projects,”
“may,” “will,” “intends,” “plans,” “believes,” “should” and similar expressions
may identify forward-looking statements and such forward-looking statements
are made based upon management’s current expectations, assumptions and
beliefs as of this date concerning future developments and their potential
effect upon NJR. There can be no assurance that future developments will
be in accordance with management’s expectations, assumptions and beliefs
or that the effect of future developments on NJR will be those anticipated
by management. Forward-looking statements in this annual report include,
but are not limited to, certain statements regarding NJR’s NFE guidance for
fiscal 2017 and to NFE beyond fiscal 2017, forecasted contribution of business
segments to fiscal 2017 NFE and to NFE beyond fiscal 2017, forecasted dividend
growth, growing energy demand, future NJNG customer growth, capital plans
and expenditures and infrastructure investments, NJRCEV’s onshore wind
and solar investments, the extension of the PTC and ITC, the effect of SREC
prices, supply, hedges and generation on NJRCEV, diversification of NJRCEV’s
strategy and the PennEast Pipeline project.
The factors that could cause actual results to differ materially from NJR’s
expectations include, but are not limited to, weather and economic conditions;
demographic changes in NJR’s service territory and their effect on NJR’s
customer growth; volatility of natural gas and other commodity prices and
their impact on NJNG customer usage, NJNG’s BGSS incentive programs,
NJRES operations and on our risk management efforts; changes in rating
agency requirements and/or credit ratings and their effect on availability and
cost of capital to our Company; the impact of volatility in the credit markets
on our access to capital; the ability to comply with debt covenants; the impact
to the asset values and resulting higher costs and funding obligations of our
pension and postemployment benefit plans as a result of potential downturns
in the financial markets, lower discount rates, revised actuarial assumptions
or impacts associated with the Patient Protection and Affordable Care Act;
accounting effects and other risks associated with hedging activities and
use of derivatives contracts; commercial and wholesale credit risks, including
the availability of creditworthy customers and counterparties, and liquidity in
the wholesale energy trading market; the ability to obtain governmental and
regulatory approvals, land-use rights, electric grid connection (in the case of
clean energy projects) and/or financing for the construction, development and
operation of our unregulated energy investments and NJNG’s infrastructure
projects in a timely manner; risks associated with the management of our joint
ventures and partnerships, and investment in a master limited partnership;
risks associated with our investments in clean energy projects, including the
availability of regulatory and tax incentives, the availability of viable projects,
our eligibility for ITCs and PTCs, the future market for SRECs and electricity
prices, 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 and the resulting effect on our effective tax rate and earnings;
the level and rate at which NJNG’s costs and expenses are incurred and the
extent to which they are allowed to be recovered from customers through
the regulatory process, including through future base rate case filings; 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; 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 on our operations and customers. The aforementioned
factors are detailed in the “Risk Factors” sections of our Annual Report on Form
10-K filed with the Securities and Exchange Commission (SEC) on November 22,
2016, which is available on the SEC’s website at sec.gov. Information included in
this annual report is representative as of today only, and while NJR periodically
reassesses material trends and uncertainties affecting NJR’s results of operations
and financial condition in connection with its preparation of management’s
discussion and analysis of results of operations and financial condition contained
in its Quarterly and Annual Reports filed with the SEC, NJR does not, by including
this statement, assume any obligation to review or revise any particular forward-
looking statement referenced herein in light of future events.
New Jersey Resources | Page 3
D E A R F E L L O W S H A R E O W N E R ,
We depend on energy for virtually everything we do.
It heats our homes, lights our lamps, powers our
businesses and cars, grows our economy and fuels
our future. Without energy, life as we know it is
impossible to imagine.
Energy is the foundation of modern society and
our company. From our earliest days as a natural gas
utility, New Jersey Resources (NJR) has been guided
by a relentless focus on meeting our customers’
expectations for safe and reliable service in an
environmentally responsible way. The dedication and
talent of our team of exceptional employees, many
whom are featured in this report, are the driving force
behind our performance and all we do. In the
pages that follow, you will see how the women and
men of NJR work together to serve our customers,
F I S C A L 2 0 1 6 W A S A N O T H E R S O L I D
strengthen our communities and reward the confidence
Y E A R F O R O U R C O M P A N Y
of our shareowners.
• Net financial earnings (NFE)‡ were $138.1 million, or
Year after year, our team is able to meet our
$1.61 per basic share, compared with $151.5 million, or
customers’ expectations for safety and reliability,
$1.78 per share, last fiscal year.
identify market opportunities, execute our plan
• In September, our Board of Directors approved a
and achieve consistent results. We remain focused
6.3 percent dividend increase to an annual rate of
on our core competencies — a strong financial
$1.02 per share, which is the 23rd increase since 1995.
profile, disciplined capital allocation and a diverse
• Our shareowners were rewarded with a total return on
investment portfolio — which support our commitment
their investment of 12.6 percent.
to the customers and communities we serve. The
• New Jersey Natural Gas (NJNG), our principal subsidiary,
performance we deliver has made us one of the most
delivered steady financial results with NFE of $76.1 million,
respected companies in our industry.
compared with $76.3 million last fiscal year.
New Jersey Resources | Page 4
• NJR Clean Energy Ventures (NJRCEV), our clean
Our strategy is built on three pillars: natural gas,
energy subsidiary, produced NFE of $28.4 million,
energy efficiency and clean energy. Natural gas is the
compared with $20.1 million in fiscal 2015.
core of our business. It represents the largest part of
• NJR Energy Services (NJRES), our unregulated wholesale
our business and accounts for the majority of our
energy services business, had NFE of $21.9 million,
investment, infrastructure and people. We will build on
compared with $42.1 million last fiscal year. Although
this base with innovative energy-efficiency programs
warmer-than-normal weather across the United States
and a focused clean energy strategy to reduce GHG
in fiscal 2016 resulted in lower market volatility when
emissions, provide price stability and sustain our
compared with the previous two years, once again,
financial objectives. This balanced strategy will support
NJRES exceeded our expectations.
our future growth by promoting natural gas as an
• NJR Midstream, our natural gas storage and pipeline
essential, low-cost energy fuel, while recognizing the
business, generated NFE of $9.4 million, compared
important role of energy efficiency and clean energy in
with $9.8 million in fiscal 2015.
a comprehensive national energy policy.
• And, NJR Home Services (NJRHS), our retail and
appliance service business, earned NFE of $2 million in
Our long-term NFE growth goal is a range of 5 to
fiscal 2016, compared with $2.4 million last fiscal year.
9 percent, with dividend growth of 6 to 8 percent
annually. These results will be driven by investment in
regulated infrastructure, cost-efficient clean energy,
physical and producer services and midstream assets.
T H E S T R A T E G I C F O U N D A T I O N O F
NJNG, which represents the majority of our resources
O U R B U S I N E S S
and revenues, will continue to drive our long-term
growth primarily through regulated infrastructure
We have immense opportunities before us to responsibly
investments and customer additions. NJRCEV will
meet our nation’s growing demand for energy, reduce
pursue residential and commercial net-metered solar
greenhouse gas (GHG) emissions and help customers
and onshore wind opportunities, and build out its
save on their energy bills. It is clear no single energy
inventory of state-approved, grid-connected commercial
supply source can accomplish these goals. If we are
projects. Our solar investments will add to our supply of
to create a cleaner, more reliable and resilient future,
Solar Renewable Energy Certificates (SRECs)** that can
natural gas and clean energy must play leading roles.
be sold to electric suppliers to satisfy the requirement
New Jersey Resources | Page 5
that a portion of the state’s electric generation
In fiscal 2016, through our Safety Acceleration and
comes from renewable sources. NJRES, leveraging its
Facility Enhancement (SAFE) program, NJNG eliminated
expertise in a constantly changing marketplace, will
the last of the cast iron main from our system — the
provide physical and producer natural gas services.
first natural gas utility in New Jersey to do so. Through
NJR Midstream will invest in and develop storage and
this four-year, accelerated infrastructure program,
transportation projects, including the PennEast Pipeline
we replaced a total of 299 miles of cast iron and
(PennEast), to provide access to lower-cost supply,
unprotected steel main and associated services.
increase reliability and stabilize energy prices. And
NJRHS, in response to changing customer expectations
Following Superstorm Sandy in 2012, we filed for our
and demand, will expand its product and service
New Jersey Reinvestment in System Enhancement (NJ
offerings while growing our service contract business.
RISE) program at the request of the BPU. Under this
program, work began on six capital projects. To date,
Working collaboratively with our regulators at the
we have invested $18.8 million through NJ RISE and
New Jersey Board of Public Utilities (BPU) and the
installed more than 7,300 excess flow valves. We expect
New Jersey Division of Rate Counsel (Rate Counsel)
to complete all six projects by fiscal 2019.
remains an important part of our strategy. Our prudent
investments in resiliency and energy efficiency reflect
NJNG continues to make progress on our Southern
our shared goals, which promote safe, reliable
Reliability Link (SRL) project. After an extensive and
service and support New Jersey’s environmental and
thorough review the BPU, earlier this year, approved
energy policies.
N A T U R A L G A S — R E G U L A T E D
D I S T R I B U T I O N
our filing to construct and operate this pipeline. NJNG’s
distribution system is currently served primarily by
one interstate pipeline, which provides between 85
and 90 percent of our total natural gas supply. When
completed, the SRL will serve as a critical second
source of supply that will strengthen our entire system.
It will support the safe, reliable delivery of natural gas
Our long-term performance is supported by a disciplined
to 83 municipalities in Ocean, Monmouth and Burlington
approach that begins with consistent investment in
counties, benefitting over 1 million people. In addition,
our regulated infrastructure. Our extensive pipeline
the SRL will provide greater resiliency to Joint Base
network of over 7,300 miles of distribution and
McGuire-Dix-Lakehurst, New Jersey’s second largest
transmission main now serves more than 521,000
employer with more than 42,000 on-base personnel.
customers throughout New Jersey’s Monmouth, Ocean,
Morris, Middlesex and Burlington counties. Since fiscal
In fiscal 2016, our team successfully completed
2008, we have invested more than $1 billion in that
the construction of a new natural gas liquefier at our
system. And over the past six years, we re-invested an
Liquefied Natural Gas (LNG) plant in Howell, New
average of $60 million annually in system growth and
Jersey. This system enhancement will enable us to
renewal projects. As a result of these investments,
liquefy pipeline natural gas for peak-day use, better
we have the lowest number of leaks-per-mile of any
utilize our existing LNG facilities and significantly
natural gas utility in the state.
reduce truck traffic and GHG emissions related to
New Jersey Resources | Page 6
$76.1
million in NFE delivered by NJNG,
our principal subsidiary
gross margin.†† From fiscal 2017 through 2019, we
expect to add between 24,000 and 27,000 new customers,
almost equally distributed between new construction
and conversions.
In September 2016, the BPU approved the settlement
of NJNG’s base rate case — only our second rate increase
request since 1993 — which will strengthen our ability
to meet our customers’ expectations and provide safe
and reliable service. Effective October 1, 2016, total
annual revenue will increase by $45 million, including a
9.75 percent return on equity (ROE) with a 52.5 percent
common equity ratio.
Our Basic Gas Supply Service incentive programs
the transportation of LNG while creating savings for
continue to be successful, saving customers over
our customers.
$75 million and generating $15 million in utility gross
margin in fiscal 2016. Developed in partnership with
These substantial capital investments strengthen our
the BPU and Rate Counsel, our incentive programs
system, enhance safety and reliability and honor the
complement our natural gas procurement activities
trust our customers place in us.
and provide lower costs for our customers and value for
S T R O N G A N D D I V E R S I F I E D
C U S T O M E R A N D M A R G I N G R O W T H
our shareowners. Since 1992, customers have saved
nearly $876 million, and shareowners earned $1.35 per
share or an average of $.05 per share annually.
The demographics of our service territory and the
W H O L E S A L E E N E R G Y S E R V I C E
benefits of natural gas provide a strong foundation
I S A N I M P O R T A N T P A R T O F O U R
for steady customer growth and higher gross margin.
S T R A T E G Y
In fiscal 2016, NJNG added 8,170 new customers, a
4 percent increase over last year. This strong customer
Through NJRES, our extensive market expertise
growth is the highest since fiscal 2007. More than
extends into natural gas storage and pipeline capacity,
640 existing customers converted to natural gas heat
as well as end-user markets and supply management.
or added other services to their facilities. In addition,
With its diverse portfolio of supply contracts and
Nestlé USA became our single largest industrial
physical storage and transportation capacity, NJRES
customer when it converted from interruptible to firm
manages and provides physical natural gas service to
transport service. Together, we expect these customer
utilities, power generators, storage operators, pipelines
additions to contribute $5.4 million annually to utility
and industrial customers across North America.
New Jersey Resources | Page 7
In fiscal 2016, NJRES transported over 1.68 billion
Interconnection, the world’s largest wholesale electricity
cubic feet (Bcf ) of natural gas daily and maintained
market operator, emphasized the need for natural gas
transportation capacity on almost every major
transmission to ensure additional grid reliability and
interstate pipeline in the United States. Our team
supply options, and cited the importance of midstream
continues to meet the growing natural gas needs of
projects like PennEast.§§ Pending regulatory approvals,
our customers and create value by focusing on
we currently expect construction to commence in
producer, asset management and physical natural gas
fiscal 2018.
services. Through the combination of our strategically
located assets, portfolio of services as well as the
NJRHS now has more than 113,000 customers signed
knowledge and talent of our team, NJRES is
up for our service contracts, including our Total
recognized as a leader in the growing wholesale
Comfort and Platinum Comfort plans. We continue
natural gas market.
G R O W I N G M I D S T R E A M
I N V E S T M E N T S
NJR Midstream maintains approximately 1.8 million
common units in Dominion Midstream Partners, LP
(NYSE: DM), a master limited partnership acquired in
to expand our product offerings and installed nearly
1,400 heating, ventilation and air-conditioning
systems and more than 2,100 water heaters.
Additionally, NJRHS installed 200 residential solar
systems and completed 95,900 service requests and
maintained an impressive customer satisfaction rate
of 96.7 percent.
fiscal 2015 in exchange for our 5.53 equity ownership
T H E B E N E F I T S O F E N E R G Y
in the Iroquois Gas Transmission System. We also
E F F I C I E N C Y
have a 50-percent ownership stake in the Steckman
Ridge storage field located in Bedford County,
Energy efficiency is the fastest and easiest way to
Pennsylvania. This 12-Bcf facility began operating in
reduce energy bills and GHG emissions. As a result,
2009 and offers customers a range of natural gas
customers are focused more than ever on how much
storage options.
energy they use and its cost. When it comes to
maintaining the comfort of their homes, lowering
In addition to these investments, we have a 20-percent
expenses and reducing emissions, more and more
interest in PennEast, the proposed 118-mile pipeline
customers are making the decision to embrace the
designed to bring lower-cost natural gas from the
benefits of affordable, clean natural gas and invest
Marcellus Shale region of Pennsylvania to New Jersey
in energy-efficient equipment.
markets. More than 90 percent of PennEast’s capacity
is subscribed under long-term contracts. A recent study
Now in its seventh year, The SAVEGREEN Project ®
by Concentric Energy Advisors, Inc. substantiated the
(SAVEGREEN) provides NJNG customers with incentives
primary advantages of PennEast as providing access to
and financing for energy-efficiency upgrades and
lower-cost natural gas and adding supply security and
whole-house and building solutions to help offset energy
diversity, as well as price stability.‡‡ Additionally, PJM
costs and reduce their carbon footprint. SAVEGREEN’s
New Jersey Resources | Page 8
$28.4
million in NFE produced by our clean
energy subsidiary NJRCEV
helped customers save $28.5 million on their energy
costs by using less natural gas, and maintained
$10.4 million in utility gross margin in fiscal 2016. Since
the program’s inception, customers have saved a total
of $362 million through reduced usage and eliminated
more than 4.2 billion pounds of carbon dioxide, the
equivalent of removing over 400,000 cars from our
roadways each year. We will continue to evaluate
innovative ways to help customers save energy and
money, as well as reduce emissions.
T H E P R O M I S E O F C L E A N E N E R G Y
offerings augment those available through New Jersey’s
Opportunities for clean energy projects continue to
Clean Energy Program™, and support the state’s Energy
improve with the extension of federal tax incentives,
Master Plan. This past year, we invested over $19 million
coupled with lower solar and wind construction
to help customers use energy more wisely.
material costs. While currently representing just 7
percent of the nation’s total electric generation mix,
Since its inception in 2009, our SAVEGREEN team
solar and wind are expected to be growing segments
completed nearly 37,000 energy audits, awarded over
of our energy future.
45,000 rebates for high-efficiency equipment upgrades
and helped nearly 45,000 customers save money on
Capitalizing on this growth opportunity, NJRCEV
their energy bills. The number of contractors who
has invested over $475 million to provide customers in
have participated in the program has grown from 100
New Jersey with clean, affordable electricity through
to 2,500, and NJNG’s total investment of $137 million
solar investments. The Sunlight Advantage ®, our
has generated an estimated $336 million of economic
residential solar lease program launched in 2010, now
activity in our service territory.
operates in 20 of New Jersey’s 21 counties, providing
customers with an average savings of 30 percent when
Earlier this year, the BPU also approved an extension
compared with their current electric utility rates. This
of SAVEGREEN through December 31, 2018. Assuming
year we added 1,123 residential solar lease customers,
full participation, NJNG is authorized to invest $219
bringing the total number of Sunlight Advantage
million over the life of the program, and earn an overall
customers to more than 5,100. We also constructed five
ROE ranging from 9.75 to 10.3 percent.
commercial solar projects in New Jersey that qualify
for Investment Tax Credits (ITCs). We now have in
Additionally, our Conservation Incentive Program,
excess of 568,000 solar panels, a total of nearly 150
launched in 2006, enables us to actively encourage
megawatts (MW), projected to generate more than
conservation while protecting utility gross margin. We
183,000 SRECs annually.
New Jersey Resources | Page 9
Our clean energy strategy also includes investment in
onshore wind. Today, wind projects account for
36 percent of our clean energy portfolio, representing
an investment of $150 million. This year, we successfully
completed construction on our third, and largest,
onshore wind farm in Rush County, Kansas. Consisting
of 21 turbines with a capacity of 50.7 MW, capable of
powering over 17,000 homes annually, the clean energy
produced by the Alexander Wind Farm is sold through
agreements with the Kansas City Board of Public
Utilities and Yahoo!, Inc. We also acquired the Medicine
Bow Wind Farm, located 80 miles outside of Cheyenne,
Wyoming, consisting of nine fully operational turbines
with a total capacity of 6.3 MW. The energy produced
is sold to the Platte River Power Authority, where it
12.6%
total return on investments for
our shareowners
is distributed to municipal utilities in Estes Park, Fort
Through our Volunteers Inspiring Service In Our
Collins, Longmont and Loveland, Colorado.
Neighborhoods or VISION program, our employees, retirees
and their families contributed over 5,000 hours of volunteer
NJRCEV previously completed onshore wind farms in
service to support nonprofit organizations in our service
Montana and Iowa and is currently building its fifth
territory. Additionally, over the course of two days this
project, Ringer Hill, in Somerset County, Pennsylvania.
summer, our employees dedicated more than 1,000 hours
When complete, our onshore wind capacity will
to help restore and refurbish facilities at the Tuckerton
exceed 126 MW — bringing our total clean energy
Seaport and Baymen’s Museum in Ocean County.
portfolio to more than 276 MW, enough clean energy
to power over 54,600 homes annually. NJRCEV retains
In total, we partnered with over 1,800 nonprofit and
all Production Tax Credits (PTCs) generated from our
community-based organizations to help fulfill their
portfolio of wind projects.
missions. Thanks to the dedication, time and talent of our
employees, every day we are making a difference in our
communities — and the lives of our neighbors in need.
O U R C O M M I T M E N T T O C O R P O R A T E
This year, we also celebrated the 20th anniversary of
C I T I Z E N S H I P
our Home Ownership Program. What began in 1996 as a
shared commitment with Interfaith Neighbors to provide
We take pride in the work we do for our customers
affordable housing in Asbury Park has grown to include
and shareowners. We also believe a company is not
partnerships with Homes for All, Inc. in Ocean County
exceptional based solely on financial performance. Our
and Morris Habitat for Humanity in Morris County.
commitment to corporate citizenship, as reflected by
Together, we have helped over 100 families realize their
our volunteer efforts in the communities where we live
dream of first-time homeownership. For us, this is what
and work, defines and distinguishes us.
corporate citizenship is all about.
New Jersey Resources | Page 10
T H E D R I V I N G F O R C E O F O U R
commitment. It is the dedication of our entire team that
C O M P A N Y
makes us the company we are today, and all we achieve
is made possible by their countless contributions.
All we do and all we achieve is a reflection of the character
and contributions of our team of talented employees.
I would also like to express my personal appreciation to
L O O K I N G A H E A D
the members of our Board of Directors for their vision
and support. I am grateful for their willingness to
share their diverse perspectives and expertise with us,
which has made us a better, stronger company.
Also, I want to thank our leadership team. All of the
accomplishments in this report are the result of their focus
and commitment to executing our plan. This year, we
strengthened our leadership team with the appointments
of Mariellen Dugan to chief operating officer – NJNG,
Patrick Migliaccio to chief financial officer – NJR and
Stephen Westhoven to chief operating officer – NJRES
and NJRCEV. Kathleen T. Ellis was named executive
vice president – NJR, along with Thomas J. Massaro as
senior vice president of Marketing, Customer Service and
Energy Efficiency – NJNG and Amanda Mullan as chief
Human Resources officer – NJR. Rhonda Figueroa was
appointed NJR’s corporate diversity officer, and Assistant
General Counsel Richard Reich was selected to serve as
the company’s corporate secretary. We also welcomed
Jaqueline Shea as our new chief information officer. I am
confident these leadership changes will ensure the long-
term continuity and success of our company.
As I said at the onset of this letter, it is our employees —
many whom are members of the International
Fiscal 2016 was another solid year for our company.
As we look ahead, the future is filled with promise. As
the demand for safe, reliable and clean energy
continues to grow, so do the opportunities before us.
Guided by our sound strategy, core competencies and
the innovative ideas of the women and men of NJR,
we are prepared to serve our customers, work with
our regulators and policymakers, make a difference
in our communities and reward our shareowners with
consistent results. That is our promise to you.
Our Annual Shareowners Meeting will be held at
9:30 a.m. on January 25, 2017, 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 send me an e-mail to lmdownes@njresources.com
and share your thoughts on our performance, as well as
any suggestions for improvement.
As always, I appreciate the confidence you place in us,
and pledge we will continue to give our best to deliver
performance of which we can all be proud.
Brotherhood of Electrical Workers (IBEW), Local 1820,
who are the driving force behind all we do. This year
Sincerely,
marks the 125th anniversary of the IBEW, whose members
represent a broad cross section of fields, including utility
workers. I am proud of the partnership we share with
our union employees and would like to recognize Local
Laurence M. Downes
President Jeff Bollermann for his leadership and
Chairman and CEO
New Jersey Resources | Page 11
J o n a t h a n E s p i r i t u
since 2016
Growing up at the Jersey Shore, the
and hands-on activities, eco-tours
beach has always been my playground.
and workshops designed to help
This place is home. It’s where I learned
participants appreciate the importance
to appreciate our unique coastal
of conserving energy and protecting
environment and never take it for granted.
our coastal resources. Nearly 15,000
We need to do all we can to preserve
Ocean Fun Days visitors learn firsthand
these natural treasures for future
from marine scientists, researchers and
generations to enjoy. That’s why I take
environmentalists what they can do to
great pride in working as an energy
safeguard our natural resources.
analyst for a company that shares my
passion for protecting our environment.
But Ocean Fun Days is so much more
than an annual event. It represents our
Each spring, we celebrate the Jersey
commitment to Conserve to Preserve ®
Shore at Ocean Fun Days. This event,
and instills and inspires environmental
now in its 15th year, is a favorite among
stewardship among the communities
customers and brings our community
we serve — so, together we can create
together for fun with an eco-friendly focus.
positive change, preserving our
precious Jersey Shore for generations
With over 40 exhibitors, Ocean Fun
Days offers free, interactive programs
to come.
New Jersey Resources | Page 13
R o l a n d D e M a r t i n o
since 2005
When I’m behind the wheel of my
to improve safety and reliability by
stock car, racing around the track,
removing all unprotected steel main and
I demand ultimate performance,
services to fully modernize our system —
maximum safety and dependability.
another anticipated first in the state.
Before each start, I meticulously
check and recheck every nut and
bolt to ensure my well-being and
that of others. I bring this same
level of commitment to my job as a
construction and renewal supervisor.
As a lifeline service provider, NJNG
continually invests in projects to
enhance the safety, reliability and
resiliency of our delivery system. In
fiscal 2016, we became the first natural
gas utility in the state to replace 100
percent of our cast iron main. Over
the next five years, we will continue
When it comes to safety — our number
one priority — we’re proud to be
recognized this year as “Best in Class”
among participating companies in
the American Gas Association Utility
Operations Best Practices Program.
Every day, we strive to ensure the
safety of our customers and the
integrity of our natural gas “lifelines.”
We believe there is no such thing as a
runner-up when it comes to meeting
our customers’ expectations for safe,
reliable service.
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M a r q u i s h a L e e k s
since 2015
The values my mom instilled in me —
work and professionalism resonate with
patience, respect, compassion and
customers and affirm our commitment
hard work — have made me the person
to quality and superior service.
I am today. She taught me the art
of listening, saying it’s the secret to
letting people know you care. As a
customer service representative, it’s
rewarding to work for a company that
shares my ideals.
We are proud, for the second consecutive
year, NJNG ranked “Highest in Customer
Satisfaction With Residential Natural
Gas Service in the East among Large
Utilities,” according to the J.D. Power
2015-2016 Gas Utility Residential
Our customers trust us to keep their
Customer Satisfaction Study SM. Since
homes warm and businesses running.
the study’s inception in 2002, J.D. Power
We know earning and keeping that
has recognized NJNG seven times for its
trust does not happen by accident. It
commitment to customer satisfaction.
requires constant attention — staying
connected, proactive and responsive
to customers’ needs.
Behind our success is a team of more
than 1,000 women and men dedicated
to a company-wide focus on delivering
This year, our team responded to
safe, reliable service — 24 hours a day,
more than 1 million customer calls and
365 days a year. We never lose sight of
212,340 field service visits. Our hard
that promise to our customers.
New Jersey Resources | Page 17
K a t e G o r d o n
since 2009
As a mom, it’s important our actions
leading the way in the residential and
create positive change. That means
commercial solar arena, installing
doing what we can now to ensure a
over 5,100 systems since its inception
healthy, happy and prosperous future
in 2009. As one of the state’s largest
for our children. I believe clean,
residential solar providers, we are
renewable energy is an important step
bringing the power of the sun to
in the right direction. That’s why, as
customers in 20 of New Jersey’s 21
an asset analyst, I’m proud to work
counties.
for a company whose commitment
to sustainability includes significant
investment in clean energy.
With these investments, our portfolio
has grown to nearly 240 MWs and is
helping meet our country’s growing
NJRCEV is powering a new dawn —
energy demand, while creating value
delivering energy through cleaner,
for customers and shareowners alike.
smarter, more sustainable solar and
wind technologies. In fiscal 2016,
we successfully completed our
third onshore wind farm, acquired a
retrofitted, operating wind project
and announced the construction of
We owe it to the next generation to
be ambitious in the goals we set today.
As our renewable portfolio grows, so
does our commitment to clean energy
and a sustainable future. Our children
our fifth wind project. NJRCEV is also
deserve nothing less.
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L a r r y J o h n s o n
since 2009
I enjoy renovating homes in my spare
guide home and business owners
time and, while doing so, often think
to energy savings through practical
about my grandfather — a carpenter
recommendations, along with rebates
who shared with me the lessons of
and financing options that help make
his trade. As a child, I constructed
energy upgrades more affordable.
tree houses for fun. Now, when I work
on home improvement projects, I’m
focused on creating a healthier and
more comfortable environment for my
family. As an energy-efficiency field
auditor, I share this same passion with
our customers.
By encouraging customers to
make smart energy choices, we help
them lower their energy bills, reduce
their carbon footprint and ensure a
more efficient and comfortable home
or business. Nearly 45,000 NJNG
customers have saved energy and
Home comfort and energy efficiency
money with our SAVEGREEN offerings.
go hand in hand. But upfront costs can
be a barrier to implementing energy-
efficiency improvements. That’s where
The SAVEGREEN Project ® team comes
in. Through SAVEGREEN, we carefully
At NJNG, we believe helping our
customers use energy wisely is simply
the right thing to do.
New Jersey Resources | Page 21
Safely operates and
maintains
7,358
miles of distribution and
transmission main
more than
$1 billion
invested in our system since 2008
to ensure safe, reliable service
568,215
solar panels —
enough clean energy to power
13,910 homes annually
212,340
field service requests
completed
NJNG’s liquefaction plant removes 648 trucks from
New Jersey’s roadways, reducing carbon dioxide emissions by
1,100,000
pounds each year
C o r p o r a t e P r o f i l e
2016
NEW JERSEY RESOURCES (NYSE: NJR)
NJR MIDSTREAM serves customers from
is a Fortune 1000 company that, through
local distributors and producers to electric
its subsidiaries, provides safe and reliable
generators and wholesale marketers
natural gas and clean energy services,
through its 50 percent equity ownership
including transportation, distribution, asset
in the Steckman Ridge natural gas
management and home services. NJR is
storage facility and its stake in Dominion
comprised of five primary businesses:
Midstream Partners, L.P., as well as its 20
percent equity interest in the PennEast
NEW JERSEY NATURAL GAS, NJR’s
Pipeline Project.
principal subsidiary, operates and
maintains over 7,300 miles of natural
NJR HOME SERVICES provides service
gas transportation and distribution
contracts as well as heating, central air
infrastructure to serve over half a million
conditioning, water heaters, standby
customers in New Jersey’s Monmouth,
generators, solar and other indoor and
Ocean and parts of Morris, Middlesex
outdoor comfort products to residential
and Burlington counties.
homes throughout New Jersey.
NJR ENERGY SERVICES manages a
NJR and its more than 1,000 employees are
diversified portfolio of natural gas
committed to helping customers save
transportation and storage assets and
energy and money by promoting conservation
provides physical natural gas services
and encouraging efficiency through
and customized energy solutions to its
Conserve to Preserve® and initiatives such
customers across North America.
as The SAVEGREEN Project® and The
Sunlight Advantage®.
NJR CLEAN ENERGY VENTURES invests
in, owns and operates solar and onshore
For more information about NJR, visit
wind projects with a total capacity of
njresources.com, follow us on Twitter
nearly 240 MW, providing residential and
@NJNaturalGas, “like” us on facebook.com/
commercial customers with low-carbon
NewJerseyNaturalGas and download our
solutions.
free NJR investor relations app for iPad,
iPhone and Android.
New Jersey Resources | Page 24
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D i r e c t o r s a n d O f f i c e r s o f N e w J e r s e y R e s o u r c e s
N E W J E R S E Y R E S O U R C E S
D i r e c t o r s
Lawrence R. Codey, 72 (A,B,D)
Lead Director, President and
Chief Operating Officer (retired)
Public Service Electric and Gas
(2000)
Donald L. Correll, 66 (A,B,C)
Chief Executive Officer and
Co-founder
KWP Capital LLC
(2008)
Laurence M. Downes, 59 (B)
Chairman of the Board, President
and Chief Executive Officer
New Jersey Resources
(1995)
Robert B. Evans, 68 (A,B)
President and
Chief Executive Officer (retired)
Duke Energy Americas
(2009)
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/Corporate Governance Committee
M. William Howard, 70 (B,C)
Pastor (retired)
Bethany Baptist Church
(2005)
Jane M. Kenny, 65 (B,C,D)
Co-owner and Managing Partner
The Whitman Strategy Group, LLC
(2006)
Alfred C. Koeppe, 70 (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, 72 (A,B)
Vice Chairman and Managing Partner
U.S. Audit Practice (retired)
KPMG, LLP
(2003)
Sharon C. Taylor, 62 (C,D)
Senior Vice President
Human Resources
Prudential Financial, Inc.
(2012)
David A. Trice, 68 (C,D)
President and
Chief Executive Officer (retired)
Newfield Exploration Company
(2004)
George R. Zoffinger, 68 (D)
President and
Chief Executive Officer
Constellation Capital Corporation
(1996)
New Jersey Resources | Page 26
N E W J E R S E Y R E S O U R C E S A N D S U B S I D I A R I E S
O f f i c e r s
Laurence M. Downes, 59
(1,2,3,4,5,7)
President and Chief
Executive Officer
(1985)
Kathleen T. Ellis, 63 (1)
Executive Vice President, Policy
and Strategic Development
(2004)
Glenn C. Lockwood, 55 (1)
Executive Vice President
(1988)
Keith S. Hartman, 55 (6)
Vice President
(2015)
Date represents year of affiliation with an
NJR company.
Affiliations:
(1) New Jersey Resources
(2) New Jersey Natural Gas
(3) NJR Clean Energy Ventures
(4) NJR Energy Services
(5) NJR Midstream
(6) NJR Home Services
(7) NJR Service Corporation
Mariellen Dugan, 50 (2)
Senior Vice President and Chief
Operating Officer
(2005)
Amanda E. Mullan, 50 (1,7)
Vice President and Chief Human
Resources Officer
(2015)
Rhonda M. Figueroa, 57 (1)
Corporate Diversity Officer
(1981)
Linda B. Kellner, 57 (1)
Government Affairs Officer
(1995)
Richard Reich, 42 (1,2,3,4,5,7)
Corporate Secretary and
Assistant General Counsel
(2006)
Ginger P. Richman, 52 (4)
Vice President,
Energy Services
(2003)
Jaqueline K. Shea, 52 (1,7)
Vice President,
Chief Information Officer
(2016)
James W. Kent, 47 (1,2,3,4,5,7)
Treasurer
(2013)
George C. Smith Jr., 59 (7)
Vice President, Internal Audit
(1984)
Stanley M. Kosierowski, 64 (6)
President
(2008)
Mark R. Sperduto, 58 (2)
Senior Vice President,
Regulatory Affairs
(2005)
Stephen D. Westhoven, 48 (3,4,5)
Senior Vice President and
Chief Operating Officer
(1990)
Deborah G. Zilai, 63 (7)
Vice President, Corporate Services
(1996)
Craig A. Lynch, 55 (2)
Senior Vice President,
Energy Delivery
(1984)
Thomas J. Massaro Jr., 50 (2)
Senior Vice President,
Marketing, Customer Services
and Energy Efficiency
(1989)
Patrick J. Migliaccio, 42 (1,3,4,5,6,7)
Senior Vice President
and Chief Financial Officer
(2009)
New Jersey Resources | Page 27
P r e s e n t i n g O u r 2 0 1 6 F o r m 1 0 - K
Our 2016 Form 10-K includes financial statements for
PART I: A description of NJR businesses includes:
NJR. It also includes detailed information about each of
• Detailed descriptions of NJR subsidiaries
our subsidiaries and the competitive environments of our
• Regulatory outlook for the utility business
businesses, properties we own and other matters.
• Risk factors related to our business
All publicly held companies in the United States are
required to file a Form 10-K report with the U.S. Securities
and Exchange Commission (SEC) every year. Our Form
10-K is required by the rules and regulations of the SEC
to contain certain company information in addition to
the financial information included in our previous annual
reports to shareowners. We are supplying our 2016 Form
10-K (without exhibits) consistent with our commitment
to provide transparency and full disclosure to
• 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
our shareowners.
Items 7 and 7a include:
The 2016 Form 10-K is amended, supplemented and
updated by any amendment we may file, and by all of the
quarterly reports on Form 10-Q and current reports on
Form 8-K we file or furnish 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.
Form 10-K Overview
• 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
Items 8 and 9 include:
• Management’s reports on internal control over financial
reporting and disclosure controls and procedures
This Annual Report is not a part of, and should not be
• Reports of independent registered public accounting firm
considered to be included in, our 2016 Form 10-K. Use the
• Financial statements and footnotes for NJR
listing below, which includes highlights of the 2016 Form
• Supplementary financial information (unaudited)
10-K, to help you find information easily. A comprehensive
Table of Contents with the page number for each item can
PART III: Information about board members, executive
be found on page “i” of the 2016 Form 10-K.
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
New Jersey Resources | Page 28
2 0 1 6 F o r m 1 0 - K
New Jersey Resources | Page 29
New Jersey Resources | Page 30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
incorporation or organization)
1415 Wyckoff Road, Wall, New Jersey 07719
(Address of principal
executive offices)
(I.R.S. Employer
Identification Number)
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
(Title of each class)
New York Stock Exchange
(Name of each exchange on which registered)
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
No:
Yes:
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
No:
Yes:
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes:
No:
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes:
No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule
of the Exchange Act.
Large accelerated filer:
Accelerated filer:
Non-accelerated filer:
(Do not check if a smaller reporting company)
Smaller reporting company:
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
No:
Yes:
The aggregate market value of the Registrant’s Common Stock held by non-affiliates was $3,076,176,850 based on the closing price of $36.43 per share on
March 31, 2016, as reported on the New York Stock Exchange.
The number of shares outstanding of $2.50 par value Common Stock as of November 18, 2016 was 86,102,514.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement for the Annual Meeting of Shareowners (Proxy Statement) to be held on January 25, 2017, 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clean Energy Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
i
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New Jersey Resources Corporation
GLOSSARY OF KEY TERMS
AFUDC
AOCI
ARO
ASC
ASU
Bcf
BGSS
BPU
CAA
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
Home Services and Other
ICE
Iroquois
IRS
ISDA
ITC
LIBOR
LNG
Loan Agreement
MetLife
MetLife Facility
MGP
MLP
Moody’s
Mortgage Indenture
MW
MWh
NAESB
NFE
NGV
NJ RISE
Allowance for Funds Used During Construction
Accumulated Other Comprehensive Income
Asset Retirement Obligations
Accounting Standards Codification
Accounting Standards Update
Billion Cubic Feet
Basic Gas Supply Service
New Jersey Board of Public Utilities
Consolidated Appropriations Act
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
Home Services and Other Operations (formerly Retail and Other Operations)
Intercontinental Exchange
Iroquois Gas Transmission L.P.
Internal Revenue Service
The International Swaps and Derivatives Association
Investment Tax Credit
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., which expired 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
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
NJR Energy
NJR or The Company
NJRCEV
NJRES
NJRHS
NJRPS
NJR Retail Holdings
Non-GAAP
NPNS
NYMEX
NYSE
O&M
OCI
Old Mortgage Indenture
OPEB
PBO
PennEast
PEP
PIM
PPA
Prudential
Prudential Facility
PTC
RA
REC
S&P
SAFE
Sarbanes-Oxley
SAVEGREEN
Savings Plan
SBC
SEC
SREC
SRL
Steckman Ridge
Superstorm Sandy
TEFA
Tetco
The Exchange Act
Trustee
TSR
U.S.
Union
USF
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 expiring in September 2020
NJR Energy Corporation
New Jersey Resources Corporation
NJR Clean Energy Ventures Corporation
NJR Energy Services Company
NJR Home Services Company
NJR Plumbing Services, Inc.
NJR Retail Holdings Corporation
Not in accordance with Generally Accepted Accounting Principles of the United States
Normal Purchase/Normal Sale
New York Mercantile Exchange
New York Stock 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
Renewable Energy Certificate
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
Total Shareholder Return
The United States of America
International Brotherhood of Electrical Workers Local 1820
Universal Service Fund
Page 2
New Jersey Resources Corporation
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report, including, without limitation, statements as to management expectations, assumptions
and beliefs presented in Part I, Item 1. Business and Item 3. Legal Proceedings, and in Part II, Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk,
and in the notes to the financial statements are forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act
of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “anticipate,” “estimate,”
“may,” “could,” “might,” “intend,” “expect,” “believe,” “will” “plan” or “should” or comparable terminology and are made based upon
management’s current expectations, assumptions and beliefs as of this date concerning future developments and their potential effect on
us. There can be no assurance that future developments will be in accordance with management’s expectations, assumptions or beliefs,
or that the effect of future developments on us will be those anticipated by management.
We caution readers that the expectations, assumptions and beliefs that form the basis for forward-looking statements regarding
customer growth, customer usage, qualifications for ITCs, PTCs and SRECs, future rate case proceedings, financial condition, results
of operations, cash flows, capital requirements, future capital expenditures, market risk, effective tax rate and other matters for fiscal
2017 and thereafter include many factors that are beyond our ability to control or estimate precisely, such as estimates of future market
conditions, the behavior of other market participants and changes in the debt and equity capital markets. The factors that could cause
actual results to differ materially from our expectations, assumptions and beliefs include, but are not limited to, those discussed in Part
I, Item 1A. Risk Factors, as well as the following:
• weather and economic conditions;
•
•
demographic changes in NJR’s service territory and their effect on NJR’s customer growth;
volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG’s BGSS incentive programs, NJRES
operations and on our risk management efforts;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to our Company;
the impact of volatility in the credit markets on our access to capital;
the ability to comply with debt covenants;
the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a
result of potential downturns in the financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the
Patient Protection and Affordable Care Act;
accounting effects and other risks associated with hedging activities and use of derivatives contracts;
commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale
energy trading market;
the ability to obtain governmental and regulatory approvals, land-use rights, electric grid connection (in the case of clean energy projects)
and/or financing for the construction, development and operation of our unregulated energy investments and NJNG’s infrastructure projects
in a timely manner;
risks associated with the management of our joint ventures and partnerships, and investment in a master limited partnership;
risks associated with our investments in clean energy projects, including the availability of regulatory and tax incentives, the availability
of viable projects, our eligibility for ITCs and PTCs, the future market for SRECs and electricity prices, 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 and the resulting effect
on our effective tax rate and earnings;
the level and rate at which NJNG’s costs and expenses are incurred and the extent to which they are allowed to be recovered from customers
through the regulatory process, including through future base rate case filings;
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;
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 on our operations and customers.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
While we periodically reassess material trends and uncertainties affecting our results of operations and financial condition in
connection with the preparation of management’s discussion and analysis of results of operations and financial condition contained in
our Quarterly and Annual Reports on Form 10-Q and Form 10-K, respectively, we do not, by including this statement, assume any
obligation to review or revise any particular forward-looking statement referenced herein in light of future events.
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, which provides other retail and wholesale energy services to customers and invests in clean energy projects and 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 521,200 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 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 clean energy projects,
including commercial and residential solar projects and onshore wind investments.
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 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, NJR Pipeline Company, which holds the Company’s 20 percent ownership interest in
PennEast and NJNR Pipeline Company, which holds approximately 1.84 million DM Common Units in
Dominion Midstream Partners, L.P. 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. Due to inactivity, all assets were moved to NJR in September 2015, and the company was
dissolved on January 5, 2016.
NJR Retail Holdings Corporation, an unregulated affiliate that consolidates the Company’s unregulated retail
operations. NJR 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 114,000 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 Energy Corporation, a company that invested in energy-related ventures. A request for dissolution was
filed in March 2016.
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 of its 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, Clean Energy Ventures, Energy
Services and Midstream.
The Natural Gas Distribution segment consists of regulated natural gas services, off-system sales, 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 clean energy projects. 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:
Assets by business segment and other operations at September 30, are as follows ($ in Thousands):
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.
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. NJRES economically hedges its natural gas inventory with
financial 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:
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
NFE
Basic earnings per share
Add:
2016
2015
$ 131,672 $ 180,960 $ 141,970
2014
46,883
(17,018)
(36,816)
13,364
(38,681)
14,391
(8,225)
3,058
28,534
(10,492)
26,639
(9,794)
$ 138,085 $ 151,503 $ 176,857
$
1.69
1.53 $
2.12 $
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
Basic NFE per share
0.55
(0.20)
(0.43)
0.16
1.61 $
(0.45)
0.17
(0.10)
0.04
1.78 $
0.34
(0.13)
0.32
(0.12)
2.10
$
NFE by business segment and other operations for the years ended September 30, are as follows:
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 of
Financial Condition and Results of Operations.
Page 6
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Natural Gas Distribution
General
NJNG provides natural gas service to approximately 521,200 customers. NJNG’s service territory includes New Jersey’s
Monmouth and Ocean counties and parts of Burlington, Morris and Middlesex 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 8,170 and 7,858 new customers in fiscal 2016 and 2015, respectively, and added natural gas heat and other
services to another 644 and 636 existing customers in fiscal 2016 and 2015, 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 24,000 to 27,000
new customers over the next three years. This anticipated customer growth represents approximately $5 million in new annual
utility gross margin, a non-GAAP financial measure, as calculated under NJNG’s CIP tariff.
When assessing the potential for future growth in its service area, NJNG uses information derived from county and municipal
planning boards that describes housing developments in various stages of approval. Furthermore, NJNG surveys builders in its
service area to gain insight into future development plans. NJNG has periodically engaged outside consultants to assist in its
customer growth projections. In addition to customer growth through new construction, NJNG’s business strategy includes
aggressively pursuing conversions from other fuels, such as oil, electricity and propane. NJNG estimates that during fiscal 2017,
approximately 48 percent of NJNG’s projected customer growth will consist of conversions.
NJNG’s business is subject to various risks, such as those associated with adverse economic conditions, which can negatively
impact customer growth, operating and financing costs, fluctuations in commodity prices, which can impact customer usage,
customer conservation efforts, certain regulatory actions and environmental remediation. It is often difficult to predict the impact
of trends associated with these risks. NJNG employs strategies to manage the challenges it faces, including pursuing customer
conversions from other fuel sources and monitoring new construction markets through contact with developers, utilizing incentive
programs through BPU-approved mechanisms to reduce gas costs, pursuing rate and other regulatory strategies designed to stabilize
and decouple gross margin, and working actively with consultants and the NJDEP to manage expectations related to its obligations
associated with its former MGP sites.
Operating Revenues/Throughput
For the fiscal year ended September 30, operating revenues and throughput by customer class are as follows:
($ in thousands)
Residential
Commercial and other
Firm transportation
Total residential and commercial
Interruptible
Total system
BGSS incentive programs (1)
Total
2016
Operating
Revenue
$
345,597
80,994
69,696
496,287
8,867
505,154
89,192
$
594,346
Bcf
36.9
7.3
14.1
58.3
61.5
119.8
56.6
176.4
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
$
819,415
106.9
(1) Does not include 160.1, 174.6 and 153.4 Bcf for the capacity release program and related amounts of $8.1 million, $8.9 million and $5.4 million, which are
recorded as a reduction of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30, 2016, 2015 and 2014,
respectively.
In fiscal 2016, no single customer represented more than 10 percent of total 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 May 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 CIP rate filing in fiscal
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 of
Financial Condition and Results of Operations - Natural Gas Distribution Segment.
Gas Supply
Firm Natural Gas Supplies
In fiscal 2016, NJNG purchased natural gas from approximately 80 suppliers under contracts ranging from one day to one
year and purchased over 10 percent of its natural gas from one supplier. NJNG believes the loss of this supplier 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
Dths(1)
310,738
50,000
25,166
22,531
20,000
428,435
Expiration
Various dates between 2018 and 2023
Various dates between 2024 and 2030
Various dates between 2024 and 2030
2017
Various dates between 2017 and 2018
(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.
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
In addition, NJNG has storage contracts that provide additional 102,941 Dths of maximum daily deliverability to NJNG’s
citygate stations 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
Dths
94,557
8,384
102,941
Expiration
2018
2018
NJNG also has upstream storage contracts. The maximum daily deliverability and contract expiration dates are as follows:
Company
Dominion Transmission Corporation
Steckman Ridge, L.P.
Central New York Oil & Gas
Total
Dths
128,714
38,000
25,337
192,051
Expiration
Various dates between 2019 and 2020
2020
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 and NJRES have an agreement where NJNG releases
10,000 Dths/day of Texas Eastern Transmission capacity, 2,200 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 April 1, 2016 to March 31, 2017. 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, 2016 to March 31, 2018. Under these agreements, NJNG can call upon a supply of up to 80,000 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. In June 2016, NJNG’s liquefaction
facility became operational and allows NJNG to convert natural gas into LNG to fill NJNG’s existing LNG storage tanks. See
Item 2. Properties-Natural Gas Distribution Segment for additional information regarding the LNG storage facilities.
BGSS
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 five 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.
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.
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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.
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 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 rates in the amount of $147.6
million. On July 20, 2016, an update was filed to include twelve months of actual financial information, which revised the requested
base rates increase to $112.9 million. On September 23, 2016, the BPU approved an increase to base rates in the amount of $45
million, effective October 1, 2016.
See Note 3. Regulation in the accompanying Consolidated Financial Statements for additional information regarding NJNG’s
rate proceedings.
Federal
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, reliability and price advantage. 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. New Jersey’s natural gas
utilities must provide BGSS in the absence of a third-party supplier. On September 30, 2016, NJNG had 36,292 residential and
10,316 commercial and industrial customers utilizing the transportation service.
Clean Energy Ventures
NJRCEV is an unregulated company that invests in, owns and operates clean energy projects, including commercial and
residential solar installations located in New Jersey, and wind farms located in Montana, Iowa, Kansas, Wyoming and Pennsylvania.
As of September 30, 2016, NJRCEV has constructed in New Jersey, a total of 149.7 MW of solar capacity that has qualified
for ITCs, 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 lease payments. In addition,
certain qualified non-profit institutions are served under PPAs. The program is operated by NJRCEV using qualified contracting
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
partners in addition to strategic suppliers 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 and grid-connected systems into the wholesale energy markets.
Project construction is competitively sourced through third parties. New Jersey has the fourth 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 and certified with the BPU’s Office of Clean Energy and qualified to produce SRECs. One
SREC is created for every MWh of electricity produced by a solar generator. NJRCEV sells the SRECs it generates to a variety
of counterparties including electric load serving entities that serve electric customers in New Jersey and are required to comply
with the solar carve-out of the Renewable Portfolio Standard. 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 invests in small to mid-size onshore wind farms that fit its investment profile,
including the following as of September 30, 2016:
•
•
•
•
•
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;
an $84.9 million, 50.7 MW project in Rush County, Kansas that was completed in December 2015;
a $3.7 million, 6.3 MW project in Carbon County, Wyoming, that was acquired in August 2016; and
an $84 million, 39.9 MW project in Somerset County, Pennsylvania that is currently under construction and is
expected to be completed in the first quarter of fiscal 2017.
The wind projects are eligible for PTCs for a 10-year period following commencement of operations and have long-term
PPAs of various terms in place, which typically govern the sale of energy, capacity and/or renewable energy credits.
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.
Energy Services
NJRES is an unregulated wholesale provider of natural gas and also provides producer and asset management services to a
diverse customer base across North America. NJRES 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, including
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 customers includes regulated natural gas distribution companies, industrial companies, electric generators, natural gas/liquids
processors, retail aggregators, wholesale marketers and natural gas producers.
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);
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
• 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.
In fiscal 2016, NJRES purchased over 10 percent of its natural gas from one supplier. NJRES believes the loss of this
supplier 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.
Transportation and Storage Transactions
NJRES focuses on creating value from the use of 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 occur that
impact the 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 various regions as delivered natural gas prices may change favorably as a result
of market conditions. NJRES may, for example, initiate positions when intrinsic financial margin is present, and then enhance 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 and 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 may enter into the transaction and hedge with natural
gas futures contracts, thereby locking in financial margin.
NJRES maintains inventory balances to satisfy existing or anticipated sales of natural gas to its counterparties and/or to
create additional value, as described above. During fiscal 2016 and 2015, NJRES managed and sold 551.1 Bcf and 626.9 Bcf of
natural gas, respectively. In addition, as of September 30, 2016 and 2015, NJRES had 62 Bcf or $130.5 million of gas in storage
and 44.6 Bcf or $93.7 million of gas in storage, respectively.
Weather/Seasonality
NJRES’ activities are typically seasonal in nature as a result of changes in the supply and demand for natural gas. Demand
for natural gas is generally higher during the winter months when there may also be supply constraints; 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, West Coast and Mid-Continent regions. 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 43.7 Bcf of firm storage and 1.7 Bcf/day of firm transportation
capacity. NJRES continues to expand its geographic footprint.
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Financial Margin
To economically hedge the commodity price risk associated with its existing and anticipated commitments for the purchase
and sale of natural gas, NJRES enters into a variety of derivative instruments including, but not limited to, futures contracts,
physical forward contracts, financial swaps and options. 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 internal 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 of Financial Condition and Results of Operations - 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.
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;
• 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, which we estimate will be completed and operational by the first quarter
of fiscal 2019; and
• 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
114,000 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, 2016, 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. CR&R has committed to sell a
56,400-square-foot office building on five acres of land in Monmouth County with a net book value of $7.7 million.
Since it is probable that the sale will be completed within the next 12 months, as of September 30, 2016, the Company
has classified the property as held for sale in the Consolidated Balance Sheets. In December 2015, CR&R sold
approximately 18.61 acres of additional undeveloped land located in Atlantic County with a net book value of $736,000;
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
• NJR Investment, which held certain energy-related investments, primarily through equity instruments of public
companies. Due to inactivity, all assets were moved to NJR in September 2015, and the company was dissolved on January
5, 2016;
• NJR Energy, which invests in energy-related ventures; and
• NJR Service Corporation, which provides shared administrative and financial services to the Company and all its
subsidiaries.
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 $143.9 million to $231.6 million.
NJNG’s estimate of these liabilities is based upon known and measurable facts, existing technology and enacted laws and
regulations in place when the review was completed in fiscal 2016. 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. As of September 30, 2016,
NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $172 million on the Consolidated Balance
Sheets, which represents its most likely possible liability and recoverable regulatory asset; however, actual costs may differ from
these estimates. On June 29, 2016, the BPU approved NJNG’s December 2015 filing, which requested approval of its MGP
expenditures incurred through June 30, 2015, with recovery of $9.4 million annually related to the SBC RA factor with rates
effective July 9, 2016. NJNG will continue to seek recovery of these costs through its remediation rider.
EMPLOYEE RELATIONS
As of September 30, 2016, the Company and its subsidiaries employed 1,034 employees compared with 991 employees as
of September 30, 2015. Of the total number of employees, NJNG had 441 and 424 and NJRHS had 106 and 104 Union or
“Represented” employees as of September 30, 2016 and 2015, 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.
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
The following documents are available free of charge on our website (http://njr360.client.shareholder.com/governance.cfm):
• Corporate Governance Guidelines;
• Wholesale Trading Code of Conduct;
• NJR Code of Conduct; and
• 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 2017 Annual
Meeting of Shareowners. We expect to file that Proxy Statement with the SEC on or about December 15, 2016. 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 document is available free of charge to any shareowner 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 our securities, investors should consider the following risk factors, as well as the
information contained under the caption “Information Concerning Forward-Looking Statements,” in analyzing our present and
future business performance. While this list is not exhaustive, 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.
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.
We are exposed to market risk and may incur losses in wholesale services.
Our storage and transportation portfolios consist of contracts to transport and store natural gas. The value of our storage and
transportation portfolio could be negatively impacted if the value of these contracts change in a direction or manner that we do
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.
Our investments in clean energy 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,
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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
operational risk that the projects in service will not perform according to expectations due to equipment failure, suboptimal weather
conditions or other economic 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.
If we are unable to access the financial markets or there are adverse conditions in the credit markets, it could affect
management’s ability to execute our 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 on terms favorable to us or at all. In addition, because certain state regulatory
approvals may be necessary for NJNG to incur debt, NJNG may be unable to access credit markets on a timely basis.
External events could also increase the cost of borrowing or adversely affect our ability to access the financial markets. Such
external events could include the following:
•
•
•
•
economic weakness and/or political instability in the United States 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 our 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
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.
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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
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 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.
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.
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.
Page 17
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
The funded status of these plans, and the related cost reflected in our financial statements, are affected by various factors
that are subject to an inherent degree of uncertainty. Under the Pension Protection Act of 2006, losses of asset values may necessitate
increased funding of the plans in the future to meet minimum federal government requirements. A significant decrease in the asset
values of these plans can result in funding obligations earlier than we had originally planned, which would have a negative impact
on cash flows from operations, decrease our borrowing capacity and increase our interest expense.
Our economic hedging activities that are designed to protect against commodity and financial market risks, including the
use of derivative contracts in the normal course of NJRES’ business, may cause fluctuations in reported financial results and
financial losses that negatively impact results of operations and our stock price.
We use derivatives, including futures, forwards, options, swaps and foreign exchange contracts to manage commodity,
financial market and foreign currency risks. The timing of the recognition of gains or losses associated with our economic hedges
in accordance with GAAP 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.
NJRES’ earnings and cash flows are dependent upon optimization of its physical assets using financial transactions.
NJRES’ earnings and cash flows are based, in part, on its ability to optimize its portfolio of contractual-based natural gas
storage and pipeline assets. The optimization strategy involves utilizing its physical assets to take advantage of differences in
natural gas prices between geographic locations and/or time periods. Any change among various pricing points could affect these
differentials. In addition, significant increases in the supply of natural gas in NJRES’ market areas, including as a result of increased
production along the Marcellus Shale, can reduce NJRES’ ability to take advantage of pricing fluctuations in the future. 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.
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.
Page 18
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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, NJR projects quarterly 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 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,
construction logistics, permitting, interconnection completion and execution of various contracts, including PPAs. 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, 2020 and placed in service before January 1, 2024. 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”).
We may be adversely impacted by natural disasters, pandemic illness, terrorist activities and other extreme events to which
we may be unable 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 may 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.
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. 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 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,
Page 19
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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.
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.
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, including its NGV refueling stations and LNG facilities. 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.
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.
Page 20
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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.
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.
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.
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.
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.
Page 21
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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.
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.
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.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
Page 22
New Jersey Resources Corporation
Part I
ITEM 2. PROPERTIES
Natural Gas Distribution Segment (All properties are located in New Jersey)
NJNG owns approximately 7,132 miles of distribution main, 7,328 miles of service main, 226 miles of transmission main
and approximately 541,000 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 for emergencies. NJNG’s Liquefaction
facility is also located on the Howell Township property and allows NJNG to convert natural gas into LNG to fill NJNG’s existing
LNG storage tanks.
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 as security for NJNG’s mortgage bonds, which totaled $707.8 million as of September 30, 2016. In addition, under the
terms of the Mortgage Indenture, NJNG could have issued up to $849 million of additional first mortgage bonds as of September 30,
2016.
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 149.7 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. As of September 30, 2016, NJRCEV owns the following wind projects:
•
•
•
•
•
a $20.3 million, 9.7 MW project in Two Dot, Montana;
a $42.1 million, 20 MW project in Carroll County, Iowa;
an $84.9 million, 50.7 MW project in Rush County, Kansas;
a $3.7 million, 6.3 MW project in Carbon County, Wyoming; and
an $84 million, 39.9 MW project in Somerset County, Pennsylvania that is currently under construction and is
expected to be completed in the first quarter of fiscal 2017.
In addition to the lease agreements and easements, NJRCEV owns 1.8 acres, 7.14 acres and 9 acres of land for its Carroll
County, Rush County and Somerset County wind projects, respectively. NJRCEV also owns a building on .16 acres in Rush County,
Kansas that is used for operation and maintenance purposes.
NJRCEV leases office space in Wall Township, New Jersey.
Energy Services Segment
As of September 30, 2016, NJRES leases office space in Wall Township, New Jersey, as well as Houston, Texas and Charlotte,
North Carolina for its business activities.
Page 23
New Jersey Resources Corporation
Part I
ITEM 2. PROPERTIES (Continued)
Midstream Segment
As of September 30, 2016, 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. As of September 30,
2016, PennEast owned 74 acres of land in Carbon County, Pennsylvania and 58.7 acres of land in Mercer County, New Jersey.
All Other Business Operations
As of September 30, 2016, 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. CR&R also owns a 56,400-square-foot office building on five acres of land in Monmouth County
with a net book value of $7.7 million, which the Company has committed to sell and has reclassified as held for sale as of
September 30, 2016. In December 2015, CR&R sold approximately 18.61 acres of additional undeveloped land located in Atlantic
County with a net book value of $736,000.
NJRHS leases service centers in Dover, Morris County and Wall, Monmouth County, New Jersey.
Capital Expenditure Program
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of
anticipated fiscal 2017 and 2018 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 is 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 May 2015, the BPU approved NJNG’s September 2014 filing, which requested approval of its MGP
expenditures incurred through June 2014 with recovery of $8.5 million annually related to the SBC RA factor with rates effective
June 2015. On June 29, 2016, the BPU approved NJNG’s December 2015 filing, which requested approval of its MGP expenditures
incurred through June 30, 2015 with recovery of $9.4 million annually related to the SBC RA factor with rates effective July 9,
2016. As of September 30, 2016, $19.6 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 $143.9 million to $231.6 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, 2016, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $172 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.
Page 24
New Jersey Resources Corporation
Part I
ITEM 3. LEGAL PROCEEDINGS (Continued)
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
59
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
63
2004
Executive Vice President, Policy and Strategic Development, NJR (October 2016 - present)
Executive Vice President and Chief Operating Officer, NJNG (February 2008 - September 2016)
Senior Vice President, Corporate Affairs (December 2004 - present)
Glenn C. Lockwood
Patrick J. Migliaccio
Mariellen Dugan
Stephen Westhoven
55
42
50
48
1990
2013
2005
2004
Executive Vice President (January 2011 - present)
Chief Financial Officer (September 1995 - December 2015)
Senior Vice President (January 2016 - present)
Chief Financial Officer (January 2016 - present)
Vice President, Finance and Accounting (November 2014 - December 2015)
Treasurer (August 2013 - May 2015)
Corporate Controller (January 2012 - August 2013)
Controller of Unregulated Operations (April 2009 - January 2012)
Senior Vice President and Chief Operating Officer, NJNG (October 2016 - present)
Senior Vice President and General Counsel (February 2008 - September 2016)
Senior Vice President and Chief Operating Officer, NJRES and NJRCEV (October 2016 - present)
Senior Vice President, NJRES (May 2010 - September 2016)
Stanley M. Kosierowski
64
2008
President, NJRHS (May 2010 - present)
President, NJRCEV (May 2010 - September 2016)
Amanda Mullan
Jacqueline Shea
50
52
2015 Vice President and Chief Human Resources Officer (April 2015 - present)
Senior Vice President of HR, N. America, Willis Group Holdings, a risk management and
insurance intermediary (April 2012 - April 2015)
Senior Vice President of HR, Dun & Bradstreet, a business services company (July 2009 - April
2012)
2016 Vice President and Chief Information Officer (June 2016 - present)
Chief Information Officer, Godiva Chocolatier, a manufacturer of premium fine chocolates and
related products (March 2011 - May 2016)
Page 25
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, 2016,
NJR had 45,679 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
2016
2015
Dividends Paid
High
Low
High
Low
2016
2015
$34.07
$36.85
$38.56
$38.92
$28.02
$32.32
$33.91
$32.27
$32.15
$33.73
$32.05
$30.07
$24.65
$28.73
$26.77
$26.89
$0.240
$0.240
$0.240
$0.255
$0.225
$0.225
$0.225
$0.225
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 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 retroactively adjusted throughout this report to reflect the effects of the stock split. Common stock and
premium on common stock amounts have also 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, 2016:
Period
7/01/16 - 7/31/16
8/01/16 - 8/31/16
9/01/16 - 9/30/16
Total
Total Number
of Shares
(or Units)
Purchased
—
—
91,900
91,900
Average
Price Paid
per Share
(or Unit)
Total Number of Shares (or
Units) Purchased as Part of
Publicly Announced Plans
or Programs
$
$
$
$
—
—
32.82
32.82
—
—
91,900
91,900
Maximum Number (or Approximate
Dollar Value) of Shares (or Units) That
May Yet Be Purchased Under the
Plans or Programs
2,627,953
2,627,953
2,536,053
2,536,053
Page 26
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:
Unrealized loss (gain) on derivative instruments and
related transactions
Tax effect
Effects of economic hedging related to natural gas
inventory
Tax effect
Net financial earnings (2)
Basic earnings per share
Add:
2016
2015
2014
2013
2012
131,672 $
$ 1,880,905 $ 2,733,987 $ 3,738,145 $ 3,198,068 $ 2,248,923
$ 1,352,686 $ 2,085,645 $ 3,139,525 $ 2,712,223 $ 1,841,408
$
92,879
$ 3,727,082 $ 3,284,357 $ 3,125,388 $ 3,001,414 $ 2,766,827
$ 1,166,591 $ 1,106,956 $
813,865
$ 1,063,550 $
843,595 $
598,209 $
180,960 $
887,384 $
141,970 $
114,809 $
512,886 $
966,166 $
525,169
$1.53
$1.52
$0.975
$2.12
$2.10
$0.915
$1.69
$1.67
$0.855
$1.38
$1.37
$0.810
$1.12
$1.12
$0.770
$
131,672 $
180,960 $
141,970 $
114,809 $
92,879
46,883
(17,018)
(38,681)
14,391
28,534
(10,492)
(9,418)
3,462
35,790
(13,159)
(36,816)
13,364
138,085 $
(8,225)
3,058
151,503 $
26,639
(9,794)
176,857 $
7,635
(2,807)
113,681 $
(4,891)
1,798
112,417
$
1.53
2.12
1.69
1.38
1.12
Unrealized loss (gain) on derivative instruments and
related transactions
Tax effect
Effects of economic hedging related to natural gas
inventory
Tax effect
Net financial earnings per share-basic (2)
$
Diluted earnings per share
Add:
Unrealized loss (gain) on derivative instruments and
related transactions
Tax effect
Effects of economic hedging related to natural gas
inventory
Tax effect
Net financial earnings per share-diluted (2)
0.55
(0.20)
(0.43)
0.16
1.61 $
(0.45)
0.17
(0.10)
0.04
1.78 $
0.34
(0.13)
0.32
(0.12)
2.10 $
(0.11)
0.04
0.09
(0.04)
1.36 $
0.43
(0.16)
(0.06)
0.02
1.35
$1.52
$2.10
$1.67
$1.37
$1.12
0.54
(0.20)
(0.42)
0.15
$1.59
(0.45)
0.17
(0.10)
0.04
$1.76
0.34
(0.12)
0.31
(0.12)
$2.08
(0.11)
0.04
0.09
(0.03)
$1.36
0.42
(0.15)
(0.06)
0.02
$1.35
Includes long-term capital leases of $30.7 million, $35.7 million, $40.4 million, $43 million and $46.1 million, respectively.
(1)
(2) NFE is a financial measure not calculated in accordance with GAAP. NFE eliminates the timing differences surrounding the recognition of certain gains or
losses, to effectively match the earnings effects of economic hedges associated with the physical sale or purchase of gas and, therefore, eliminates the impact
of volatility to GAAP earnings associated with the related derivative instruments. For further discussion of this financial measure, see the Energy Services
segment in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Page 27
New Jersey Resources Corporation
Part II
ITEM 6. SELECTED FINANCIAL DATA (Continued)
NJNG OPERATING STATISTICS
Fiscal Years Ended September 30,
Operating revenues ($ 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
2016
2015
2014
2013
2012
$ 345,597
80,994
69,696
496,287
8,867
505,154
89,192
$ 594,346
$ 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
36.9
7.3
14.1
58.3
61.5
119.8
216.7
336.5
448,273
26,218
46,608
521,099
34
30
521,163
8.97
824
11,378
3,867
82.5%
670
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
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
(1)
(2)
NJNG’s income from operations divided by interest expense.
Normal heating degree days are based on a 20-year average, calculated based upon three reference areas representative of NJNG’s service territory.
Page 28
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 Section 27A of the Securities and Exchange Act of 1933, as amended, Section 21E of the Securities
and Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements are based on
our 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, which was revised on July 20, 2016, to $112.9 million. On September 23, 2016, the BPU approved the
increase in base tariff rates in the amount of $45 million, effective October 1, 2016. There were no changes to the amounts NJNG
has recognized in regulatory assets as a result of the settlement of its base rate petition.
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 natural gas 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 AOCI, 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
Page 29
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
an equivalent market price. As of September 30, 2016, fair value of its derivative assets and liabilities reported on the Consolidated
Balance Sheets that is based on such pricing is immaterial.
Should there be a significant change in the underlying market prices or pricing assumptions, NJRES may experience a
significant impact on its financial position, results of operations and cash flows. Refer to Item 7A. Quantitative and Qualitative
Disclosures About Market Risks for sensitivity analysis related to the impact to derivative fair values resulting from changes in
commodity prices. The valuation methods NJR uses to determine fair values remained consistent for fiscal 2016, 2015 and 2014.
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 forward and futures contracts. NJRCEV intends to
physically deliver all SRECs it sells 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, 2016 and 2015.
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 $464.6 million and $436.5 million, and a valuation allowance of
$262,000 and $176,000 related to certain deferred state tax assets, as of September 30, 2016 and 2015, 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, 2016 and 2015, 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.
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 ITCs and PTCs, which have the effect of reducing or eliminating the credits, could
have a negative impact on earnings and cash flows.
Page 30
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, 2016, NJNG estimated these expenditures
will range from approximately $143.9 million to $231.6 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 $172 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, 2016 and 2015, $19.6 million and $18.9
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, changes in
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)
$(40,826)
$ 52,041
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (3,638)
$
4,430
$ (2,224)
2,224
$
Page 31
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
Increase/
(Decrease)
1.00 %
(1.00) %
1.00 %
(1.00) %
Increase/
(Decrease)
1.00 %
(1.00) %
Estimated
Increase/(Decrease) on PBO
(Thousands)
$(25,428)
$ 33,283
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (2,277)
2,856
$
(569)
$
569
$
Estimated
Increase/(Decrease) on PBO
(Thousands)
$ 28,803
$(22,862)
Estimated
Increase/(Decrease) to Expense
(Thousands)
4,083
$
$ (3,607)
Effective October 1, 2016, the Company changed its approach used to measure the service and interest cost components of
its net periodic benefit costs. Previously, the Company estimated service cost and interest cost based on a single weighted-average
discount rate from the yield curve used to measure its projected benefit obligation. Effective October 1, 2016, the Company will
determine its service and interest cost based upon duration specific spot rates that are aligned to each year’s future benefit payments.
Under the new approach, net periodic benefit costs will be lower during periods of low interest rates and upward-sloping yield
curves. Conversely, in a downward sloping-yield curve environment, costs could increase. Based on the yield curve NJR used to
measure its projected benefit obligation as of September 30, 2016, NJR estimates that its net periodic benefit costs will decrease
approximately $3.2 million during fiscal 2017 under the new approach. Refer to Note 10. Employee Benefit Plans in the
accompanying Consolidated Financial Statements, for a further discussion of NJR’s change in method.
Asset Retirement Obligations
We recognize AROs related to the costs associated with cutting and capping NJNG’s main and service gas distribution mains,
which is required by New Jersey law when taking such gas distribution mains out of service. We also recognize AROs associated
with NJRCEV’s solar and wind assets when there are decommissioning provisions in lease agreements that require removal of
the asset at the end of the lease term.
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. Prior to October 1, 2016, accretion amounts associated with NJNG’s ARO were not reflected as an expense, but rather
were deferred as a regulatory asset and netted against NJNG’s regulatory liabilities, for presentation purposes. Through NJNG’s
new base rates settlement, effective October 1, 2016, accretion is recognized as part of its depreciation expense and the corresponding
regulatory asset and liability will be shown gross on the Consolidated Balance Sheets.
Estimating future removal costs requires management to make significant judgments because most of the removal obligations
span long time frames and removal may be conditioned upon future events. Asset removal technologies are also constantly changing,
which makes it difficult to estimate removal costs. Accordingly, inherent in the estimate of our 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, we develop possible retirement
scenarios and assign probabilities based on management’s reasonable judgment and knowledge of industry practice. Accordingly,
AROs are subject to change.
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.
Page 32
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 United States and Canada, through its subsidiaries NJNG and NJRES. In addition,
we invest in clean energy projects, midstream assets and provide various repair, sales and installations services. A more detailed
description of our organizational structure can be found in Item 1. Business.
Business Segments
We have four primary business segments as presented in the chart below:
In addition to the four business segments noted above, we have 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.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
A summary of our consolidated results in net income and assets by business segment and operations for the fiscal years
ended September 30, is as follows:
($ in thousands)
2016
2015
2014
Net Income
Assets
Net Income
Assets
Net Income
Assets
Natural Gas Distribution
$
76,287 $ 2,305,293 $
74,204 $ 2,142,407
Clean Energy Ventures
Energy Services
Midstream
Home Services and Other
Intercompany (1)
Total
76,104 $ 2,525,060 $
28,393
665,696
14,265
9,406
2,882
622
327,626
186,259
110,340
(87,899)
20,101
72,044
9,780
3,420
(672)
504,885
260,021
182,007
88,880
(56,729)
$
131,672 $ 3,727,082 $
180,960 $ 3,284,357 $
12,654
44,394
7,498
380,275
437,708
153,891
2,798
77,578
(66,471)
141,970 $ 3,125,388
422
(1)
Consists of transactions between subsidiaries that are eliminated in consolidation.
Net Income
The primary drivers of the changes noted above, which are described in more detail in the individual segment discussions,
are discussed below.
The decrease in net income of $49.3 million during fiscal 2016, compared with fiscal 2015, was primarily driven by a decrease
at NJRES of $57.8 million related to lower gross margin due primarily to a decrease of $59.7 million related to changes in the
value of financial hedges. The decrease was partially offset by an increase of $8.3 million at NJRCEV due primarily to operating
revenue related to higher SREC and energy and capacity sales, partially offset by increased costs related to depreciation, O&M
and interest expense.
The increase in net income during fiscal 2015, compared with fiscal 2014, was primarily driven by higher gross margin at
NJRES due to an increase in volumes purchased and sold, an increase related to changes in the value of financial hedges, increased
SREC market prices, sales volumes and sales of energy and capacity, as well as an increase in ITCs and PTCs at NJRCEV, increased
utility firm gross margin at NJNG resulting primarily from customer growth and increased storage service revenue and demand
for hub services at Steckman Ridge.
Assets
The increase in assets during fiscal 2016 compared with fiscal 2015, was due primarily to additional utility plant expenditures
at NJNG and additional solar expenditures at NJRCEV, as well as increased broker margin and gas in storage at NJRES. 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.
Non-GAAP Financial Measures
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. To the extent the Company utilizes forwards, futures, or other derivatives to
hedge forecasted SREC production, unrealized gains and losses are also eliminated for NFE purposes.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 or a replacement of, the comparable GAAP measure and should be read in conjunction with those
GAAP results. The following is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to
NFE:
(Thousands)
Net income
Add:
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory (1)
Tax effect
Net financial earnings
Basic earnings per share
Add:
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory (1)
Tax effect
2016
2015
$ 131,672 $ 180,960 $ 141,970
2014
46,883
(17,018)
(36,816)
13,364
28,534
(10,492)
26,639
(9,794)
$ 138,085 $ 151,503 $ 176,857
(38,681)
14,391
(8,225)
3,058
$
1.53 $
2.12 $
1.69
0.55
(0.20)
(0.43)
0.16
1.61 $
(0.45)
0.17
(0.10)
0.04
1.78 $
0.34
(0.13)
0.32
(0.12)
2.10
$
Basic net financial earnings per share
(1)
Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.
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
Clean Energy Ventures
Energy Services
Midstream
Home Services and Other
Eliminations (1)
$
2016
55% $
76,104
20
28,393
16
21,934
7
9,406
2,882
2
(634) —
2015
51% $
76,287
13
20,101
28
42,122
6
9,780
3,420
2
(207) —
2014
74,204
12,654
79,735
7,498
2,798
42%
7
45
4
2
(32) —
Total
(1) Consists of transactions between subsidiaries that are eliminated in consolidation.
$ 138,085 100% $ 151,503
100% $ 176,857
100%
The decrease in NFE during fiscal 2016, compared with fiscal 2015, was driven primarily by decreased financial margin at
NJRES due primarily to lower volatility and narrower price spreads resulting from the record warm winter weather primarily
across the eastern United States, partially offset by lower taxes and O&M, partially offset by higher NFE at NJRCEV due primarily
to increase in SREC and energy sales.
The decrease in NFE during fiscal 2015, compared with fiscal 2014, was driven primarily by a decrease at NJRES due
primarily to lower financial margin. Fiscal 2014 experienced extreme cold weather patterns across the United States, 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 higher NFE at NJRCEV, NJNG and our Midstream segment, due to the same factors as previously discussed in the net
income section.
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 521,200 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, which can
negatively impact customer growth, operating and financing costs, fluctuations in commodity prices and customer conservation
efforts. These risks include, but are not limited to, adverse economic conditions, 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.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In addition, NJNG’s business is seasonal by nature, as weather conditions directly influence the volume of natural gas
delivered to customers on an annual basis. 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 natural 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 capital investments
and operating 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 to provide safe and reliable service throughout NJNG’s territory:
•
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 through fiscal 2018;
• 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;
• managing the volatility of wholesale natural gas prices through a hedging program designed to keep customers’ BGSS
rates as stable as possible; and
• working with the NJDEP and BPU to manage its financial obligations related to remediation activities associated with
its former MGP sites.
Base Rate Case
On November 13, 2015, NJNG filed a base rate case petition with the BPU, requesting an increase in base rates in the amount
of $147.6 million, which was revised on July 20, 2016 to $112.9 million. On September 23, 2016, the BPU’s decision and order
approved the following:
•
•
•
•
•
an increase in base rates in the amount of $45 million. The base rate increase includes a return on common equity of 9.75
percent, a common equity ratio of 52.5 percent and an increase in the overall depreciation rate from 2.34 percent to 2.4
percent;
the rate mechanism for recovery of SAFE I capital investments and a five-year extension of SAFE II, effective October
1, 2016. The estimated cost for SAFE II extension, excluding AFUDC, is approximately $200 million and related costs
to be recovered on an accelerated basis are approximately $157.5 million. As a condition of the extension approval, NJNG
is required to file a base rate case no later than November 2019;
rate recovery of NJ RISE capital investment costs through June 30, 2016, and the filing for recovery of future NJ RISE
capital investment costs to be recovered, will occur in conjunction with SAFE II, commencing with the rate recovery
filing to be submitted in March 2017;
recovery of NJNG’s NGV and LNG plant investments; and
recovery of other costs previously deferred in regulatory assets over seven years.
Page 36
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 accruals and estimates for expected investments over the
next two fiscal years:
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.
SAFE and NJ RISE
NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability and integrity
of NJNG’s gas distribution system.
NJNG has implemented SAFE I, which permitted NJNG to invest up to $130 million, exclusive of AFUDC, to replace
portions of its natural gas distribution infrastructure, consisting of unprotected steel and cast iron, over a four-year period. As of
December 31, 2015, NJNG completed the removal of all cast iron mains throughout its entire service territory. SAFE I 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.
The BPU approved recovery of SAFE I capital investments through September 30, 2016, and approved the extension of SAFE II
for an additional five years to replace the remaining unprotected steel mains and services from its natural gas distribution system
at an estimated cost of approximately $200 million, excluding AFUDC. The cost recovery methodology for the $157.5 million
associated with the extension of SAFE II was approved in NJNG’s new base rates. Recovery of the remaining costs will be requested
in a future filing.
The BPU approved 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
Page 37
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
weather events to customers that live in the most storm prone areas of NJNG’s service territory. On October 15, 2015, the BPU
approved a base rate increase that resulted in a .07 percent increase to the average residential heat customer’s bill. The increase,
effective November 1, 2015, recovered investments through July 31, 2015 and earned a weighted average cost of capital of 6.74
percent, including a return on equity of 9.75 percent. Recovery of NJ RISE investments through June 30, 2016, is included in
NJNG’s new base rates effective October 1, 2016. Requests for recovery of future NJ RISE capital investment costs will be in
conjunction with SAFE II, commencing with the rate recovery filing to be submitted in March 2017 with a weighted cost of capital
of 6.9 percent including a return on equity of 9.75 percent.
NGV Advantage
In June 2012, the BPU approved a pilot program for NJNG to invest up to $10 million to build NGV refueling stations. In
addition, the BPU approved a deferred accounting methodology related to the NGV investment costs consistent with NJNG’s
SAFE I. 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 customers to offset a portion of the cost of the NGV
investment. As of September 30, 2016, NJNG has opened all three of its NGV stations to the public and is recovering its costs
through base rates effective October 1, 2016.
Liquefaction/LNG
In June 2016, NJNG’s Liquefaction facility became operational and allows NJNG to convert natural gas into LNG to fill
NJNG’s existing LNG storage tanks. Costs for this project along with other plant upgrades were approximately $36.5 million and
are being recovered through NJNG’s new base rates effective October 1, 2016.
Southern Reliability Link
The SRL is an approximate 30-mile, 30-inch transmission main designed to support improved system reliability and integrity
in the southern portion of NJNG’s service territory, estimated to cost between $175 million and $180 million. The capital investment
costs associated with the SRL were initially included for recovery in NJNG’s base rate case petition, filed with the BPU on
November 13, 2015. On January 27, 2016, the BPU issued an order approving NJNG’s proposed SRL pipeline installation,
operation and route selection, as modified by NJNG, including specific requirements regarding permitting, safety and integrity
assessment. On March 18, 2016, the BPU issued an order designating the SRL route and exempting the SRL from municipal land
use ordinances, regulations, permits and license requirements. The two BPU orders have been appealed by third parties. We believe
that they will be upheld on appeal. On May 4, 2016, NJNG supplemented its base rate case testimony supporting its November
2015 petition, which amended the accounting treatment for the SRL investments and noted that the project would not be completed
by December 31, 2016. As construction has not yet commenced, rate treatment for SRL was not included in NJNG’s new base
rates. NJNG expects to request rate treatment in a future rate proceeding.
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.
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
Page 38
2016
2015
2014
448,273
26,218
36,292
10,316
521,099
64
521,163
437,979
25,541
38,424
10,249
512,193
59
512,252
422,742
24,684
46,282
10,495
504,203
71
504,274
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
During fiscal 2016, NJNG added 8,170 new customers, which represents a new customer growth rate of approximately
1.6 percent. During that same time period, NJNG converted 644 existing customers to natural gas heat and other services. This
customer growth, as well as commercial customers who switched from interruptible to firm natural gas service, will contribute
approximately $5.4 million annually to utility gross margin. NJNG also added 7,858 and 7,599 new customers and converted 636
and 627 existing customers to natural gas heat and other services during the fiscal years ended September 30, 2015 and 2014,
respectively.
In addition, NJNG currently expects to add approximately 24,000 to 27,000 new customers during the three-year period of
fiscal 2017 to 2019. Based on information from municipalities and developers, as well as external industry analysts and
management’s experience, NJNG estimates that approximately 53 percent of the growth will come from new construction markets
and 47 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 $5 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 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.
On April 15, 2016, NJNG filed a petition requesting an extension through December 31, 2018, which the BPU approved
on June 29, 2016. On October 31, 2016, the BPU approved NJNG’s filing to maintain the existing SAVEGREEN recovery rate.
Since inception, the BPU has approved total SAVEGREEN investments of approximately $219.3 million, of which $136.6
million in grants, rebates and loans has been provided to customers, with a total annual recovery of approximately $20 million.
On January 27, 2016, the BPU approved NJNG’s July 2015 petition 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 CIP rate filing. Refer to Note 3. Regulation - BGSS and CIP in the accompanying Consolidated
Financial Statements, for a discussion of CIP rate actions.
NJNG’s total utility firm gross margin includes the following adjustments related to the CIP mechanism:
(Thousands)
Weather (1)
Usage
Total
2016
2015
2014
$
$
27,546 $
10,420
37,966 $
(9,268) $
3,132
(6,136) $
(10,396)
6,580
(3,816)
(1)
Compared with the CIP 20-year average, weather was 17.5 percent warmer-than-normal during fiscal 2016, and 8.3 percent and 9.6 percent colder-than-
normal during 2015 and 2014, respectively.
As of September 30, 2016, NJNG has $37 million in regulatory assets related to CIP to be collected from customers in future
periods on the Consolidated Balance Sheets. As of September 30, 2015, NJNG had $5.2 million in regulatory liabilities related to
CIP to be returned to customers in future periods, on the Consolidated Balance Sheets.
Page 39
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Commodity prices
Our Natural Gas Distribution segment is affected by the price of natural gas, which can have a significant impact on our
cash flows, short-term financing costs, the price of natural gas charged to our customers through the BGSS clause, our ability to
collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other
fuel sources.
Natural gas commodity prices may experience high volatility as shown in the graph below, which illustrates the daily natural
gas prices(1) in the Northeast market region, also known as Tetco M-3:
(1) Data source from Platts, a division of McGraw Hill Financial.
The maximum daily price was $4.74, $21.09 and $81.30 and the minimum daily price was $0.67, $0.77 and $1.61 for the
fiscal years ended September 30, 2016, 2015 and 2014, 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 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 BGSS 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 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 rate. BGSS rates for
its large commercial customers are adjusted monthly based on NYMEX prices.
On June 1, 2015, NJNG filed a petition with the BPU to maintain its existing BGSS rate for its residential and small
commercial customers and included a notification of NJNG’s intent to provide estimated bill credits during the months of November
2015 through February 2016, as a result of the decline in the wholesale price of natural gas. A total of $61.6 million in bill credits
were issued during that period.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
On June 1, 2016, NJNG filed a petition to decrease its BGSS rate for residential and small commercial customers and to
provide bill credits to be issued during the months of November 2016 through February 2017, as a result of a decline in the
wholesale price of natural gas. On September 16, 2016, NJNG notified the BPU that the estimated bill credits will be approximately
$48 million. Refer to Note 3. Regulation - BGSS and CIP in the accompanying Consolidated Financial Statements, for a further
discussion of NJNG’s periodic BGSS rate adjustments and bill credits.
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. The FRM Program was terminated, effective November 1, 2015. These programs are designed to encourage better
utilization and hedging of NJNG's 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 October 15, 2015, the BPU issued an order approving NJNG’s request to continue the BGSS Incentive
Programs with modification to the storage incentive program beginning with the 2015 storage injection period.
Utility gross margin from incentive programs was $15 million, $17.7 million and $16 million during the fiscal years ended
September 30, 2016, 2015 and 2014, 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 periodic BGSS gas sales volumes hedged by each November 1
and at least 25 percent of the projected BGSS gas sales 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-year, $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 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 reflected
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.
Societal Benefits Charge
USF
On June 23, 2016, NJNG submitted its annual USF compliance filing proposing to increase the statewide USF rate, resulting
in a .2 percent increase to the average residential heat customer’s bill, which was approved by the BPU on September 23, 2016
and effective October 1, 2016.
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 $172 million as of September 30, 2016, a
decrease of $8.4 million, compared with the prior fiscal period. NJNG was authorized to recover remediation costs of approximately
Page 41
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
$8.5 million annually, which is based on expenditures incurred through June 30, 2014. On December 24, 2015, NJNG filed an
SBC petition with the BPU to increase the RA factor, to decrease the NJCEP factor and to request approval of its remediation
expenses incurred through June 30, 2015, resulting in an overall decrease of .8 percent to the average residential heat customer’s
bill. On June 29, 2016, the BPU approved the Company’s request to modify its rates as proposed, effective July 9, 2016, with
recovery of $9.4 million annually related to the SBC RA factor.
Other
On May 20, 2016, NJNG included a proposal in its base rate case to recover certain capital costs and incremental operation
and maintenance costs related to a March 2016 BPU Order regarding new cybersecurity requirements. This proposal was updated
on July 20, 2016, and the associated costs were approved for recovery through NJNG’s new base rates, effective October 1, 2016.
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.
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
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, customers who purchase natural gas from another supplier continue to use NJNG
for transportation service.
NJNG’s operating results for the fiscal years ended September 30, are as follows:
(Thousands)
Operating revenues
Less:
Gas purchases (1) (2)
Energy and other taxes (3)
Regulatory rider expense (4)
Operation and maintenance
Depreciation and amortization
Operating income
Other income, net
Interest expense, net of capitalized interest
Income tax provision
Net income
(1)
2016
594,346 $
2015
781,970 $
2014
819,415
$
215,849
34,561
39,300
130,575
47,828
126,233
4,752
19,930
34,951
76,104 $
355,779
47,506
75,779
129,774
43,085
130,047
4,318
18,534
39,544
76,287 $
402,552
52,013
72,164
124,717
40,540
127,429
2,832
16,683
39,374
74,204
$
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 are offset by corresponding revenues.
Includes related party transactions of approximately $10.8 million, $50.8 million and $82.7 million during fiscal 2016, 2015 and 2014, respectively, a
portion of which are eliminated in consolidation.
Consists primarily of sales tax, which is passed through to customers and offset by corresponding revenues.
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.
(2)
(3)
(4)
Page 42
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Revenues and Gas Purchases
Operating revenues decreased 24 percent during fiscal 2016 and decreased 4.6 percent during fiscal 2015. Gas purchases
decreased 39.3 percent during fiscal 2016 and decreased 11.6 percent during fiscal 2015.
The factors contributing to the increases (decreases) in operating revenues and gas purchases during fiscal 2016 and 2015,
are as follows:
2016 v. 2015
2015 v. 2014
Operating
revenue
(Millions)
Firm sales
Bill credits (1)
Off-system sales
Average BGSS rates (1)
CIP adjustments
Other (2)
$
Total (decrease)
(1) Operating revenue includes changes in sales tax of $4.2 million and $3.3 million during fiscal 2016 and 2015, respectively.
(2) Other includes changes in rider rates, including those related to NJCEP and other programs.
(116.1) $
(61.6)
(32.1)
(2.7)
44.1
(19.2)
(187.6) $
Gas
purchases
(50.4)
(57.6)
(31.8)
(2.5)
—
2.4
(139.9)
$
$
$
Operating
revenue
Gas
purchases
24.5
—
(20.0)
(47.2)
—
(4.1)
(46.8)
36.2 $
—
(20.3)
(50.5)
(2.3)
(0.5)
(37.4) $
Fiscal 2016 compared with fiscal 2015
The decreases in operating revenues and gas purchases during fiscal 2016 were due primarily to:
• decreased firm sales due primarily to lower usage related to weather being 22.9 percent warmer;
• bill credits issued to residential and small commercial customers effective November 1, 2015, that were not issued during
fiscal 2015;
•
lower off-system sales due primarily to a 38.3 percent decrease in the average price of gas sold, partially offset by a 18.4
percent increase in volumes;
• a decrease in rider revenues, categorized in other, due primarily to a 36.3 percent decrease in rates and a 18.5 percent
decrease in usage; partially offset by
• an increase in CIP adjustments of $36.8 million related to weather and $7.3 million related to usage.
Fiscal 2015 compared with fiscal 2014
The decreases in operating revenue 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.
Page 43
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Non-GAAP Financial Measures
Management uses utility gross margin, a non-GAAP financial measure, when evaluating the operating results of NJNG.
NJNG’s utility gross margin is 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 meaningful basis 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.
Utility Gross Margin
A reconciliation of operating revenues, the closest GAAP financial measure, to NJNG’s utility gross margin is as follows
for the fiscal years ended September 30:
(Thousands)
Operating revenues
Less:
Gas purchases
Energy and other taxes
Regulatory rider expense
Utility gross margin
2016
594,346 $
2015
781,970 $
2014
819,415
215,849
29,832
39,300
309,365 $
355,779
42,929
75,779
307,483 $
402,552
47,440
72,164
297,259
$
$
Utility gross margin consists of three components:
• utility firm gross margin generated from only the delivery component of either a sales tariff or a transportation tariff from
residential and commercial customers who receive natural gas service from NJNG;
• BGSS incentive programs, where revenues generated or savings achieved from BPU-approved off-system sales, capacity
release, FRM or storage incentive programs are shared between customers and NJNG; and
• utility gross margin generated from off-tariff customers, as well as interruptible customers.
The following provides more information on the components of utility gross margin and associated throughput (Bcf) of
natural gas delivered to customers:
2016
2015
2014
Bcf
Margin
Margin
($ 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) As of December 2014, margin includes a BPU approved off-tariff agreement with TAQA Gen-X, LLC.
$ 187,762
46,878
54,841
289,481
14,978
4,906
$ 309,365
36.9
7.3
14.1
58.3
216.7
61.5
336.5
$ 182,407
47,162
55,614
285,183
17,707
4,593
$ 307,483
Bcf
Margin
Bcf
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
Utility Firm Gross Margin
A description of the factors contributing to the increases in utility firm gross margin during fiscal 2016 and 2015, are as
follows:
(Thousands)
Customer growth
SAVEGREEN
Total increase
2016 v. 2015
2015 v. 2014
$
$
3,436
862
4,298
$
$
5,911
1,225
7,136
Page 44
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
BGSS Incentive Programs
A description of the factors contributing to the (decreases) increases in utility gross margin generated by NJNG’s BGSS
incentive programs during fiscal 2016 and 2015, are as follows:
(Thousands)
Storage
Capacity release
Off-system sales
FRM
Total (decrease) increase
Fiscal 2016 compared with fiscal 2015
2016 v. 2015
$ (1,184)
(758)
(278)
(509)
$ (2,729)
2015 v. 2014
$ (1,066)
3,484
(336)
(332)
$ 1,750
The decrease in utility gross margin generated by NJNG’s BGSS incentive programs was due primarily to decreased margins
in the storage incentive program due primarily to higher cost at injection point, as well as decreases in capacity release and off
system sales due primarily to a decrease in the value of capacity. The decrease in off-system sales was also driven by a decrease
in the average price of gas sold, partially offset by an increase in volumes. The FRM Program was terminated effective November 1,
2015.
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.
Operation and Maintenance Expense
A summary and description of the factors contributing to the increases (decreases) in O&M expense during fiscal 2016 and
2015, are as follows:
(Thousands)
Shared corporate costs
Compensation and benefits
Consulting
Bad debt
Maintenance and repairs
Other
Total increase
2016 v. 2015
$ 2,378
898
(1,418)
(1,358)
(462)
763
801
$
2015 v. 2014
$ 3,754
320
(662)
—
1,317
328
$ 5,057
Fiscal 2016 compared with fiscal 2015
The increase in O&M expense during fiscal 2016 was due primarily to:
•
•
•
•
•
increased shared corporate costs resulting primarily from increased head count and healthcare premiums, as well as
increased temporary staffing and consulting services;
increased compensation costs at NJNG due primarily to increased head count and healthcare premiums, partially offset
by reduced pension expense due to an increase in expected return on assets associated with a $30 million discretionary
contribution in November 2015; partially offset by
lower consulting costs due primarily to reduced software maintenance and tax audit expenses;
lower bad debt expense due primarily to a decrease in write-offs of customer receivables; and
lower maintenance and repairs due primarily to the much warmer winter weather in fiscal 2016 compared with fiscal
2015.
Page 45
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 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.
Operating Income
Operating income decreased $3.8 million, or 2.9 percent, in fiscal 2016, compared with fiscal 2015, due primarily to the
increases in depreciation and O&M, partially offset by the increase in total utility gross margin of $1.9 million, as previously
discussed.
Operating income increased $2.6 million, or 2.1 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 a $2.5 million increase 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.
Income Tax Provision
Income tax provision decreased $4.6 million during fiscal 2016, compared with fiscal 2015, due primarily to:
• a decrease in pre-tax income;
•
the revaluation of the deferred tax liability in fiscal 2015;
• a change in the method of accounting for equity compensation due to the adoption of ASU 2016-09, which resulted in
the recognition of excess tax benefits related to vested stock compensation for which the tax deduction exceeded the
associated expense. See Note 2. Summary of Significant Accounting Policies - Recently Adopted Updates to the Accounting
Standards Codification in the accompanying Consolidated Financial Statements for a more detailed discussion; and
• an increase in costs associated with the removal of distribution main that was placed into service prior to 1981, for which
the tax benefit is passed on to customers in base rates.
Income tax provision increased $170,000 during fiscal 2015, compared with fiscal 2014, due primarily to a revaluation of
the deferred tax liability related to an increase in the apportioned state tax rate, partially offset by the tax benefits related to AFUDC
and an increase in costs associated with the removal of distribution main that was placed into service prior to 1981.
Net Income
Net income decreased $183,000 to $76.1 million in fiscal 2016, compared with fiscal 2015, due primarily to a decrease in
operating income as discussed above, an increase in interest expense associated with higher long-term debt outstanding, partially
offset by a decrease in the income tax provision as discussed above and an increase in other income related to AFUDC interest
earned on infrastructure projects.
Net income increased $2.1 million to $76.3 million in fiscal 2015, compared with fiscal 2014, due primarily to the increase
in operating income as discussed above and an increase in other income, net, due primarily to AFUDC related to infrastructure
projects. The increases were partially offset by higher interest expense associated with increased long-term debt outstanding and
income tax provision as discussed above.
Page 46
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Clean Energy Ventures Segment
Overview
Our Clean Energy Ventures segment actively pursues opportunities in the clean energy markets, including solar and onshore
wind. Clean Energy Ventures has entered into various agreements to install solar net-metered systems for residential and commercial
customers, as well as large commercial grid-connected projects. In addition, Clean Energy Ventures has entered into various long-
term agreements, including PPAs, to supply energy from wind and solar projects.
Solar
Solar projects and related ITC eligible expenditures for the fiscal years ended September 30, are as follows:
($ in Thousands)
Placed in service
Grid-connected
Net-metered:
Commercial
Residential
Total placed in service
2016
2015
Projects MW Costs(1) Projects MW Costs(1) Projects MW Costs(1)
2014
5
21.8 $ 51,240
— —
3
1,123
1,128
10.4
34,318
32.2 $ 85,561
4
1
829
834
26.1 $ 66,424
0.4
7.8
1,382
24,973
34.3 $ 92,779
3
1
1,049
1,053
16.7 $
42,459
0.3
10.4
995
32,002
27.4 $
75,456
(1)
Represents the portion of capital expenditures eligible for ITCs.
Since its inception, Clean Energy Ventures has constructed a total of 149.7 MW of solar capacity that has qualified for ITC
and has an additional .7 MW under construction. We estimate total solar-related capital expenditures for ITC eligible projects
during fiscal 2017 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 has received the proper certifications and commences operations, 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,
predominantly load-serving entities that are required to comply with the solar requirements under New Jersey’s renewable portfolio
standard. In addition, under the recently updated federal tax guidelines, projects that are placed in service through December 31,
2019, qualify for a 30 percent federal ITC. The credit will decline to 26 percent for property under construction during 2020 and
to 22 percent for property under construction during 2021. The ITC will be reduced to 10 percent for any property that is under
construction before 2022, but not placed in service before 2024.
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,
2016
33,203
160,009
(169,077)
24,135
2015
2014
29,970
126,133
(122,900)
33,203
11,351
81,668
(63,049)
29,970
NJRCEV hedges a portion of its expected SREC production through the use of forward sales contracts. The following table
reflects the hedged percentage of SREC inventory and projected SREC production related to its in-service commercial and
residential assets:
Fiscal Year
2017
2018
Percent of SRECs Hedged
94%
81%
Page 47
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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, 2016:
•
•
•
•
•
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;
an $84.9 million, 50.7 MW project in Rush County, Kansas that was completed in December 2015;
a $3.7 million, 6.3 MW project in Carbon County, Wyoming, which was acquired in August 2016; and
an $84 million, 39.9 MW project in Somerset County, Pennsylvania that is currently under construction and is
expected to be completed in the first quarter of fiscal 2017.
The wind projects are eligible for PTCs for a 10-year period following commencement of operations and have PPAs of
various terms in place, which typically govern the sale of energy, capacity and/or renewable energy credits.
Clean Energy Ventures’ investments are subject to a variety of factors, such as timing of construction schedules, permitting
and regulatory processes, volatility of energy prices, the ability to secure PPAs, 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 changes in prices on the
unhedged portion of SREC production could have a significant adverse impact on earnings with some offset expected from higher
wind energy market prices due to the PTC phase out and/or improved efficiencies from lower costs for related turbine technology.
Wind projects for which construction of a facility begins after December 31, 2016 through December 31, 2019, will be
subject to reduced PTCs, and could have a significant adverse impact on 10 years of forward earnings. PTCs will be phased out
from 100 percent in 2016 to 80 percent in 2017, 60 percent in 2018, 40 percent in 2019 and zero thereafter. In addition, since the
primary contributors toward the value of qualifying clean energy 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 clean energy credits,
could also significantly affect earnings.
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 income (loss)
Other income, net
Interest expense, net
Income tax (benefit)
Net income
2016
2015
2014
$
$
53,540 $
18,897
23,971
900
9,772
2,333
32,513 $
15,248
17,297
726
(758)
1,526
10,304
(26,592)
28,393 $
7,635
(26,968)
20,101 $
14,575
10,668
11,295
285
(7,673)
3,690
5,300
(21,937)
12,654
Page 48
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Revenues
Operating revenues for the fiscal years ended September 30, consisted of the following:
The average SREC sales price was $214 in fiscal 2016, $183 in fiscal 2015 and $152 in fiscal 2014.
There are no direct costs associated with the production of SRECs/RECs by our solar and wind 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 $3.6 million during fiscal 2016, compared with fiscal 2015, due primarily to additional maintenance
and lease costs associated with wind and solar projects placed in service as well as higher shared services costs.
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.
Depreciation Expense
Depreciation expense increased $6.7 million in fiscal 2016 and $6 million in fiscal 2015, as a result of increases in solar
and wind capital additions.
Income Tax (Benefit)
Income tax benefit during fiscal 2016, 2015 and 2014, includes $25.7 million, $27.8 million and $22.6 million respectively,
of ITCs associated with solar projects that were completed and placed into service during the corresponding fiscal year. Income
tax benefit during fiscal 2016, 2015 and 2014 includes $6.7 million and $2 million, and $137,000 respectively, of PTCs associated
with wind projects. NJRCEV recognized $27 million, $24.1 million, and $18.1 million related to tax credits, net of deferred taxes,
during fiscal 2016, 2015 and 2014, respectively.
Page 49
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 in fiscal 2016 increased $8.3 million, compared with fiscal 2015, due primarily to the factors described above,
partially offset by an increase in interest expense due to higher debt associated with capital expenditures.
Net income during fiscal 2015 increased $7.4 million, compared with fiscal 2014, due primarily to the factors described
above, as well as the following:
• an increase in ITCs due to an increase in solar capital expenditures placed into service; and
•
increased PTCs due primarily to an increase in MW placed in service and related wind production; partially offset by
• 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 during the fourth quarter of fiscal 2015.
Energy Services Segment
Overview
NJRES markets and sells natural gas to wholesale customers and manages natural gas storage and transportation assets
throughout major market areas across North America. NJRES maintains a strategic portfolio of natural gas storage and transportation
contracts that it utilizes in conjunction with its market expertise to provide service and value to its customers. Availability of these
storage and transportation contracts from a time and location perspective allows NJRES to generate market opportunities by
capturing price differentials over specific time horizons and between geographic market locations.
NJRES also provides management of storage and transportation assets for natural gas producers and regulated utilities. These
management transactions typically involve the release of producer/utility owned storage and/or transportation capacity in
combination with either an obligation to purchase and/or deliver physical natural gas. In addition to the contractual purchase and/
or sale of physical natural gas, NJRES generates or pays fee-based margin in exchange for its active management and may provide
the producer and/or utility with additional margin based on actual results.
In conjunction with the active management of these contracts, NJRES generates financial margin by identifying market
opportunities and simultaneously entering into natural gas purchase/sale, storage or transportation contracts and financial derivative
contracts. In cases where storage is utilized to fulfill these contracts, these forecast sales and/or purchases are economically hedged
through the use of financial derivative contracts. The financial derivative contracts consist primarily of exchange-traded futures,
options, and swap contracts, and are frequently used to lock in anticipated transactional cash flows and to help manage volatility
in natural gas market prices. Generally, when its storage and transportation contracts are exposed to periods of increased market
volatility, NJRES is able to implement strategies that allow them to capture margin by improving the respective time or geographic
spreads on a forward basis.
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, SRECs and foreign currency from the original transaction price compared with the market
price of natural gas at each reporting date. Volatility in earnings can also occur as a result of timing differences between the
settlement of financial derivatives and the sale of the underlying physical commodity. For example, when a financial instrument
settles and the physical natural gas is injected into inventory, the realized gains and losses associated with the financial instrument
are recognized in earnings. However, the gains and losses associated with the physical natural gas are not recognized in earnings
until the natural gas inventory is withdrawn, at which time NJRES realizes the entire margin on the transaction.
Page 50
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 (1)
Gas purchases (including demand charges (2)(3))
Gross margin
Operation and maintenance
Depreciation and amortization
Other taxes
Operating income
Other income
Interest expense, net
Income tax provision
Net income
(1)
2016
2014
2015
$ 1,197,253 $ 1,934,307 $ 2,930,817
2,814,300
116,517
42,607
59
1,496
72,355
222
1,725
26,458
44,394
1,153,911
43,342
20,025
88
937
22,292
98
1,095
7,030
14,265 $
1,795,719
138,588
25,403
90
1,237
111,858
438
1,209
39,043
72,044 $
$
Includes related party transactions of approximately $9.5 million, $61.5 million,and $72.1 million during fiscal 2016, 2015 and 2014, respectively, which
is eliminated in consolidation.
Costs associated with pipeline and storage capacity that are expensed over the term of the related contracts, which generally varies from less than one year
to 10 years.
Includes related party transactions of approximately $14.6 million, $27.9 million and $7.3 million during fiscal 2016, 2015 and 2014, respectively, a portion
of which are eliminated in consolidation.
(2)
(3)
As of September 30, NJRES’ portfolio of financial derivative instruments are composed of:
(in Bcf)
Net short futures contracts
Net long options
Operating Revenues and Gas Purchases
2016
79.1
1.2
2015
91.1
1.2
2014
62.1
1.2
During fiscal 2016, operating revenues decreased $737.1 million and gas purchases decreased $641.8 million, due primarily
to decrease of $59.7 million related to changes in the value of financial hedges, as well as a decrease of approximately 26.5 percent
in average gas prices, as well as a 12.1 percent decrease in sales volumes. The price decreases were related to the warm winter
weather, primarily across the eastern United States, during fiscal 2016 compared with fiscal 2015.
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.
Future results at NJRES are contingent upon natural gas market price volatility driven by variations in both the supply and
demand balances caused by weather and other factors. As a result, variations in weather patterns in the key market areas served
may affect earnings during the fiscal year. Changes in market fundamentals, such as an increase in supply and decrease in demand
due to milder temperatures, and reduced volatility, can negatively impact NJRES’ earnings. See Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Natural Gas Distribution Segment for Tetco M-3 Daily Prices,
which illustrates the daily natural gas prices in the Northeast market region.
Gross Margin
Gross margin during fiscal 2016 was lower by approximately $95.2 million, compared with fiscal 2015, due primarily to the
decreases in the fair value of financial derivatives, average natural gas prices and sales volumes as previously discussed. Gross
margin during fiscal 2015 was higher by approximately $22.1 million, compared with fiscal 2014, due primarily to an increase in
volumes of natural gas purchased and sold and an increase of $103.5 million related to changes in the fair value of financial
derivatives, partially offset by a decrease in average gas prices.
Page 51
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operation and Maintenance Expense
O&M expense decreased $5.4 million, or 21.2 percent, during fiscal 2016, compared with fiscal 2015, due primarily to
decreases in incentive compensation, charitable donations and shared services costs. 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.
Net Income
Net income decreased $57.8 million during fiscal 2016, compared with fiscal 2015, due primarily to lower gross margin,
partially offset by the related decrease in income tax expense and the decrease in O&M. 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.
Non-GAAP Financial Measures
Management uses financial margin and NFE, non-GAAP financial measures, when evaluating the operating results of NJRES.
Financial margin and NFE are based on removing timing differences associated with certain derivative instruments, as discussed
above. Management views these measures as 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 the settlement of derivative instruments. To the extent that
there are unanticipated impacts from changes in the market value related to the effectiveness of economic hedges, NJRES’ actual
non-GAAP results can differ from the results anticipated at the outset 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 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 withdrawn from storage, 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:
2016
2015
$ 1,197,253 $ 1,934,307 $ 2,930,817
2,814,300
1,795,719
1,153,911
2014
Unrealized loss (gain) on derivative instruments and related transactions (1)
Effects of economic hedging related to natural gas inventory (2)
Financial margin
48,855
(36,816)
55,381 $
(39,408)
(8,225)
90,955 $
29,251
26,639
172,407
$
(1)
(2)
Includes unrealized (gains) losses related to an intercompany transaction between NJNG and NJRES that have been eliminated in consolidation of
approximately $(1.3) million, $465,000 and $(454,000) for the fiscal years ended September 30, 2016, 2015 and 2014, respectively.
Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.
Page 52
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
A reconciliation of operating income, the closest GAAP financial measure 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 loss (gain) on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Financial margin
2016
22,292 $ 111,858 $
2015
2014
72,355
$
20,025
88
937
43,342
25,403
90
1,237
138,588
42,607
59
1,496
116,517
48,855
(36,816)
55,381 $
(39,408)
29,251
(8,225)
26,639
90,955 $ 172,407
$
Financial margin decreased $35.6 million during fiscal 2016, compared with fiscal 2015, due primarily to lower volatility
and narrower price spreads resulting from the warmer weather and fewer market opportunities, as previously discussed.
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.
Net Financial Earnings
A reconciliation of NJRES’ net income (loss), the most directly comparable GAAP financial measure to NFE, is as follows
for the fiscal years ended September 30:
(Thousands)
Net income
Add:
2016
2015
$ 14,265 $ 72,044 $ 44,394
2014
Tax effect (1)
Effects of economic hedging related to natural gas inventory
Unrealized loss (gain) on derivative instruments and related transactions
29,251
(10,755)
26,639
(9,794)
$ 21,934 $ 42,122 $ 79,735
Includes taxes related to an intercompany transaction between NJNG and NJRES that have been eliminated in consolidation of approximately $716,000
and $(262,000) and $263,000 for the fiscal years ended September 30, 2016, 2015 and 2014, respectively.
(39,408)
14,653
(8,225)
3,058
48,855
(17,734)
(36,816)
13,364
Net financial earnings
(1)
Tax effect
NFE decreased $20.2 million during fiscal 2016, compared with fiscal 2015, due primarily to the decreased financial margin
of $35.6 million, partially offset by lower taxes and O&M, as previously discussed. 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 income taxes related to the decrease in financial margin, 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 in an active and liquid natural
marketplace, volatility in the natural gas market due to weather or other fundamental market factors impacting supply and/or
demand, transportation, storage and/or other market arbitrage opportunities, sufficient liquidity in the overall energy trading market,
and continued access to liquidity in the capital markets.
Page 53
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. We believe
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 us. To that end, we have 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 we estimate will be completed and operational by the first quarter of fiscal 2019. As of September 30, 2016, our
net investments in Steckman Ridge and PennEast were $123.2 million and $18 million, respectively.
During fiscal 2015, NJR Midstream Holdings Corporation, through its subsidiary, NJNR Pipeline Company, also held a
5.53 percent ownership interest in Iroquois. On September 29, 2015, NJNR Pipeline Company exchanged its ownership interest
in Iroquois with Dominion Midstream Partners, L.P. for 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
Other income
Interest expense, net
Income tax provision
Net income
2016
2015
2014
$
$
$
$
$
$
13,936 $
1,197 $
3,130 $
287 $
6,130 $
9,406 $
17,487 $
14,078
1,136 $
977 $
717 $
6,849 $
9,780 $
860
950
1,396
5,227
7,498
Equity in earnings of affiliates are driven primarily by storage revenues generated by Steckman Ridge and through September 29,
2015, transportation revenues generated by Iroquois. Equity in earnings of affiliates, is as follows for the fiscal years ended
September 30:
(Thousands)
Steckman Ridge
Iroquois (1)
PennEast
Total equity in earnings of affiliates
(1) Transportation revenues generated by Iroquois ended September 29, 2015.
2016
2015
2014
$
$
14,050 $
—
(114)
13,936 $
12,330 $
5,164
(7)
9,250
4,828
—
17,487 $
14,078
Equity in earnings of affiliates decreased $3.6 million during fiscal 2016, compared with fiscal 2015, due primarily to the
exchange of our ownership interest in Iroquois during the fourth quarter of fiscal 2015, partially offset by increases in storage
service revenue and demand for hub services at Steckman Ridge. Equity in earnings of affiliates increased $3.4 million during
fiscal 2015, compared with fiscal 2014, due primarily to increases in storage service revenue and demand for hub services at
Steckman Ridge.
O&M expense remained relatively flat during fiscal 2016, compared with fiscal 2015. O&M expense increased $276,000
during fiscal 2015, compared with fiscal 2014, due primarily to increased charitable donations.
Other income increased $2.2 million during fiscal 2016, compared with fiscal 2015, due primarily to dividend income of
$1.6 million from the DM Common Units. Other income remained relatively flat during fiscal 2015, compared with fiscal 2014.
Page 54
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Interest expense, net decreased $430,000 during fiscal 2016, compared with fiscal 2015, and decreased $679,000 during
fiscal 2015, compared with fiscal 2014, due primarily to proceeds generated by our investments that are being used to reduce
intercompany loans.
The income tax provision decreased $719,000 during fiscal 2016, compared with fiscal 2015, due primarily to the decrease
in equity in earnings of affiliates, as discussed above. The income tax provision increased $1.6 million during fiscal 2015, compared
with fiscal 2014, due primarily to the increase in equity in earnings of affiliates, as discussed above.
Net income in fiscal 2016 decreased $374,000, compared with fiscal 2015, due primarily to the decrease in equity in earnings
of affiliates, partially offset by the increase in other income and the decreases in the income tax provision and interest expense,
net. Net income increased $2.3 million in fiscal 2015, compared with fiscal 2014, 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.
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 114,000 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
2016
2015
2014
$
$
$
$
$
48,497 $
40,106 $
3,777 $
1,387 $
2,882 $
48,703 $
39,601 $
3,815 $
1,551 $
3,420 $
46,687
37,522
3,508
2,460
2,798
Operating revenue decreased $206,000 during fiscal 2016, compared with fiscal 2015, due primarily to a decrease in heating
equipment installations and generator sales at NJRHS resulting from warmer weather, partially offset by increased solar installations
and increased contract revenue as a result of existing customers upgrading to the total comfort and platinum comfort plans and
expanded service contract product line. 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.
O&M expense increased $505,000 during fiscal 2016, compared with fiscal 2015, due primarily to increases at NJRHS related
to solar installations, advertising and shared corporate costs. 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.
Energy and other taxes remained relatively flat during fiscal 2016, compared with fiscal 2015. Energy and other taxes increased
$307,000 during fiscal 2015, compared with fiscal 2014, due primarily to increased payroll taxes.
Income taxes decreased $164,000 during fiscal 2016, compared with fiscal 2015, due primarily to the decrease in operating
revenues and the increase in O&M at NJRHS, as previously discussed. Income taxes decreased $909,000 during fiscal 2015,
compared with fiscal 2014, due primarily to a prior year reserve adjustment at NJR.
Page 55
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Net income decreased $538,000 during fiscal 2016, compared with fiscal 2015, due primarily to the decrease in operating
revenues and the increase in O&M, partially offset by the decrease in income taxes, as discussed above. 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.
Liquidity and Capital Resources
Our 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.
Our consolidated capital structure at September 30, was as follows:
Common stock equity
Long-term debt
Short-term debt
Total
Common Stock Equity
2016
48%
44
8
100%
2015
54%
42
4
100%
We satisfy our external common equity requirements, if any, through issuances of our common stock, including the proceeds
from stock issuances under our DRP. The DRP allows us, at our option, to use treasury shares or newly issued shares to raise
capital. On December 14, 2015, we registered an additional 5 million shares of our common stock for issuance under the DRP.
We raised $16 million and $16.7 million of equity through the DRP by issuing approximately 471,000 and 588,000 shares of
treasury stock during fiscal 2016 and 2015, respectively. During fiscal 2015, we also raised approximately $19.8 million of equity
by issuing approximately 688,000 new shares through the waiver discount feature of the DRP. We issued no new shares through
the waiver discount feature during fiscal 2016.
In 1996, the Board of Directors authorized us to implement a share repurchase program, which was expanded seven times
since the inception of the program, authorizing a total of 19.5 million shares of common stock for repurchase. As of September 30,
2016, we have repurchased a total of approximately 17 million shares and may repurchase an additional 2.5 million shares under
the approved program. There were 126,600 and 348,200 shares of common stock shares repurchased during fiscal 2016 and 2015,
respectively.
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.
We believe that our existing borrowing availability, equity proceeds and cash flow from operations will be sufficient to
satisfy our and our 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 our DRP, including utilizing
the waiver discount feature.
We believe that as of September 30, 2016, NJR and NJNG were, and currently are, in compliance with all existing debt
covenants, both financial and non-financial.
Short-Term Debt
We use our short-term borrowings primarily to finance NJRES’ short-term liquidity needs and, on an initial basis, NJRCEV’s
investments, our Midstream segment’s PennEast contributions and our share repurchases. 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.
Page 56
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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, 2016, NJR and NJNG had revolving credit facilities totaling $425 million and $250 million,
respectively, as described below, with $288.9 million and $249.3 million, respectively, available under the facilities. Due to the
seasonal nature of natural gas prices and demand, and because inventory levels are built up during its natural gas injection season
(April through October), NJR and NJNG’s short-term borrowings tend to peak in November and December.
Short-term borrowings were as follows:
($ 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, 2016
$
$
$
$
$
$
121,700
1.43%
197,226
1.40%
254,800
$
$
$
— $
—%
— $
—%
— $
121,700
1.43%
150,540
1.32%
254,800
—
—%
42,188
0.28%
96,000
On September 28, 2015, NJR entered into a $425 million Amended and Restated Credit Agreement, which refinanced an
earlier $425 million revolving credit facility that was scheduled to expire on August 22, 2017, but has now been terminated. The
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
NJR Credit Facility.
The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of
credit. The NJR Credit Facility also includes an accordion feature, which would allow NJR, in the absence of a default or event
of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJR Credit
Facility in minimum $5 million increments up to a maximum of $100 million. In addition, borrowings under the NJR Credit
Facility are conditioned upon compliance with a maximum leverage ratio (consolidated total indebtedness to consolidated total
capitalization as defined in the NJR Credit Facility) of not more than .65 to 1.00 at any time. As of September 30, 2016, the
consolidated total indebtedness to total capitalization ratio, as defined in the NJR Credit Facility, was 52 percent.
As of September 30, 2016, NJR had $121.7 million outstanding under the NJR Credit Facility. Neither NJNG nor its assets
are obligated or pledged to support the NJR Credit Facility.
During fiscal 2016, NJR’s average interest rate under the NJR Credit Facility was 1.32 percent, resulting in interest expense
of $2 million. Based on average borrowings under the facilities of $150.5 million during the period, a 100 basis point change in
the underlying average interest rate would have caused a change in interest expense of approximately $1.6 million during fiscal
2016.
Page 57
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
As of September 30, 2016, NJR has seven letters of credit outstanding totaling $14.4 million. Two letters of credit totaling
$9.1 million are on behalf of NJRES and five letters of credit are on behalf of NJRCEV totaling $5.3 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’ letters of credit are used for margin requirements for natural gas transactions and expire on dates ranging from
December 2016 to March 2017. 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 May 2017 to August
2017.
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, 2016, NJNG’s consolidated
total indebtedness to total capitalization ratio was 48 percent. As of September 30, 2016, the unused amount available under the
NJNG Credit Facility, including amounts available under the commercial paper program and the issuance of letters of credit, was
$249.3 million. During fiscal 2016, NJNG’s weighted average interest rate on outstanding commercial paper was .28 percent,
resulting in interest expense of $152,100. Based on average borrowings under the facility of $42.2 million during the period, a
100 basis point change in the underlying average interest rate would have caused a change in interest expense of approximately
$428,700 during fiscal 2016.
As of September 30, 2016, 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 2017.
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 borrowers’ or guarantors’ assets.
These covenants are subject to a number of exceptions and qualifications set forth in the applicable agreements.
Page 58
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Default Provisions
The agreements governing our long-term and short-term debt obligations include provisions that, if not complied with,
could require early payment or similar actions. Default events include, but are not limited to, the following:
• defaults for non-payment;
• defaults for breach of representations and warranties;
• defaults for insolvency;
• defaults for non-performance of covenants;
• cross-defaults to other debt obligations of the borrower; and
• guarantor defaults.
The occurrence of an event of default under these agreements could result in all loans and other obligations of the borrower
becoming immediately due and payable and the termination of the credit facilities or term loan.
Long-Term Debt
NJR
The MetLife Facility, an unsecured, uncommitted $100 million private placement shelf note agreement with MetLife,
allowed NJR to issue senior notes to MetLife or certain of MetLife’s affiliates during a three-year issuance period that ended
September 26, 2016, and was not renewed. There were no notes outstanding under the expired facility.
NJR has $50 million of 6.05 percent senior unsecured notes, issued through the private placement market, maturing in
September 2017.
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.
NJR has $50 million of 3.25 percent senior notes due September 2022, issued under a private placement debt shelf facility.
On November 7, 2014, NJR issued $100 million in 3.48 percent senior notes due November 7, 2024, under the 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.
On March 22, 2016, NJR entered into a Note Purchase Agreement, under which we issued, on August 18, 2016, $50 million
of the Company’s 3.2 percent senior notes due August 18, 2023, and $100 million of the Company’s 3.54 percent senior notes
due August 18, 2026. The notes are guaranteed by certain unregulated subsidiaries of the Company. The notes are unsecured.
The proceeds of the notes will be used for general corporate purposes, including working capital and capital expenditures.
Neither NJNG nor its assets are obligated or pledged to support NJR’s long-term debt.
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, 2016, NJNG’s long-term debt consisted of $610.8 million in fixed-rate debt issuances secured by the
Mortgage Indenture, with maturities ranging from 2018 to 2046, $97 million in secured variable rate debt with maturities ranging
from 2027 to 2041 and $30.7 million in capital leases with various maturities ranging from 2017 to 2022.
Page 59
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
On June 21, 2016, NJNG entered into a Note Purchase Agreement, under which NJNG issued $125 million of its 3.63
percent senior notes due June 21, 2046. The notes are secured by an equal principal amount of NJNG’s FMB (series UU) issued
under NJNG’s Mortgage Indenture. The proceeds of the notes will be used for general corporate purposes, including, but not
limited to, refinancing or retiring short-term debt and funding capital expenditures. The notes are subject to required prepayments
upon the occurrence of certain events and NJNG may prepay all or any part of, the notes, in amounts not less than $1 million in
aggregate principal amount of the notes then outstanding at 100 percent of the aggregate principal amount, plus accrued interest
and a make-whole amount, if applicable.
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 transactions of their
type. They also contain customary events of default and certain covenants that will limit NJR or NJNG’s ability beyond agreed
upon thresholds to, among other things:
•
incur additional debt (including a covenant that limits the amount of consolidated total debt of the borrower at the end
of a fiscal quarter to 65 percent of the consolidated total capitalization of the borrower, as those terms are defined in the
applicable agreements, and a covenant limiting priority debt to 20 percent of the borrower’s consolidated total capitalization,
as those terms are defined in the applicable agreements);
•
incur liens and encumbrances;
• make loans and investments;
• make dispositions of assets;
• make dividends or restricted payments;
•
enter into transactions with affiliates; and
• merge, consolidate, transfer, sell or lease substantially all of the borrower’s assets.
The aforementioned covenants are subject to a number of 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;
Page 60
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 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, 2016, was .92 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 $7.1 million, $7.2 million and $7.6 million in fiscal 2016, 2015 and 2014, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2016, 2015 and 2014, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $1.9 million, $768,000 and $956,000, respectively. NJNG continues
to evaluate this sale-leaseback program based on current market conditions.
Contractual Obligations
The following table is a summary of NJR, NJNG, NJRES and NJRCEV contractual cash obligations and financial
commitments and their applicable payment due dates as of September 30, 2016:
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)
58,079 $ 1,222,834
$ 1,583,616 $
1,382
12,438
46,902
33,200
4,206
43,994
—
—
121,700
—
—
14,232
—
—
83,258
81,500
32,000
172,000
—
—
89,010
731,182
182,932
1,216,305
—
—
368,221
4,605
17,799
182,914
307,454 $ 2,074,703
$ 3,922,152 $
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.
89,642 $
13,244
2,046
121,700
14,232
83,258
21,400
85,196
85,592
224,853
103,842
845,005 $
2-3
Years
213,061 $
19,838
4,542
—
—
—
37,100
3,814
216,599
143,368
56,668
694,990 $
Page 61
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The Company made a discretionary contribution of $30 million during the first quarter of fiscal 2016, to improve the funded
status of the pension plans based on then current actuarial assumptions, which included the adoption of the most recent mortality
table. 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. 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
each of the next five years. Additional contributions may vary based on market conditions and various assumptions.
As of September 30, 2016, there were NJR guarantees covering approximately $294.2 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
2016, committed and spent capital expenditures totaled $203.1 million. In fiscal 2017 and 2018, NJNG’s total capital expenditures
are projected to be $275 million and $239.8 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, 2016, NJNG deferred $15.2 million in regulatory assets that
was approved for recovery through NJNG’s new base rates, effective October 1, 2016.
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 and the issuance of long-term debt.
As of September 30, 2016, NJNG’s future MGP expenditures are estimated to be $172 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.
NJRCEV’s expenditures include clean energy projects that support our goal to promote renewable energy. Accordingly,
NJRCEV enters into agreements to install solar equipment involving both residential and commercial projects. During fiscal
2016, capital expenditures related to the purchase and installation of the solar equipment were $75.8 million. An additional $22.1
million has been committed or accrued for solar projects to be placed into service during fiscal 2017 and beyond. We estimate
solar-related capital expenditures placed in service in fiscal 2017 to be between $80 million and $100 million.
During the first quarter of fiscal 2016, NJRCEV commenced construction of an $84 million, 39.9 MW onshore wind project
in Somerset County, Pennsylvania, which is expected to be completed in the first quarter of fiscal 2017.
During fiscal 2016, a total of $73.3 million has been spent and, as of September 30, 2016, an additional $33.3 million has
been committed or accrued for wind projects. In fiscal 2017, NJRCEV estimates that its wind-related capital expenditures will
range between $25 million and $35 million.
Capital expenditures related to clean energy 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.
During fiscal 2016, Midstream had a total of $11.2 million of expenditures related to our investment in the PennEast pipeline
project and is expected to spend between $20 million and $30 million during fiscal 2017.
NJRES does not currently anticipate any significant capital expenditures in fiscal 2017 and 2018.
Page 62
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Off-Balance-Sheet Arrangements
Our off-balance-sheet arrangements consist of guarantees covering approximately $294.2 million of natural gas purchases,
SREC sales and demand fee commitments, see Note 13. Commitments and Contingent Liabilities, and nine outstanding letters
of credit totaling $15.1 million, as noted above, see Note 8. Debt.
Cash Flow
Operating Activities
Cash flows from operating activities during fiscal 2016, totaled $142.6 million compared with $390.9 million during fiscal
2015. Operating cash flows are primarily affected by variations in working capital, which can be impacted by several factors,
including:
• seasonality of our business;
fluctuations in wholesale natural gas prices and other energy prices, including changes in derivative asset and liability
•
values;
•
•
timing of storage injections and withdrawals;
the deferral and recovery of gas costs;
• changes in contractual assets utilized to optimize margins related to natural gas transactions;
• broker margin requirements;
•
impact of unusual weather patterns on our wholesale business;
•
timing of the collections of receivables and payments of current liabilities;
• volumes of natural gas purchased and sold; and
•
timing of SREC deliveries.
The decrease of $248.3 million in operating cash flows during fiscal 2016, compared with fiscal 2015, was impacted by:
• a decrease in market volatility related to the warm winter weather primarily across the eastern United States, contributed
to a decrease in profitability and working capital at NJRES, primarily gas in storage which had a 60 percent increase in
volumes and an increase in broker margin due to decreases in the fair value of derivatives and higher initial margin
requirements;
• bill credits of $61.6 million issued to NJNG’s customers during fiscal 2016 for overrecovered gas costs; and
• a discretionary contribution of $30 million to our pension plan during fiscal 2016.
Lower average commodity prices were the primary contributor to the increase of $32.8 million in operating cash flows
during fiscal 2015, compared with fiscal 2014. In fiscal 2014, unusually cold weather 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.
Investing Activities
Cash flows used in investing activities totaled $363.2 million during fiscal 2016, compared with $321.7 million during fiscal
2015. The increase of $41.5 million was due primarily to an increase in utility plant expenditures of $36.3 million and an increase
in capital expenditures at NJRCEV of $14.5 million related to solar projects. NJR also contributed an additional $5.4 million for
its investment in PennEast during fiscal 2016. The increase was partially offset by a decrease of $16.5 million related to wind
projects.
Page 63
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
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
2016 and fiscal 2015, NJNG’s capital expenditures, including cost of removal, totaled $205.1 million and $168.9 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 2016 and fiscal 2015, capital expenditures on these projects totaled
$149.1 million and $151 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, 2016, CR&R owned 35 acres of undeveloped land and a 56,400
square-foot office building on five acres of land. On December 29, 2015, CR&R sold approximately 18.61 acres of its undeveloped
land for $760,000, generating a pre-tax gain of $10,000, after closing costs.
Financing Activities
Financing cash flows generally are seasonal in nature and are impacted by the volatility in pricing in the natural gas and
other energy 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 clean energy investments
at NJRCEV.
Cash flows from financing activities during fiscal 2016 totaled $253.2 million, compared with cash flows used in financing
activities of $66.4 million during fiscal 2015. The increase of $319.6 million was due primarily to increased short-term borrowings
at NJR. This was partially offset by the issuance of $100 million in long-term debt for NJR during fiscal 2015, along with a decrease
of $25 million in long-term debt at NJNG, which issued $125 million during fiscal 2016, compared with $150 million during fiscal
2015. There was also a decrease in proceeds from the issuance of common stock when compared with fiscal 2015, during which
688,000 new shares were issued through the waiver discount feature of the DRP.
Cash flows used in financing activities during fiscal 2015 totaled $66.4 million, compared with $76.4 million during fiscal
2014. The decrease of $9.9 million was due primarily to an increase in proceeds from the issuance of common shares, including
$19.8 million related to 688,000 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.
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.
NJNG received $7.1 million, $7.2 million and $7.6 million for fiscal 2016, 2015 and 2014, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2016, 2015 and 2014, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $1.9 million, $768,000 and $956,000, respectively. NJNG continues
to evaluate this sale-leaseback program based on current market conditions.
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.
Page 64
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The table below summarizes NJNG’s current credit ratings issued by two rating entities, S&P and Moody’s, as of
September 30, 2016:
Corporate Rating
Commercial Paper
Senior Secured
Ratings Outlook
S&P
A
A-1
A+
Stable
Moody’s
N/A
P-1
Aa2
Stable
These ratings were reaffirmed by S&P on July 19, 2016 and by Moody’s on October 4, 2016. 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 NJR’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 NJNG’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, CME, 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.
Our regulated and deregulated businesses are subject to market risk due to fluctuations in the price of natural gas. To
economically hedge against such fluctuations, we have entered into forwards, futures, options and swap agreements. To manage
these derivative instruments, we have well-defined risk management policies and procedures that include daily monitoring of
volumetric limits and monetary guidelines. Our natural gas businesses are conducted through three of our 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 us have received statutory exclusion from similar Dodd-Frank
provisions due to the element of physical settlement.
The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and
sales from September 30, 2015 to September 30, 2016:
(Thousands)
NJNG
NJRES
Total
Balance
September 30,
2015
$ (10,881)
24,575
$ 13,694
Increase
(Decrease) in Fair
Market Value
$
Less
Amounts
Settled
(9,361) $ (17,757)
97,884
51,567
80,127
42,206
$
$
Balance
September 30,
2016
$ (2,485)
(21,742)
$ (24,227)
There were no changes in methods of valuations during the year ended September 30, 2016.
Page 65
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The following is a summary of fair market value of financial derivatives as of September 30, 2016, 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
2017
2018
2019 - 2021 After 2021
$ (15,245) $
(9,255)
$ (24,500) $
48
7
55
$
$
—
218
218
$ —
—
$ —
Total
Fair Value
$ (15,197)
(9,030)
$ (24,227)
The following is a summary of financial derivatives by type at September 30, 2016:
NJNG
NJRES
Total
(1) Million British thermal unit
Volume
Bcf
23.6
(79.1)
1.2
Price per
MMBtu (1)
$1.93 - $3.16
$0.96 - $4.28
$0.02 - $0.24
Futures
Futures
Options
Amounts included
in Derivatives
(Thousands)
$ (2,485)
(22,317)
575
$ (24,227)
The following table reflects the changes in the fair market value of physical commodity contracts from September 30, 2015
to September 30, 2016:
(Thousands)
NJNG - Prices based on other external data
NJRES - Prices based on other external data
Total
Balance
September 30,
2015
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2016
$
—
(2,709)
$ (2,709)
(8,844)
(23,597)
(32,441)
(7,925)
(23,415)
(31,340)
$
(919)
(2,891)
$ (3,810)
The following table reflects the changes in the fair market value of interest rate contracts from September 30, 2015 to
September 30, 2016:
(Thousands)
NJNG - Prices based on other external data
Foreign Currency Market Risks
Balance
September 30,
2015
$ (4,228)
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2016
(18,845)
—
$
(23,073)
The following table reflects the changes in the fair market value of financial derivatives related to foreign currency hedges
from September 30, 2015 to September 30, 2016:
(Thousands)
NJRES
Balance
September 30,
2015
$
—
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
(61)
(30)
Balance
September 30,
2016
$
(31)
There were no changes in methods of valuations during the fiscal year ended September 30, 2016.
The following is a summary of fair market value of financial derivatives related to foreign currency hedges at September 30,
2016, by method of valuation and by maturity for each fiscal year period:
(Thousands)
2017
2018
2019 - 2021 After 2021
Total
Fair Value
Prices based on other external data
$
(31)
—
—
—
$
(31)
Page 66
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Our market price risk is predominately related to changes in the price of natural gas at the 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 linked to 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 the natural gas futures contract price, for example, increases (decreases) the reported
derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed swap positions by approximately $19.8
million. This analysis does not include potential changes to reported credit adjustments embedded in the $(28.4) 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%
$
(9,908) $ (19,817) $ (29,725) $ (39,634)
$ (28,377) $ (38,285) $ (48,194) $ (58,102) $ (68,011)
(10)%
(15)%
(20)%
— $
(5)%
20%
15%
0%
— $
$
9,908 $
$ (28,377) $ (18,469) $
19,817 $
(8,560) $
29,725 $
1,348 $
39,634
11,257
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.
Our 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 at least once 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 non-investment grade
counterparties, as of September 30, 2016. 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 or power 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’ & NJRCEV’s counterparty credit exposure as of September 30, 2016, 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, 2016, is as follows:
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Page 67
Gross Credit
Exposure
Net Credit
Exposure
$ 119,056
17,479
9,818
4,600
$ 150,953
$ 100,666
3,379
6,169
540
$ 110,754
Gross Credit
Exposure
Net Credit
Exposure
$
$
2,753
154
24
7,699
10,630
$
$
2,578
110
—
2,093
4,781
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Due to the inherent volatility in the market price for natural gas, electricity 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 (for example, failed to make payment for natural gas received),
we 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 exceeds the original contract price. Any such loss could have a material impact
on our financial condition, results of operations or cash flows.
Effects of Interest Rate and Foreign Currency Rate Fluctuations
We are also exposed to changes in interest rates on our debt hedges, variable rate debt and changes in foreign currency rates
for our business conducted in Canada using Canadian dollars. We do not believe an immediate 10 percent increase or decrease in
interest rates or foreign currency rates would have a material effect on our operating results or cash flows.
As of September 30, 2016, 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, 2016, the EDA Bonds had a weighted average interest rate of .92 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 2016.
As of September 30, 2016, 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 our utility subsidiary.
We attempt to minimize the effects of inflation through cost control, productivity improvements and regulatory actions, when
appropriate.
Page 68
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, 2016. 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, 2016,
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, 2016, which appears herein.
November 22, 2016
Page 69
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
Wall, New Jersey:
We have audited the accompanying consolidated balance sheets of New Jersey Resources Corporation and subsidiaries (the
“Company”) as of September 30, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2016, 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, 2016, 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 22, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 22, 2016
Page 70
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
Wall, New Jersey
We have audited the internal control over financial reporting of New Jersey Resources Corporation and subsidiaries (the
“Company”) as of September 30, 2016, 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, 2016, 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, 2016 of the
Company and our report dated November 22, 2016 expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 22, 2016
Page 71
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
2016
2015
2014
$
594,346 $
781,970 $
1,286,559
1,880,905
1,952,017
2,733,987
819,415
2,918,730
3,738,145
205,034
1,139,301
8,351
208,421
39,300
72,748
40,215
1,713,370
167,535
9,196
31,044
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
145,687
23,530
9,515
131,672 $
227,275
59,724
13,409
180,960 $
183,278
51,840
10,532
141,970
$
$1.53
$1.52
$0.975
85,884
86,731
$2.12
$2.10
$0.915
85,186
86,265
$1.69
$1.67
$0.855
84,198
84,922
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
Fiscal years ended September 30,
Net income
Other comprehensive income, net of tax:
Unrealized (loss) gain on available for sale securities, net of tax of $1,499, $(1,135)
and $426, respectively (1)
Net unrealized (loss) gain on derivatives, net of tax of $0, $(56), and $61, respectively
Adjustment to postemployment benefit obligation, net of tax of $2,466, $3,688 and
$2,162, respectively
Other comprehensive (loss)
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 72
2016
2015
$ 131,672 $ 180,960 $ 141,970
2014
(2,187)
—
1,603
93
(618)
(105)
(3,574)
(5,761)
(3,250)
(3,973)
$ 125,911 $ 177,160 $ 137,997
(5,496)
(3,800)
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 loss (gain) on derivative instruments
Depreciation and amortization
Impairment loss on investment
Allowance for equity used during construction
Allowance for bad debt expense
Deferred income taxes
Manufactured gas plant remediation costs
Distributions received from equity investees, net of equity in earnings
Cost of removal - asset retirement obligations
Contributions to postemployment benefit plans
Tax benefit from stock based compensation
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
Distributions from equity investees in excess of equity in earnings
Withdrawal from (payment to) from restricted cash construction fund
Proceeds from sale of investment
Proceeds from sale of property
Cash flows (used in) investing activities
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of common stock
Tax withholding payments related to net settled stock compensation
Proceeds from sale-leaseback transaction
Proceeds from long-term debt
Payments of long-term debt
Purchases of treasury stock
Payments of common stock dividends
Net proceeds from (payments of) short-term debt
Cash flows from (used in) 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 (received) 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 73
2016
2015
2014
$ 131,672
$ 180,960
$ 141,970
46,883
72,748
—
(4,375)
1,616
27,721
(8,106)
4,534
(403)
(33,359)
1,755
(123,325)
3,933
21,336
142,630
(176,067)
(149,063)
(1,896)
(29,066)
(11,176)
2,351
979
—
748
(363,190)
16,010
(3,547)
7,107
275,000
(13,289)
(1,008)
(82,445)
55,350
253,178
32,618
4,928
37,546
$
$
11,303
(45,986)
(39,642)
(11,963)
(411)
2,385
(15,656)
(38,752)
12,044
3,353
$ (123,325)
(38,681)
61,399
—
(3,825)
2,859
45,934
(6,805)
6,663
(1,034)
(5,778)
881
81,817
38,716
27,841
390,947
(140,797)
(151,002)
(209)
(28,078)
(5,780)
2,620
(1,499)
3,016
—
(321,729)
37,299
(2,146)
7,216
250,000
(37,039)
(10,589)
(76,532)
(234,650)
(66,441)
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
$
$
$
$
$
$
$
31,996
(3,516)
48,881
$
$
$
— $
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)
414
85,480
10,484
20,724
358,149
(128,254)
(135,543)
(1,179)
(24,312)
(555)
1,150
88
—
6,010
(282,595)
15,373
(949)
7,576
125,000
(82,586)
(5,522)
(70,664)
(64,600)
(76,372)
(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
22,458
22,447
9,655
—
$
$
$
$
$
$
$
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
Asset held for sale
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 74
2016
2015
$
2,107,375 $
122,268
631,696
93,791
2,955,130
(467,702)
1,908,024
155,553
481,003
77,705
2,622,285
(437,097)
(79,776)
2,407,652
(56,927)
2,128,261
37,546
4,928
142,658
155,273
5,744
(4,865)
54,286
6,372
(5,189)
24,258
206,251
163,905
10,778
34,179
29,964
47,644
7,660
35,419
607,264
141,148
441,294
5,227
55,789
68,708
7,138
36,810
40,743
12,990
—
40,987
488,215
132,002
410,155
4,334
59,475
61,915
712,166
3,727,082 $
667,881
3,284,357
$
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 September 30, 2016 — 86,086,355; September 30, 2015 — 85,531,423
Premium on common stock
Accumulated other comprehensive (loss), net of tax
Treasury stock at cost and other;
shares September 30, 2016 — 2,575,139; September 30, 2015 — 2,804,847
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
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 gain
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 75
2016
2015
$
221,654 $
215,580
(15,155)
(81,044)
825,556
1,166,591
1,063,550
2,230,141
220,838
209,931
(9,394)
(92,164)
777,745
1,106,956
843,595
1,950,551
61,452
121,700
139,452
1,150
107,184
21,975
1,080
9,469
14,232
61,080
—
32,834
11,138
66,350
151,375
1,601
99,651
20,528
1,326
12,154
14,293
32,791
4,103
20,790
571,608
436,100
473,847
444,935
4,619
28,519
25,252
172,000
141,604
41,411
28,379
9,702
4,940
29,334
5,529
180,400
137,414
67,533
19,145
8,476
925,333
897,706
$
3,727,082 $
3,284,357
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, 2013
83,923 $ 217,795 $ 194,964
$
(1,621)
$ (128,638) $ 604,884 $ 887,384
Net income
Other comprehensive (loss)
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Tax benefits from stock plans
Cash dividend declared ($.855 per share)
Treasury stock and other
(3,973)
428
2,783
2,176
(184)
171
591
(329)
12,050
(4,443)
141,970
141,970
(3,973)
3,211
14,226
(184)
(72,025)
(72,025)
Balance at September 30, 2014
84,356
218,223
199,739
(5,594)
(121,031)
674,829
Net income
Other comprehensive (loss)
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Tax benefits from stock plans
359
1,149
895
1,720
Cash dividend declared ($.915 per share)
Treasury stock and other
(333)
5,013
6,722
(1,344)
(199)
(3,800)
180,960
19,096
(4,443)
966,166
180,960
(3,800)
5,908
27,538
(1,344)
(78,044)
(78,044)
9,771
9,572
Balance at September 30, 2015
85,531
220,838
209,931
(9,394)
(92,164)
777,745
1,106,956
Net income
Other comprehensive income
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Cash dividend declared ($.975 per share)
Treasury stock and other
325
471
(241)
816
8,583
(2,879)
(55)
(5,761)
131,672
131,672
(5,761)
9,399
16,063
(83,861)
(83,861)
(7,877)
18,942
(7,822)
Balance at September 30, 2016
86,086 $ 221,654 $ 215,580
$ (15,155)
$ (81,044) $ 825,556 $ 1,166,591
(1) The DRP allows NJR, at its option, to use newly issued shares to raise capital. During fiscal 2015, NJR issued approximately 688,000 new
shares through the waiver discount feature of its DRP. There were no new shares issued through the waiver discount feature during fiscal
2014 and fiscal 2016.
See Notes to Consolidated Financial Statements
Page 76
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 521,200 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 Clean Energy Ventures Corporation, the Company’s clean energy subsidiary, comprises the Clean Energy Ventures
segment and consists of the Company’s capital investments in commercial and residential solar projects located throughout New
Jersey and onshore wind investments in Montana, Iowa, Kansas, Wyoming and Pennsylvania;
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
in the U.S. and Canada;
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 located in Pennsylvania, 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; and
NJR Retail Holdings Corporation has two principal subsidiaries, NJR Home Services Company, which provides heating,
central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout
New Jersey, and Commercial Realty & Resources Corporation, which owns commercial real estate. NJR Retail Holdings
Corporation 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, 2016, 2015 and 2014.
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 77
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
2016
Gas in Storage Bcf
$ 130,493
75,758
$ 206,251
62.0
21.3
83.3
2015
Gas in Storage Bcf
93,696
70,209
$ 163,905
44.6
21.4
66.0
$
For the purpose of securing storage and pipeline capacity in support of their respective businesses, NJRES and NJNG enter
into storage and pipeline capacity contracts, which require the payment of associated demand fees and charges that allow them
access to a high priority of service in order to maintain the ability to access storage or pipeline capacity during a fixed time period,
which generally ranges from one to 10 years. Many of these demand fees and charges are based on established tariff rates as
established and regulated by FERC. These charges represent commitments to pay storage providers and pipeline companies for
the priority right to transport and/or store natural gas utilizing their respective assets.
The following table summarizes the demand charges, which are net of capacity releases, and are included as a component
of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30:
(Millions)
NJRES
NJNG
Total
2016
2015
2014
$
$
141.0 $
77.8
218.8 $
130.6 $
80.5
211.1 $
122.0
92.0
214.0
NJRES expenses demand charges ratably over the term of the service being provided.
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 designated its foreign
exchange contracts, entered into prior to January 1, 2016, 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 AOCI, 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 2015
and 2016.
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.
Effective January 1, 2016, NJR prospectively applies this normal scope exception on a case by case basis to physical commodity
contracts at NJNG, forward SREC contracts at NJRCEV and when it does, it 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 78
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 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.
NJRCEV recognizes revenue when SRECs are transferred to counterparties. SRECs are physically delivered through the
transfer of certificates as per contractual settlement schedules.
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. NJRES also recognizes changes in the fair value of SREC derivative contracts as a component of
operating revenues.
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.
Gas purchases at NJRES are comprised of gas costs NJRES is obligated to pay upon completion of a variety of transactions,
as well as realized gains and losses from settled physical and financial derivative instruments and unrealized gains and losses on
the change in fair value of derivative instruments that have not yet settled. Changes in the fair value of derivatives that economically
hedge the forecasted purchases of natural gas are recognized in 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
Page 79
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
tax expense when the property is placed in service. 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 ITCs and PTCs, which have the effect of reducing or eliminating the credits, 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 all NJNG construction projects, an incremental
cost of equity is 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
2016
2015
2014
$
$
$
$
5,009
4,375
9,384
5.06%
$
$
2,472
3,825
6,297
4.63%
1,057
1,562
2,619
3.30%
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 2.05 percent, 2.54 percent and 2.65
percent for the fiscal years ended September 30, 2016, 2015 and 2014, respectively. Accordingly, other income included $54,000,
$61,000 and $586,000 in the fiscal years ended September 30, 2016, 2015 and 2014, respectively.
Sales Tax Accounting
Sales tax that is collected from customers is 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
2016
2015
2014
$
$
31.0 $
—
31.0 $
44.1 $
—
44.1 $
47.4
1.4
48.8
Cash and cash equivalents consists of cash on deposit and temporary investments with maturities of three months or less,
and excludes restricted cash of $1.6 million and $2.5 million as of September 30, 2016 and 2015, 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 80
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 2.32 percent of average depreciable property in fiscal 2016, 2.31 percent in fiscal 2015 and 2.44 percent in
fiscal 2014. The Company recorded $72.7 million, $61.4 million and $52.7 million in depreciation expense during fiscal 2016,
2015 and 2014, respectively. Effective October 1, 2016, the overall depreciation rate is 2.4 percent, as settled in the base rate case.
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
Asset Held for Sale
Estimated Useful Lives
2016
2015
38 to 74 years
35 to 56 years
34 to 47 years
20 to 25 years
25 years
5 to 35 years
$ 1,823,672 $ 1,695,898
289,599
292,433
78,238
479,948
228,644
52,195
41,669
395,704
137,292
62,123
2,955,130
(547,478)
2,622,285
(494,024)
$ 2,407,652 $ 2,128,261
NJR’s subsidiary, CR&R, has committed to sell an approximately 56,400 square foot office building on five acres of land
located in Monmouth County with a net book value of $7.7 million. Since it is probable that the sale will be completed within the
next 12 months, as of September 30, 2016, the Company has classified the property as held for sale in the Consolidated Balance
Sheets.
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.
During fiscal 2014, NJRCEV recognized an impairment loss of $6.4 million, $3.8 million after tax, associated with its
investment in OwnEnergy, a developer of onshore wind projects. The loss is included in other income, net on the Consolidated
Statements of Operations. No other impairments were identified for the fiscal years ended September 30, 2016, 2015 and 2014.
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.
Available for Sale Securities
The Company has investments in two publicly traded energy companies that have a fair value of $55.8 million and $59.5
million as of September 30, 2016 and 2015, 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 $7.2 million, $4.2 million after tax, and $10.8 million, $6.4
million after tax, as of September 30, 2016 and 2015, respectively.
Page 81
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
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 2016 and 2015.
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 PPAs to commercial and residential customers. NJR evaluates
its 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
2016
$ 102,884
30,951
1,807
7,016
$ 142,658
2015
72% $ 107,461
22
41,130
1
1,084
5
5,598
100% $ 155,273
69%
26
1
4
100%
(1) Does not include unbilled revenues of $5.7 million and $6.4 million as of September 30, 2016 and 2015, respectively.
Loans Receivable
NJNG provides loans, with terms ranging from two to 10 years, to customers that elect to purchase and install certain energy
efficient equipment in accordance with its BPU approved SAVEGREEN program. The loans are recognized at 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 $7.8 million and $6.2 million in other current assets and $39.5 million and $36.2
million in other noncurrent assets as of September 30, 2016 and 2015, respectively, on the Consolidated Balance Sheets, related
to the loans.
NJNG’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 for the SAVEGREEN loans during fiscal 2016 and 2015.
Asset Retirement Obligations
NJR recognizes a liability for its AROs based on the fair value of the liability when incurred, which is generally upon
acquisition, construction, development and/or through the normal operation of the asset. Concurrently, NJR also capitalizes an
asset retirement cost by increasing the carrying amount of the related asset by the same amount as the liability. In periods subsequent
to the initial measurement, NJR is required to recognize changes in the liability resulting from the passage of time (accretion) or
due to revisions to either timing or the amount of the originally estimated cash flows to settle the conditional ARO.
Page 82
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Accumulated Other Comprehensive Income
The following table presents the changes in the components of accumulated other comprehensive income, net of related tax
effects, as of September 30:
(Thousands)
Balance at September 30, 2014
Other comprehensive income, net of tax
Unrealized gain
(loss) on
available for
sale securities
$
4,782
Net unrealized
gain (loss) on
derivatives
(93)
$
Adjustment to
postemployment
benefit obligation
$
(10,283)
Total
$ (5,594)
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 (loss), net
of tax of ($1,135), ($56), $3,688, $2,497
Balance at September 30, 2015
Other comprehensive income, net of tax
Other comprehensive (loss), before reclassifications, net of
tax of $1,499, $10, $3,164, $4,673
Amounts reclassified from accumulated other
comprehensive income, net of tax of $0, $(10), $(698),
$(708)
Net current-period other comprehensive (loss), net of tax of
$1,499, $0, $2,466, $3,965
Balance at September 30, 2016
$
$
1,603
(256)
(6,483)
(5,136)
—
1,603
6,385
(2,187)
—
(2,187)
4,198
$
$
349 (1)
987 (2)
1,336
93
—
(17)
17 (1)
—
—
$
$
(5,496)
(15,779)
(3,800)
$ (9,394)
(4,600)
(6,804)
1,026 (2)
1,043
(3,574)
(19,353)
(5,761)
$ (15,155)
(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. The
Company made a discretionary contribution of $30 million during the first quarter of fiscal 2016 to improve the funded status of
the pension plans based on then current actuarial assumptions, which included the adoption of the most recent mortality table. The
Company made no discretionary contributions to the pension plans in fiscal 2015.
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 $3 million, $6 million and $5 million in aggregate to these plans in fiscal 2016, 2015 and 2014, respectively.
See Note 10. Employee Benefit Plans, for a more detailed description of the Company’s pension and postemployment plans.
Foreign Currency Transactions
NJRES’ market area includes Canadian delivery points and as a result, NJRES incurs certain natural gas commodity costs
and demand fees denominated in Canadian dollars. Gains or losses that occur as a result of these foreign currency transactions
are reported as a component of gas purchases on the Consolidated Statements of Operations and were not material during the fiscal
years ended September 30, 2016, 2015 and 2014.
Page 83
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Recently Adopted Updates to the Accounting Standards Codification
Income Taxes
In November 2015, the FASB issued ASU 2015-17, an amendment to ASC 740, Income Taxes, to simplify the balance sheet
presentation of deferred income taxes. The update requires entities to present all deferred tax assets and liabilities as noncurrent.
The Company elected to early adopt the amended guidance effective October 1, 2015, and applied the new provisions
retrospectively.
Accordingly, the following amounts on the Consolidated Balance Sheets, as of September 30, 2015, have been adjusted:
(Thousands)
Assets
Deferred taxes (current)
Total current assets
Other noncurrent assets
Total noncurrent assets
Total assets
Capitalization and Liabilities
Deferred income taxes
Total noncurrent liabilities
Total capitalization and liabilities
As Previously
Reported
Effect of
Change
As Adjusted
$
$
$
$
$
$
$
$
56,296
544,511
60,300
666,266
3,339,038
499,616
952,387
3,339,038
$
$
$
$
$
$
$
$
(56,296)
(56,296)
1,615
1,615
(54,681)
(54,681)
(54,681)
(54,681)
$
$
$
$
$
$
$
$
—
488,215
61,915
667,881
3,284,357
444,935
897,706
3,284,357
There was no additional impact to the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, an amendment to ASC 718, Compensation - Stock Compensation, which
simplifies several aspects of the accounting for employee share-based compensation, including the accounting for income taxes
and forfeitures. The new guidance also increased the threshold for tax withholding to the maximum statutory rate, as applicable,
to maintain equity classification and amended the classification of certain tax transactions within the statement of cash flows.
The Company elected to early adopt the amended guidance during the third quarter of fiscal 2016 and applied the new
provisions as of the beginning of the year of adoption on a retrospective or prospective basis depending on each amendment’s
transition requirements. As such, effective October 1, 2015, NJR is recognizing forfeitures as they occur and is recognizing excess
tax benefits (deficiencies) as a component of income tax (benefit) provision in its Consolidated Statements of Operations on a
prospective basis. Accordingly, upon adoption, the Company recognized $1.8 million in excess tax benefits during fiscal 2016.
The following table presents the adjustments to the Consolidated Statements of Cash Flows for the fiscal year ended September
30, 2015:
(Thousands)
Cash flows from operating activities
Tax benefit from stock based compensation
Other noncurrent liabilities
Net cash flows provided from operating activities
Cash flows (used in) financing activities
Tax benefit from stock options exercised
Tax withholding payments related to net settled stock
compensation
Cash flows (used in) financing activities
As Previously
Reported
Effect of
Change
As Adjusted
$
$
$
$
$
$
— $
$
$
25,695
387,920
881
$
— $
$
(63,414)
881
2,146
3,027
(881)
(2,146)
(3,027)
$
$
$
$
$
$
881
27,841
390,947
—
(2,146)
(66,441)
Page 84
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table presents the adjustments to the Consolidated Statements of Cash Flows for the fiscal year ended September
30, 2014:
(Thousands)
Cash flows from operating activities
Tax benefit from stock based compensation
Other noncurrent liabilities
Net cash flows provided from operating activities
Cash flows (used in) financing activities
Tax benefit from stock options exercised
Tax withholding payments related to net settled stock
compensation
Cash flows (used in) financing activities
As Previously
Reported
Effect of
Change
As Adjusted
$
$
$
$
$
$
— $
$
$
19,775
356,786
414
$
— $
$
(75,009)
414
949
1,363
(414)
(949)
(1,363)
$
$
$
$
$
$
414
20,724
358,149
—
(949)
(76,372)
There was no impact to the Consolidated Balance Sheets upon adoption of the new guidance.
Other Recent Updates to the Accounting Standards Codification
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 the Company’s fiscal year ending September 30, 2019,
and interim periods within that year. The Company continues to evaluate the provisions of ASC 606, however, based on the review
of customer contracts to date, it is not anticipating a material impact to its financial position, results of operations or cash flows
upon adoption. Accordingly, the Company expects to transition to the new guidance using the modified retrospective approach.
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 the Company’s fiscal year ending September 30,
2017, and interim periods within that year, on a prospective basis, and will not impact its financial position, results of operations
or 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 the Company’s fiscal year ending September 30, 2017, and interim
periods within that year, on a full retrospective basis, and will not impact its financial position, results of operations or 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 on 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 new guidance will
become effective for the Company’s fiscal year ending September 30, 2017, and interim periods within that year, on a retrospective
basis, and will not have a material impact to its financial position, results of operations or cash flows upon adoption.
Page 85
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 new guidance will become effective for the Company’s fiscal year ending September
30, 2017, and interim periods within that year, on a prospective basis, and will not impact its financial position, results of operations
or cash flows upon adoption.
Inventory
In July 2015, the FASB issued ASU No. 2015-11, an amendment to ASC 330, Inventory, which requires entities to measure
most inventory “at the lower of cost or 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 the Company’s fiscal year ending September 30,
2018, and interim periods within that year. Upon adoption, the amendments will be applied on a prospective basis. The Company
is currently evaluating the amendment to understand the impact on its financial position, results of operations and cash flows upon
adoption.
Financial Instruments
In January 2016, the FASB issued ASU 2016-01, an amendment to ASC 825, Financial Instruments, to address certain
aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard affects investments
in equity securities that do not result in consolidation and are not accounted for under the equity method and the presentation of
certain fair value changes for financial liabilities measured at fair value. It also simplifies the impairment assessment of equity
investments without a readily determinable fair value by requiring a qualitative assessment. The guidance is effective for the
Company’s fiscal year ending September 30, 2019, and interim periods within that year. Upon adoption, the amendments will be
applied on a modified-retrospective basis. The Company has evaluated the amendments and noted that, upon adoption, subsequent
changes to the fair value of the Company’s available for sale securities will be recorded in the statement of operations as opposed
to other comprehensive income. The Company does not expect any other material impacts to its financial position, results of
operations or cash flows upon adoption.
In June 2016, the FASB issued ASU 2016-13, an amendment to ASC 326, Financial Instruments - Credit Losses, which
changes the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan
receivables. The new model requires recognition based upon an estimation of expected credit losses rather than recognition of
losses when it is probable that they have been incurred. The guidance is effective for the Company’s fiscal year ending September
30, 2021, and interim periods within that year, with early adoption permitted. The Company is currently evaluating the amendments
to understand the impact on its financial position, results of operations and cash flows upon adoption and will apply the new
guidance to its trade and loan receivables on a modified retrospective basis.
Leases
In February 2016, the FASB issued ASU 2016-02, an amendment to ASC 842, Leases, which provides for a comprehensive
overhaul of the lease accounting model and changes the definition of a lease within the accounting literature. Under the new
standard, all leases with a term greater than one year will be recorded on the balance sheet. Amortization of the related asset will
be accounted for using one of two approaches prescribed by the guidance. Additional disclosures will be required to allow the
user to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition
approach is required for leases existing at the time of adoption. The guidance is effective for the Company’s fiscal year ending
September 30, 2020, and interim periods within that year, with early adoption permitted. The Company is currently evaluating
the amendments to understand the impact on its financial position, results of operations and cash flows upon adoption.
Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, an amendment to ASC 230, Statement of Cash Flows, which addresses
eight specific cash flow issues for which there has been diversity in practice. The guidance is effective for the Company’s fiscal
year ending September 30, 2019, and interim periods within that year with early adoption permitted. Upon adoption, the amendments
will be applied on a retrospective basis. The Company is currently evaluating the amendments to understand the impact on its
consolidated statements of cash flows upon adoption.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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. To date, NJNG
has been implementing all audit recommendations with the approval of BPU Staff and is waiting for final BPU approval.
NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a
reasonable return on its utility capital investments based on the BPU’s approval. The impact of the ratemaking process and decisions
authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as
regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory
liabilities in accordance with accounting guidance applicable to regulated operations.
NJNG’s recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to
make an annual filing to the BPU by June 1 of each year for review of its BGSS, CIP and 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.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Base Rate Case
On November 13, 2015, NJNG filed a base rate case petition with the BPU, requesting an increase in base rates in the amount
of $147.6 million, which was revised on July 20, 2016, to $112.9 million. On September 23, 2016, the BPU’s decision and order
approved the following, effective October 1, 2016:
•
•
•
•
•
an increase in base rates in the amount of $45 million. The base rate increase includes a return on common equity of 9.75
percent, a common equity ratio of 52.5 percent and an increase in the overall depreciation rate from 2.34 percent to 2.4
percent;
the rate mechanism for recovery of SAFE I capital investments and a five-year extension of SAFE II, effective October
1, 2016. The estimated cost for SAFE II, excluding AFUDC, is approximately $200 million and related costs to be
recovered on an accelerated basis are approximately $157.5 million. As a condition of the extension approval, NJNG is
required to file a base rate case no later than November 2019;
rate recovery of NJ RISE capital investment costs through June 30, 2016, and the filing for recovery of future NJ RISE
capital investment costs to be recovered, will occur in conjunction with SAFE II, commencing with the rate recovery
filing to be submitted in March 2017;
recovery of NJNG’s NGV and LNG plant investments; and
recovery of other costs previously deferred in regulatory assets over seven years, as described further below.
Regulatory assets and liabilities included on the Consolidated Balance Sheets as of September 30, are comprised of the
following:
(Thousands)
Regulatory assets-current
Conservation Incentive Program
New Jersey Clean Energy Program
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
Total current regulatory liabilities
Regulatory liabilities-noncurrent
Cost of removal obligation
New Jersey Clean Energy Program
Other noncurrent regulatory liabilities
Total noncurrent regulatory liabilities
2016
2015
36,957 $
14,232
3,097
54,286 $
—
14,293
9,965
24,258
19,595 $
172,000
20,273
23,384
25,208
157,027
15,201
8,606
441,294 $
— $
9,469
9,469 $
30,549 $
10,657
205
41,411 $
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
$
$
$
$
$
$
$
$
Recovery of regulatory assets is subject to BPU approval, and therefore, 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. The BPU’s
decision and order approving NJNG’s new base rates resulted in no changes to the recovery of NJNG’s regulatory assets.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
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 2017. NJNG recovers the costs associated with its portion
of the NJCEP obligation, through its NJCEP rider.
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.
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.
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 rates. In the
September 23, 2016 base rate case decision and order, the BPU approved the recovery of the tax charge over a seven-year
amortization period. 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. The deferred Superstorm Sandy costs were approved for recovery through NJNG’s new base rates
effective October 1, 2016, over a seven-year amortization period.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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. Through
September 30, 2016, NJNG was limited to recording a regulatory asset associated with PIM that did not exceed $700,000 per year.
In addition, to the extent that project costs were lower than the approved PIM annual expense of $1.4 million, NJNG recorded a
regulatory liability to be refunded as a credit to customers’ gas costs when the net cumulative liability exceeded $1 million. As of
September 30, 2016, NJNG recorded $4.4 million of PIM in other regulatory assets. The deferred PIM costs were approved for
recovery through NJNG’s new base rates effective October 1, 2016, over a seven-year amortization period. As of October 1, 2016,
NJNG will no longer defer any costs associated with PIM.
Overrecovered 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. 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. Conversely, underrecovered gas costs generally occurs during periods when
NJNG’s BGSS rates are lower than actual costs, in which case NJNG records a regulatory asset and requests amounts to be
recovered from customers in the future.
Cost of Removal Obligation
NJNG accrues and collects for cost of removal in base rates on its utility property, without interest. NJNG’s regulatory liability
represents customer collections in excess of actual expenditures, which the Company will return to customers as a reduction to
depreciation expense until it is depleted by November 2019 when NJNG will file the next required base rate case.
The following is a description of certain regulatory proceedings during fiscal 2015 and 2016:
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. Concurrent with the annual BGSS filing, NJNG files for an annual review of its CIP. In May 2014, the
BPU approved the continuation of the CIP program with no expiration date; however, it will be subject to review in a future rate
filing in 2017. NJNG’s annual BGSS and CIP filings are summarized as follows:
• June 2014 BGSS/CIP filing — In April 2015, the BPU approved the existing BGSS rate and the reduction in CIP rates,
effective October 2014, which resulted in a 4.3 percent decrease to an average residential heat customer’s bill.
Additionally, in October 2014, NJNG implemented a decrease to its BGSS price, which resulted in a 5 percent decrease
to the average residential heat customer’s bill.
• June 2015 BGSS/CIP filing — On February 24, 2016, the BPU approved NJNG’s proposal 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 2015. NJNG also provided 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, which totaled $61.6 million.
• June 2016 BGSS/CIP filing — NJNG filed a petition with the BPU to increase its CIP rates resulting in an 8.2 percent
increase to the average residential heat customer’s bill and to decrease its BGSS rate for residential and small commercial
customers resulting in a 5.5 percent decrease to the average residential heat customer’s bill, effective October 1, 2016,
which was approved by the BPU on a provisional basis on September 23, 2016. This petition also included proposed
bill credits to residential and small commercial customers during the months of November 2016 through February 2017,
as a result of a decline in the wholesale price of natural gas. On September 16, 2016, NJNG notified the BPU that the
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
estimated bill credits will be approximately $48 million and will result in a 10.6 percent decrease to the average residential
heat customer’s bill.
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. In March 2015, NJNG filed a 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, 2016, the BPU has approved total SAVEGREEN
investments of approximately $219.3 million, of which, $136.6 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:
• 2014 SAVEGREEN filings — In March 2015, the BPU approved the June 2014 filing to maintain the existing rate. In
July 2015, the BPU approved NJNG’s petition allowing the extension of SAVEGREEN through July 31, 2017, with an
additional $75.2 million in investments.
• 2015 SAVEGREEN filing — On January 27, 2016, the BPU approved the July 2015 filing to maintain its existing rate.
• 2016 SAVEGREEN filings — On May 26, 2016, NJNG submitted its filing to maintain its existing recovery rate, which
was approved by the BPU on October 31, 2016. On April 15, 2016, NJNG filed a petition with the BPU to extend its
current program, which was set to expire on July 31, 2017, to December 31, 2018, which was approved by the BPU on
June 29, 2016.
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:
• 2014 SBC filing — In May 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 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 the NJCEP factor to $16.3 million annually.
• 2015 SBC filings — In September 2015, the BPU approved the June 2015 annual USF compliance filing decreasing the
statewide USF rate, resulting in a .6 percent decrease to the average residential heat customer’s total bill, effective October
2015. On December 24, 2015, NJNG filed an SBC petition with the BPU to increase the RA factor, to decrease the
NJCEP factor and to request approval of its remediation expenses incurred through June 30, 2015, resulting in an overall
decrease of .8 percent to the average residential heat customer’s bill. On June 29, 2016, the BPU approved the Company’s
request to modify its rates as proposed, effective July 9, 2016, with recovery of $9.4 million annually related to the SBC
RA factor.
• 2016 SBC filing — On June 23, 2016, NJNG submitted its annual USF compliance filing proposing to increase the
statewide USF rate, resulting in a .2 percent increase to the average residential heat customer’s bill, effective October 1,
2016, which was approved by the BPU on September 23, 2016.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Infrastructure Programs
NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and
transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs. NJNG
continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG’s gas distribution
system, including SAFE and NJ RISE.
SAFE
In October 2012, the BPU approved NJNG’s petition to implement SAFE I, investing up to $130 million, exclusive of
AFUDC, over a four-year period to replace portions of NJNG’s gas distribution unprotected steel, cast iron infrastructure and
associated services in order to improve the safety and reliability of the gas distribution system. The rate mechanism for recovery
of SAFE I capital investments and a five-year extension of SAFE II were approved through NJNG’s base rate case, effective
October 1, 2016. The estimated cost for SAFE II is approximately $200 million, excluding AFUDC and related costs to be
recovered are approximately $157.5 million. As a condition of approval of the extension, NJNG is required to file a base rate
case no later than November 2019.
NJ RISE
In July 2014, the BPU approved 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. On October 15, 2015, the BPU approved a base rate increase to recover capital costs through July 2015,
resulting in a .07 percent increase to the average residential heat customer’s bill, effective November 1, 2015, and earned a weighted
average cost of capital of 6.74 percent, including a return on equity of 9.75 percent. NJ RISE investments through June 30, 2016
were approved for recovery through NJNG’s new base rates effective October 1, 2016. Requests for recovery of future NJ RISE
capital costs will occur in conjunction with SAFE II, commencing with the rate recovery filing to be submitted in March 2017
with a weighted cost of capital of 6.9 percent, including a return on equity of 9.75 percent.
NGV refueling stations
In June 2012, the BPU approved a pilot program for NJNG to invest up to $10 million to build NGV refueling stations.
As of September 30, 2016, NJNG has opened all three of its NGV stations to the public and NJNG’s capital investments were
approved for recovery through NJNG’s new base rates, effective October 1, 2016.
SRL
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 January 27,
2016, the BPU issued an order approving NJNG’s proposed SRL pipeline installation, operation and route selection, as modified
by NJNG, including specific requirements regarding permitting, safety and integrity assessment. On March 18, 2016, the BPU
issued an order designating the SRL route and exempting the SRL from municipal land use ordinances, regulations, permits and
license requirements. These two BPU orders have been appealed by third parties. We believe that they will be upheld on appeal.
The capital investment associated with the SRL was initially included for recovery in NJNG’s base rate case petition, filed
with the BPU on November 13, 2015. On May 4, 2016, NJNG supplemented its base rate case testimony supporting its November
2015 petition, which amended the accounting treatment and noted that the project would not be completed by December 31, 2016.
As construction has not yet commenced, rate treatment for SRL was not included in its new base rates. NJNG expects to request
rate treatment in a future rate proceeding.
Other Regulatory Initiatives
On May 20, 2016, NJNG included a proposal in its base rate case to recover certain capital costs and incremental operation
and maintenance costs related to a March 2016 BPU Order regarding new cyber security requirements. On June 2016, NJNG’s
liquefaction project became operational, allowing NJNG to convert natural gas into LNG and to fill NJNG’s existing LNG storage
tanks. Costs for this project along with other plant upgrades were approximately $36.5 million. Costs associated with both initiatives
were approved for recovery through NJNG’s new base rates, effective October 1, 2016.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 to hedge Canadian dollar denominated gas purchases and/or sales. Therefore, the Company’s primary
underlying risks include commodity prices, interest rates and foreign currency. 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.
NJRES
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 derivatives 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 exchange rate associated
with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures, or swaps
and are accounted for as derivatives. These derivatives are typically used to hedge demand fee payments on pipeline capacity,
storage and gas purchase agreements. For transactions occurring on or before December 31, 2015, NJRES designates its foreign
exchange contracts as cash flow hedges, and the effective portion of the hedges are recorded in OCI. Effective January 1, 2016,
on a prospective basis, the Company has elected not to designate its foreign currency derivatives as accounting hedges. Accordingly,
changes in the fair value of foreign exchange contracts entered into from January 1, 2016, are recognized in gas purchases on the
Consolidated Statements of Operations.
As a result of NJRES entering into transactions to borrow natural gas, commonly referred to as “park and loans,” an embedded
derivative is recognized relating to differences between the fair value of the amount borrowed and the fair value of the amount
that will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location over the contract
term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed gas is
expected to occur, and is considered a derivative transaction that is recorded at fair value on the Consolidated Balance Sheets,
with changes in value recognized in current period earnings.
Expected production of SRECs is hedged through the use of forward and futures contracts. All contracts require the Company
to physically deliver SRECs through the transfer of certificates as per contractual settlement schedules. For transactions occurring
on or before December 31, 2015, the Company elected NPNS accounting treatment on SREC forward and futures contracts.
Effective January 1, 2016, on a prospective basis, NJRES no longer elects NPNS accounting treatment on SREC contracts entered
into from January 1, 2016, and recognizes changes in the fair value of these derivatives as a component of operating revenues.
Upon settlement of the contract, the related revenue is recognized when the SREC is transferred to the counterparty. NPNS is a
contract-by-contract election and, where it makes sense to do so, we can and may elect certain contracts to be normal.
NJNG
Changes in fair value of NJNG’s financial commodity derivatives are recorded as a component of regulatory assets or
liabilities on the Consolidated Balance Sheets. The Company elects NPNS accounting treatment on all physical commodity
contracts that NJNG entered into on or before December 31, 2015, and accounts for these contracts on an accrual basis. Accordingly,
physical natural gas purchases are recognized in regulatory assets or liabilities on the Consolidated Balance Sheets when the
contract settles and the natural gas is delivered. The average cost of natural gas is amortized in current period earnings based on
the current BPU BGSS factor and therm sales. Effective January 1, 2016, on a prospective basis, NJNG no longer elects NPNS
accounting treatment on all of its physical commodity contracts entered into from January 1, 2016. However, since NPNS is a
contract-by-contract election, where it makes sense to do so, we can and may elect certain contracts to be normal. Because NJNG
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
recovers these amounts through future BGSS rates as increases or decreases to the cost of natural gas in NJNG’s tariff for gas
service, the changes in fair value of these contracts are deferred as a component of regulatory assets or liabilities on the Consolidated
Balance Sheets.
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 a 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 into earnings over the life of the future underlying 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)
Balance Sheet Location
Derivatives not designated as hedging instruments:
NJNG:
Fair Value
2016
2015
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Physical commodity contracts
Derivatives - current
$
Financial commodity contracts
Derivatives - current
Interest rate contracts
NJRES:
Derivatives - noncurrent
Derivatives - noncurrent
Physical commodity contracts
Derivatives - current
Derivatives - noncurrent
Financial commodity contracts
Derivatives - current
Derivatives - noncurrent
Derivatives - current
Foreign currency contracts
Total fair value of derivatives
Offsetting of Derivatives
$
235
805
75
—
5,994
3,987
22,929
1,165
1
1,154
2,979
386
23,073
11,660
1,212
45,255
581
32
$
— $
—
207
—
—
4,854
1,718
35,682
2,626
—
10,163
925
4,228
9,281
—
13,347
386
—
$ 35,191
$ 86,332
$ 45,087
$ 38,330
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 at the contract
level unit of account on the Consolidated Balance Sheets.
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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, 2016:
Derivative assets:
NJRES
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total NJRES
NJNG
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total NJNG
Derivative liabilities:
NJRES
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total NJRES
NJNG
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total NJNG
As of September 30, 2015:
Derivative assets:
NJRES
Physical commodity contracts
Financial commodity contracts
Total NJRES
NJNG
Financial commodity contracts
Derivative liabilities:
NJRES
Physical commodity contracts
Financial commodity contracts
Total NJRES
NJNG
Amounts
Presented in
Balance Sheets (1)
Offsetting
Derivative
Instruments (2)
Financial Collateral
Received/Pledged (3) Net Amounts (4)
$
$
$
$
$
$
$
$
$
$
$
$
$
9,981
24,094
1
34,076
235
880
—
1,115
12,872
45,836
32
58,740
1,154
3,365
23,073
27,592
6,562
38,308
44,870
207
9,271
13,733
23,004
$
$
$
$
$
$
$
$
$
$
$
$
$
(2,837)
(17,945)
(1)
(20,783)
(31)
(880)
—
(911)
(2,837)
(17,945)
(1)
(20,783)
(31)
(880)
—
(911)
(1,326)
(13,734)
(15,060)
(207)
(1,326)
(13,733)
(15,059)
$
$
$
$
$
$
$
$
$
$
$
$
$
(755)
(6,149)
—
(6,904)
—
—
—
—
1,200
(27,891)
—
(26,691)
—
(2,485)
—
(2,485)
—
3,841
3,841
—
(1,200)
—
(1,200)
$
$
$
$
$
$
$
$
$
$
$
$
$
6,389
—
—
6,389
204
—
—
204
11,235
—
31
11,266
1,123
—
23,073
24,196
5,236
28,415
33,651
—
6,745
—
6,745
Financial commodity contracts
Interest rate contracts
—
11,088
4,228
4,228
Total NJNG
4,228
15,316
(1) Derivative assets and liabilities are presented on a gross basis in the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.
(2) Offsetting derivative instruments include transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with
(10,881)
—
(10,881)
(207)
—
(207)
$
$
$
$
$
$
$
$
ISDA netting.
Financial collateral includes cash balances at FCMs, as well as cash received from or pledged to other counterparties.
(3)
(4) Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.
NJRES utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical gas
to be used for storage injection and its subsequent sale at a later date. The gains or (losses) on the financial transactions that are
economic hedges of the cost of the purchased gas are recognized prior to the gains or (losses) on the physical transaction, which
are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of
realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
gas that is being economically hedged along with fair value changes in derivative instruments creates volatility in the results of
NJRES, although the Company’s intended economic results relating to the entire transaction are unaffected.
The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations as of
September 30:
(Thousands)
Derivatives not designated as hedging instruments:
NJRES:
Location of gain (loss) recognized in
income on derivatives
Physical commodity contracts
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Operating revenues
Gas purchases
Gas purchases
Gas purchases
Total unrealized and realized gains (losses)
Amount of gain (loss) recognized
in income on derivatives
2015
2016
2014
$
$
33,034
(45,637)
45,579
(34)
32,942
$
32,568
(34,438)
109,082
—
$ 107,212
$ (48,977)
(83,847)
(118,872)
—
$(251,696)
NJRES designated its foreign exchange contracts, entered into prior to January 1, 2016, as cash flow hedges and, as a result,
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 AOCI to gas purchases on the Consolidated Statements of Operations. The following table
reflects the effect of derivative instruments designated as cash flow hedges on OCI as of September 30:
(Thousands)
Derivatives in cash flow hedging relationships:
Amount of Gain or
(Loss) Recognized in
OCI on Derivatives
(Effective Portion)
2016
2015
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)
2016
2015
2016
2015
Foreign currency contracts
$
(27) $
(402) $
27 $
557 $
— $
—
NJNG’s derivative contracts are part of the Company’s risk management activities that relate to its natural gas purchases,
BGSS incentive programs and debt financing. These transactions are entered into pursuant to regulatory approval and, at settlement,
the resulting gains and/or losses are payable to or recoverable from utility customers. Any changes in the value of NJNG’s financial
derivatives are deferred in regulatory assets or liabilities resulting in no impact to earnings.
The following table reflects the (losses) gains associated with NJNG’s derivative instruments as of September 30:
(Thousands)
NJNG:
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total unrealized and realized (losses) gains
2016
2015
2014
$ (15,756)
(7,984)
(18,845)
$ (42,585)
$
—
(33,428)
(4,228)
$ (37,656)
$
—
10,149
—
$ 10,149
NJNG and NJRES had the following outstanding long (short) derivatives as of September 30:
NJNG
NJRES
Volume (Bcf)
2016
2015
Futures
Physical
Futures
Financial Options
Physical
23.6
9.2
(79.1)
1.2
94.6
25.8
—
(91.1)
1.2
48.2
Not included in the previous table are NJRES’ gross notional amount of foreign currency transactions of approximately $3.6
million, NJNG’s treasury lock agreement, as previously discussed, and 148,000 SRECs at NJRES that are open as of September 30,
2016.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
NJRES
Wholesale Credit Risk
Balance Sheet Location
Broker margin - Current assets
Broker margin - Current assets
Broker margin - Current (liabilities)
2016
2015
$
$
$
4,822 $
42,822 $
— $
12,990
—
(4,103)
NJNG, NJRES and NJRCEV are exposed to credit risk as a result of their sales/wholesale marketing activities. As a result
of the inherent volatility in the prices of natural gas commodities, derivatives, SRECs, electricity and RECs, the market value of
contractual positions with individual counterparties could exceed established credit limits or collateral provided by those
counterparties. If a counterparty fails to perform the obligations under its contract (e.g., failed to deliver or pay for natural gas,
SRECs, electricity or RECs), then the Company could sustain a loss.
NJR monitors and manages the credit risk of its wholesale operations through credit policies and procedures that management
believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties’
financial statements and/or credit ratings, daily monitoring of counterparties’ credit limits and exposure, daily communication
with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements.
Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be
requested due to 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.
Internally-rated exposure applies to counterparties that are not rated by S&P or Moody’s. In these cases, the counterparty’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 following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as
of September 30, 2016.The amounts presented below have not been reduced by any collateral received or netting and exclude
accounts receivable for NJNG retail natural gas sales and services and NJRCEV residential solar installations.
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Gross Credit
Exposure
$ 121,809
17,633
9,842
12,299
$ 161,583
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.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2016 and 2015, is $23.1 million and $4.2 million, respectively, for which the
Company had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements
had been invoked on September 30, 2016 and 2015, the Company would have been required to post an additional $23.1 million
and $4.2 million, respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected
on the Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that
would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to
be posted, as previously discussed.
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, is as follows:
(Thousands)
NJNG
Carrying value (1)
Fair market value
NJR
Carrying value
Fair market value
2016
2015
$
$
$
$
707,845 $
731,615 $
582,845
584,240
375,000 $
399,462 $
225,000
233,079
(1)
Excludes capital leases of $42.2 million and $46.9 million as of September 30, 2016 and 2015, 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, 2016
and 2015, 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 natural gas futures and options contracts, listed equities and money market funds. Exchange traded
futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that 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, SREC forward sales or derivatives
that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or
estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). NJNG’s treasury lock is also
considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation model.
Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts,
the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs
that are equivalent to market data received from an independent source. There are no significant judgments or
adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation
tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:
• widely accepted and public;
•
•
non-proprietary and sourced from an independent third party; and
observable and published.
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
Level 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.
Page 99
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(Thousands)
As of September 30, 2016:
Assets
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Available for sale equity securities - energy industry
Other (1)
Total assets at fair value
Liabilities
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Interest rate contracts
Total liabilities at fair value
As of September 30, 2015:
Assets
Physical commodity contracts
Financial commodity contracts
Available for sale equity securities - energy industry
Other (1)
Total assets at fair value
Liabilities
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total liabilities at fair value
(1)
Includes various money market funds.
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
—
24,974
—
55,789
35,516
$ 116,279
$
—
49,201
—
—
$ 49,201
$
—
38,515
59,475
1,572
$ 99,562
$
—
24,821
—
$ 24,821
$ 10,216
—
1
—
—
$ 10,217
$ 14,026
—
32
23,073
$ 37,131
$
$
6,572
—
—
—
6,572
$
9,281
—
4,228
$ 13,509
$ —
—
—
—
—
$ —
$ —
—
—
—
$ —
$ —
—
—
—
$ —
$ —
—
—
$ —
$ 10,216
24,974
1
55,789
35,516
$ 126,496
$ 14,026
49,201
32
23,073
$ 86,332
$
6,572
38,515
59,475
1,572
$ 106,134
$
9,281
24,821
4,228
$ 38,330
6.
INVESTMENTS IN EQUITY INVESTEES
As of September 30, NJR’s investments in equity method investees includes the following:
2016
123,155 $
17,993
141,148 $
$
$
2015
125,649
6,353
132,002
(Thousands)
Steckman Ridge (1)
PennEast
Total
(1)
quarterly and are due October 1, 2023.
Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2016 and 2015, which accrue interest at a variable rate that resets
NJRES and NJNG have entered into storage and park and loan agreements with Steckman Ridge. In addition, NJNG has
entered into a precedent capacity agreement with PennEast, which is estimated to be in service by the first quarter of fiscal 2019
See Note 15. Related Party Transactions for more information on these intercompany transactions. 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.
Page 100
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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)
2016
2015
$ 131,672 $ 180,960 $ 141,970
2014
85,884
$1.53
85,884
847
86,731
$1.52
85,186
$2.12
85,186
1,079
86,265
$2.10
84,198
$1.69
84,198
724
84,922
$1.67
Weighted average shares of common stock outstanding-diluted
Diluted earnings per common share (2)
(1)
(2)
Incremental shares consist primarily of unvested stock awards and performance units.
There were no anti-dilutive shares excluded from the calculation of diluted earnings per share for fiscal 2016, 2015 and 2014.
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%
3.63%
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
Series UU
Total NJNG long-term debt
NJR
6.05%
Unsecured senior notes
2.51%
Unsecured senior notes
3.25%
Unsecured senior notes
3.48%
Unsecured senior notes
3.20%
Unsecured senior notes
Unsecured senior notes
3.54%
Less: Current maturities of long-term debt
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 21, 2046
June 1, 2021
Various dates
September 24, 2017
September 17, 2018
September 17, 2022
November 7, 2024
August 18, 2023
August 18, 2026
Page 101
$
2016
2015
10,300 $
10,500
15,000
125,000
9,545
41,000
46,500
50,000
70,000
55,000
50,000
100,000
125,000
14,262
27,895
(11,452)
738,550
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
50,000
25,000
50,000
100,000
50,000
100,000
(50,000)
325,000
50,000
25,000
50,000
100,000
—
—
—
225,000
$1,063,550 $ 843,595
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Annual long-term debt redemption requirements, excluding capital leases, as of September 30, are as follows:
(Millions)
2017
2018
2019
2020
2021
Thereafter
NJNG First Mortgage Bonds
NJNG
NJR
$
$
$
$
$
$
— $
125.0 $
— $
— $
— $
582.8 $
50.0
25.0
—
—
—
300.0
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 its equity to total capitalization ratio falls below
30 percent without regulatory approval. As of September 30, 2016, NJNG’s equity to total capitalization ratio is 53.2 percent and
has the ability to issue up to $849 million of FMB under the terms of the Mortgage Indenture.
NJNG has variable rate EDA Bonds with a total principal amount of $97 million and maturity dates ranging from September
2027 to August 2041. The EDA Bonds are not subject to optional tender while they bear interest at a LIBOR index rate. As of
September 30, 2016, the interest rate on the EDA Bonds was .92 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.
On June 21, 2016, NJNG entered into a Note Purchase Agreement, under which NJNG issued $125 million of its 3.63 percent
senior notes due June 21, 2046. The notes are secured by an equal principal amount of NJNG’s FMB (series UU) issued under
NJNG’s Mortgage Indenture. The proceeds of the notes will be used for general corporate purposes, including, but not limited to,
refinancing or retiring short-term debt and funding capital expenditures.
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.
Page 102
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG received $7.1 million, $7.2 million and $7.6 million for fiscal 2016, 2015 and 2014, 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 2016, 2015 and 2014, NJNG
exercised early purchase options with respect to meter leases by making final principal payments of $1.9 million, $768,000 and
$956,000, respectively. NJNG continues to evaluate this sale-leaseback program based on current market conditions.
Contractual commitments for capital lease payments, as of the fiscal years ended September 30, are as follows:
(Millions)
2017
2018
2019
2020
2021
Thereafter
Subtotal
Less: Interest component
Total
NJR Long-term Debt
Lease Payments
$ 13.2
11.3
8.5
7.7
4.7
1.5
46.9
(4.7)
$ 42.2
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 allowed NJR to issue senior notes to MetLife or certain of MetLife’s affiliates during a three-
year issuance period that ended on September 26, 2016 and was not renewed. There were no notes outstanding under the expired
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, 2016, 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.
On March 22, 2016, NJR entered into a Note Purchase Agreement, under which the Company issued, on August 18, 2016,
$50 million of the Company’s 3.2 percent senior notes due August 18, 2023, and $100 million of the Company’s 3.54 percent
senior notes due August 18, 2026. The notes are not secured by assets, but are instead guaranteed by certain unregulated subsidiaries
of the Company. The proceeds of the notes will be used for general corporate purposes, including working capital and capital
expenditures.
NJR had no long-term, variable-rate debt outstanding as of September 30, 2016 and 2015.
Page 103
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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)
2016
2015
$ 425,000
$ 121,700
$ 425,000
39,350
$
1.43%
1.17%
$ 288,910
—
$
—
$
$ 369,176
$ 100,000
$ 100,000
$ 250,000
—
$
—%
$ 249,269
$ 250,000
27,000
$
0.20%
$ 222,269
(1)
(2)
Committed credit facilities, which require commitment fees of .075 percent on the unused amounts.
Letters of credit outstanding total $14.4 million and $16.5 million as of September 30, 2016 and 2015, respectively, which reduces amount available by
the same amount.
(3) Uncommitted credit facilities, which require no commitment fees.
(4)
(5)
Committed credit facilities, which require commitment fees of .075 percent on the unused amounts.
Letters of credit outstanding total $731,000 as of September 30, 2016 and 2015, which reduces amount available by the same amount.
NJR Short-term Debt
On September 28, 2015, NJR entered into a $425 million unsecured, committed credit facility scheduled to expire on
September 28, 2020, subject to two mutual options for a one-year extension beyond that date. The NJR Credit Facility includes
an accordion feature, which would allow NJR, in the absence of a default or event of default, to increase from time to time, with
the existing or new lenders, the revolving credit commitments under the NJR Credit Facility in minimum $5 million increments
up to a maximum of $100 million. 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, 2016, NJR has seven letters of credit outstanding totaling $14.4 million. Two letters of credit totaling
$9.1 million are issued on behalf of NJRES and five letters of credit, which total $5.3 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’ letters of credit are used for margin requirements for natural gas transactions and expire on dates ranging from
December 2016 to March 2017. 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 May 2017 to August
2017.
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 has a $250 million, five-year, revolving, unsecured credit facility, which expires 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.
As of September 30, 2016, 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 2017. 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.
Page 104
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2016, 2.6 million and 4,223 shares remain available for future issuance to employees and directors, respectively.
The following table summarizes all stock-based compensation expense recognized during the following fiscal years:
(Thousands)
Stock-based compensation expense:
Performance share awards
Restricted and non-restricted stock
Deferred retention stock
Compensation expense included in operation and maintenance expense
Income tax benefit
Total, net of tax
Performance Shares
2016
2015
2014
$
$
3,188 $
2,161
1,885
2,473 $
2,509
1,899
5,273
1,664
13,643
7,234
(2,955)
4,279 $
17,816
9,645
(7,278)
(3,940)
5,705 $ 10,538
In fiscal 2016, the Company granted to various officers 46,175 performance shares, which are market condition awards that
vest on September 30, 2018, subject to the Company meeting certain performance conditions. In fiscal 2016, the Company also
granted to various officers 69,305 performance shares, of which 38,789 vest on September 30, 2018 and 30,516 vest annually
over a three year period beginning on September 30, 2016, both of which are subject to the Company meeting certain performance
conditions.
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 in September 30, 2017 and 26,954 vest annually over
a three year period beginning in September 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
vested 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 vested in September 30, 2016 and 28,094 vest annually
over a three year period beginning in September 30, 2014, both of which are subject to the Company meeting certain performance
conditions.
There is $3 million of deferred compensation related to unvested performance shares that is expected to be recognized over
the next two years.
Page 105
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, 2013
Granted
Vested (2)
Non-vested and outstanding at September 30, 2014
Granted
Vested (3)
Cancelled/forfeited (4)
Non-vested and outstanding at September 30, 2015
Granted
Vested (5)
Cancelled/forfeited (6)
Non-vested and outstanding at September 30, 2016
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
$18.35
$20.28
23.59
$18.30
$28.25
$17.10
17.98
$23.40
$27.37
$21.40
$23.40
$27.47
—
—
$ 2,756
—
—
$ 4,318
—
—
—
$ 5,657
—
—
Shares (1)
156,644
147,728
(56,836)
247,536
102,790
(112,446)
(23,416)
214,464
115,480
(137,053)
(12,975)
179,916
(1)
(2)
(3)
(4)
(5)
(6)
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 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.
As certified by the Company’s Leadership and Compensation Committee on November 15, 2016, the number of common shares earned related to TSR
performance was 85 percent or 55,702 shares, the number of common shares earned related to NFE performance was 150 percent or 71,808 shares, and
the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 23,649 shares. Each award earned excludes
accumulated dividends. The number represented on this line is the target number of 100 percent.
As certified by the Company’s Leadership and Compensation Committee on November 15, 2016, 9,366 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 2016, the Company granted 41,909 shares of restricted stock that vest annually over a three year period beginning
October 2016. 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. There is $714,000 of deferred compensation related to unvested
restricted stock shares that is expected to be recognized over the next two years.
Page 106
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, 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
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2016
Deferred Retention Stock
Weighted Average
Grant Date
Fair Value
$20.53
$22.78
$20.37
$20.37
$22.60
$29.41
$24.45
$26.79
$27.17
$30.03
$26.66
$29.21
$29.09
Shares
78,511
33,356
(68,460)
(1,916)
41,491
61,972
(18,170)
(3,801)
81,492
41,909
(48,089)
(2,241)
73,071
Total Fair Value
of Vested Shares
(in Thousands)
—
—
$ 1,534
—
—
—
510
—
—
—
$ 1,469
—
—
$
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, 2013
Granted/Vested
Forfeited
Outstanding at September 30, 2014
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2015
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2016
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
$21.69
$22.88
$21.47
$21.95
$29.32
$23.62
$24.69
$27.03
$30.37
$20.31
$28.14
$29.06
—
—
—
—
—
$ 2,519
—
—
—
$ 3,751
—
—
Shares
223,586
57,970
(4,774)
276,782
462,790
(95,098)
(11,744)
632,730
159,831
(121,764)
(8,318)
662,479
Page 107
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Stock Options
The following table summarizes the stock option activity:
Outstanding at September 30, 2013
Exercised
Outstanding at September 30, 2014
Exercised
Outstanding at September 30, 2015
Exercisable at September 30, 2015
Exercisable at September 30, 2014
Shares
133,250
(85,000)
48,250
(48,250)
—
—
48,250
Weighted Average
Exercise Price
$14.77
$13.13
$15.00
$15.00
—
—
$15.00
NJR received proceeds of $724,000 and $1.2 million from the stock options exercised during fiscal 2015 and 2014,
respectively. There were no remaining stock options outstanding as of September 30, 2015 and therefore NJR received no proceeds
from stock options exercised during fiscal 2016. There were no stock options granted during fiscal 2016, 2015 and 2014.
Non-Employee Director Stock
Non-employee director compensation includes an annual January retainer that is awarded in stock. The shares vest
immediately and are subsequently amortized to expense over a 12-month period. The following summarizes non-employee director
share awards for the past three fiscal years:
Shares granted
Weighted average grant date fair value
2016
27,481
$32.75
(1)
2015
26,122
$30.63
2014
31,696
$22.40
(1)
$225,000 of expense remaining as of September 30, 2016, to be recognized through December 31, 2016.
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.
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 2016 and 2015, the Company had no minimum funding requirements.
The Company made no discretionary contributions to the pension plans in fiscal 2015. The Company made 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. 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
Page 108
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 $3.2 million and $5.7 million, in fiscal 2016 and 2015,
respectively, and estimates that it will contribute between $3 million to $5 million over each of the next five years. Additional
contributions may be required based on market conditions and changes to assumptions.
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 (2)
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 (2)
Fair value of plan assets at end of year
Funded status
Amounts recognized on Consolidated Balance Sheets
Postemployment employee (liability)
Current
Noncurrent
Total
Pension (1)
OPEB
2016
2015
2016
2015
$
255,987 $
7,591
227,699 $
7,485
138,367 $
4,521
11,342
47
10,199
47
6,256
104
127,773
4,253
5,739
60
26,369
(7,682)
293,654 $
17,418
(6,861)
255,987 $
15,590
(4,445)
160,393 $
3,891
(3,349)
138,367
199,123 $
28,316
30,071
(7,635)
249,875 $
(43,779) $
211,653 $
(5,813)
97
(6,814)
199,123 $
(56,864) $
57,269 $
5,872
3,235
(4,341)
62,035 $
(98,358) $
56,909
(1,799)
5,672
(3,513)
57,269
(81,098)
(79) $
(71) $
(454) $
(43,700)
(43,779) $
(56,793)
(56,864) $
(97,904)
(98,358) $
(477)
(80,621)
(81,098)
$
$
$
$
$
$
(1)
(2)
Includes the Company’s PEP.
Prior to July 1, 1998, employees were eligible to elect an additional participant contribution to enhance their benefits and contributions made during the
periods were insignificant.
The 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.
Page 109
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income
as of September 30:
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
Balance at September 30, 2015
Amounts arising during the period:
Net actuarial loss
Amounts amortized to net periodic costs:
Net actuarial (loss)
Prior service (cost) credit
Balance at September 30, 2016
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
61,794 $
43,774
$
17,581 $
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
13,696
11,274
4,475
3,289
(5,607)
(108)
94,941 $
(3,175)
311
59,147
(1,676)
(3)
$
28,436 $
(99)
54
4,486
$
$
The amounts in regulatory assets and accumulated other comprehensive income not yet recognized as components of net
periodic benefit cost as of September 30 are:
Regulatory Assets
Accumulated Other Comprehensive Income
(Loss)
Pension
OPEB
Pension
OPEB
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
2016
94,158 $
783
94,941 $
2015
86,070 $
890
86,960 $
2016
60,561 $
(1,414)
59,147 $
2015
52,462 $
(1,725)
50,737 $
$
$
2016
28,432 $
2015
25,632 $
4
8
28,436 $
25,640 $
2016
2015
4,686 $
(200)
4,486 $
1,495
(253)
1,242
To the extent the unrecognized amounts in accumulated other comprehensive income or regulatory assets exceed 10 percent
of the greater of the benefit obligation or the fair value of plan assets, an amortized amount over the average expected future
working lifetime of the active plan participants is recognized. Amounts included in regulatory assets and accumulated other
comprehensive income expected to be recognized as components of net periodic benefit cost in fiscal 2017 are as follows:
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
$
6,799 $
108
6,907 $
4,210
(311)
3,899
$
$
2,028 $
3
2,031 $
160
(54)
106
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
Page 110
Pension
2016
2015
$ 293,654 $ 255,987
$ 252,077 $ 217,937
$ 249,875 $ 199,123
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 $
$
2016
7,591 $
11,342
(20,118)
7,281
111
—
6,207 $
—
6,207 $
Pension
2015
2014
2016
OPEB
2015
2014
7,485 $
10,199
(17,090)
6,985
111
—
7,690 $
—
7,690 $
6,143 $
10,066
(15,475)
5,596
111
—
6,441 $
2,814
9,255 $
4,521 $
6,256
(4,845)
3,274
(365)
—
8,841 $
—
8,841 $
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
Assumptions
The weighted average assumptions used to determine NJR’s benefit costs during the fiscal years below and obligations as
of September 30, are as follows:
Benefit costs:
Discount rate
Expected asset return
Compensation increase
Obligations:
Discount rate
Compensation increase
2016
Pension
2015
2014
2016
OPEB
2015
4.50%
8.75%
3.25/3.50% (1)
4.55%
8.75%
3.25%
5.15%
8.25%
3.25%
4.60/4.55% (1)
8.75%
3.50%
4.55%
8.75%
3.50%
3.96/3.94% (1)
3.25/3.50% (1) 3.25/3.50% (1)
4.50%
4.55%
4.08/4.01% (1) 4.60/4.55% (1)
3.25/3.50% (1)
3.50%
3.50%
2014
5.15%
8.25%
3.50%
4.55%
3.50%
(1)
Percentages for represented and nonrepresented plans, respectively.
When measuring its projected benefit obligations, NJR uses an aggregate discount rate at which its obligation could be
effectively settled. NJR determines a single weighted average discount rate based on a yield curve comprised of rates of return on
a population of high quality debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and
amount of its expected future benefit payments. Prior to October 1, 2016, the Company used the same assumed rate to measure
the service and interest cost components of its net periodic benefit costs. Effective October 1, 2016, the Company changed its
method of measuring its service and interest costs from the aggregate approach to a disaggregated, or spot rate, approach. Under
the new approach, NJR applies the duration specific spot rates from the full yield curve, as of the measurement date, to each year’s
future benefit payments. NJR believes that the new method provides for a more precise measurement of its service and interest
costs by aligning the timing of the plans’ separate future cash flows to the corresponding spot rates on the yield curve. Accordingly,
NJR will account for this change prospectively as a change in accounting estimate.
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
Page 111
2016
8.5%
4.5%
2025
2015
2014
6.7%
4.8%
2022
7.1%
4.8%
2022
$ 28,803
2,331
$
$ 26,025
2,026
$
$ 20,965
1,885
$
$ (22,862)
$ (1,801)
$ (20,427)
$ (1,593)
$ (16,932)
$ (1,493)
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company’s investment objective is a long-term real rate of return on assets before permissible expenses that is
approximately 5 percent greater than the assumed rate of inflation, as measured by the consumer price index. The expected long-
term rate of return is based on the asset categories in which the Company invests and the current expectations and historical
performance for these categories.
The mix and targeted allocation of the pension and OPEB plans’ assets are as follows:
Asset Allocation
U.S. equity securities
International equity securities
Fixed income
Total
2017
Target
Allocation
40%
20
40
100%
Assets at
September 30,
2016
38%
20
42
100%
2015
38%
19
43
100%
During fiscal 2015, the Company adopted the revised mortality assumptions published by the Society of Actuaries for its
pension and other postemployment benefit obligations, which reflected increased life expectancies in the United States. The
adoption of the new mortality tables resulted in an increase to the projected benefit obligation for the plans.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the
following years:
(Thousands)
2017
2018
2019
2020
2021
2022 - 2026
Pension
OPEB
$
$
$
$
$
$
8,195 $
9,019 $
9,778 $
10,594 $
11,532 $
73,863 $
3,707
4,150
4,672
5,225
5,806
37,817
The Company’s OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare
Part D. Therefore, under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Company qualifies
for federal subsidies.
The estimated subsidy payments are as follows:
Fiscal Year
2017
2018
2019
2020
2021
2022 - 2026
Estimated Subsidy Payment
(Thousands)
$234
$256
$276
$306
$337
$2,331
Page 112
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
2016
2015
2016
2015
$
— $
— $
9
$
2,237
78,306
16,250
50,702
12,906
—
—
—
25,976
65,735
$ 249,875
63,285
11,827
37,353
8,857
—
—
—
20,532
57,269
$ 199,123
19,532
4,114
12,997
3,294
7,177
4,155
4,082
6,675
—
62,035
$
17,460
3,762
10,261
2,617
7,148
4,179
3,960
5,645
—
57,269
$
The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2016 and 2015, and there have been no changes
in valuation methodologies as of September 30, 2016. 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
their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was $2.8 million in fiscal 2016,
$2.6 million in fiscal 2015 and $2.2 million in fiscal 2014. The amount contributed for the employer special contribution of the
Savings Plan was $571,000 in fiscal 2016, $461,000 in fiscal 2015 and $374,000 in fiscal 2014.
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.
Page 113
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
2016
2015
$
$
19,145
1,206
3,111
5,320
(403)
28,379
$
$
30,495
2,262
2,185
(14,763)
(1,034)
19,145
During fiscal 2016, NJNG revised its retirement assumptions to reflect increase in inflation rates and construction costs. These
increases, were discounted using the current credit adjusted risk free rate, resulting in an increase of approximately $5.3 million
to the ARO liability. The $14.8 million decrease during fiscal 2015, was due primarily to changes in retirement assumptions, which
reflected a more accurate projection of settlement of NJNG’s AROs associated with its main and service assets, and was more in
line with the calculated survival curves used in a then recent depreciation study.
Accretion for the next five years is estimated to be as follows:
(Thousands)
Fiscal Year Ended September 30,
2017
2018
2019
2020
2021
Total
12.
INCOME TAXES
Estimated Accretion
$ 1,552
1,639
1,712
1,789
1,870
$ 8,562
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, 2016, 2015 and 2014 is as follows:
(Thousands)
Statutory income tax expense
Change resulting from:
State income taxes
Cost of removal of assets placed in service prior to1981
Investment/production tax credits
Basis adjustment of solar assets due to ITC
Other
Income tax provision
Effective income tax rate
The income tax provision (benefit) from operations consists of the following:
(Thousands)
Current:
Federal
State
Deferred:
Federal
State
Investment/production tax credits
Income tax provision
Page 114
2016
$ 54,321
2015
$ 84,239
2014
$ 67,834
6,044
(5,738)
(32,491)
4,453
(3,059)
$ 23,530
8,233
(5,149)
(30,096)
4,861
(2,364)
$ 59,724
7,785
(4,437)
(23,083)
3,959
(218)
$ 51,840
15.2%
24.8%
26.8%
2016
2015
2014
$ (23,597) $ 20,492 $ 37,904
11,096
(2,209)
5,473
70,386
11,441
(32,491)
24,963
960
(23,083)
$ 23,530 $ 59,724 $ 51,840
56,480
7,375
(30,096)
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
Federal net operating losses
State net operating losses
Conservation incentive plan
Underrecovered gas costs
Other
Total deferred tax assets
Deferred tax liabilities
2016
2015
$
$
76,517
3,601
8,128
1,179
27,541
18,113
—
3,831
11,668
150,578
$
$
24,770
3,440
10,369
—
—
12,757
2,091
2,827
12,762
69,016
Property related items
Remediation costs
Equity investments
Postemployment benefits
Fair value of derivatives
Conservation incentive plan
Other
(440,420)
(7,641)
(37,930)
(2,976)
(3,180)
—
(13,409)
(505,556)
(436,540)
Includes $2.5 million and $2.7 million for NJNG for fiscal 2016 and fiscal 2015, respectively, which is being amortized over the life of the related assets,
and $74 million and $22.1 million for NJRCEV for fiscal 2016 and fiscal 2015, respectively, which is ITC carryforward.
(532,027)
(7,928)
(37,740)
(7,902)
—
(14,953)
(14,610)
(615,160)
(464,582)
Total deferred tax liabilities
Total net deferred tax liabilities
(1)
$
$
$
$
$
$
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, which has no tax impact.
The Company’s federal income tax returns through fiscal 2013 have either been reviewed by the IRS, or the related statute
of limitations has expired and all matters have been settled. Federal income tax returns for periods subsequent to fiscal 2013 are
not currently under examination by the IRS.
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. All periods subsequent to those ended September 30, 2012, are statutorily open to examination in all applicable
states with the exception of New York. In New York, all periods subsequent to September 30, 2013, are statutorily open to
examination.
NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations
associated with unrecognized tax benefits. As of September 30, 2016 and 2015, based on its analysis, the Company determined
there was no need to recognize any liabilities associated with uncertain tax positions.
As of September 30, 2016, the Company has consolidated federal income tax net operating losses of approximately $78.7
million, which generally can be carried back two years and forward 20 years. Additionally, as of September 30, 2016, the Company
has state income tax net operating losses of approximately $310.6 million, which generally have a life of 20 years. The Company
has recorded deferred federal and state tax assets of approximately $45.7 million on the Consolidated Balance Sheets, reflecting
the tax benefit associated with the loss carryforwards. In addition, as of September 30, 2016 and 2015, the Company has recorded
a valuation allowance of $262,000 and $176,000, respectively, because it believes that it is more likely than not that the net
operating losses related to CR&R will expire unused.
In addition, as of September 30, 2016, the Company has an ITC/PTC carryforward of approximately $74 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.
Page 115
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The deferred tax assets will expire as follows:
(Thousands)
Fiscal years 2017 - 2021
Fiscal years 2022 - 2026
Fiscal years 2027 - 2031
Fiscal years 2032 - 2036
Total
$
—
—
835
118,849
$ 119,684
In December 2015, the CAA extended the 30 percent ITC for solar property that is under construction on or before December
31, 2019. The credit will decline to 26 percent for property under construction during 2020, and to 22 percent for property under
construction during 2021. For any property that is under construction before 2022, but not placed in service before 2024, the ITC
will be reduced to 10 percent. In addition, the CAA retroactively extended the PTC for five years through December 31, 2019,
with a gradual three-year phase out for any project for which construction of the facility begins after December 31, 2016.
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 2033, for the supply, storage and
transportation of natural gas. These contracts include annual fixed charges of approximately $85.6 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 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, 2016, 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
2017
2018
2019
2020
2021
Thereafter
$ 224,853 $
34,674
69,168
91,807 $
16,833
24,213
$ 328,695 $ 132,853 $
51,561 $
9,924
5,698
67,183 $
— $
7,638
2,923
10,561 $
— $
4,834
2,404
7,238 $
—
3,194
1,411
4,605
$
— $
85,196 $
29,140
56,452
3,814 $
5,779
22,265
89,928
90,672
$ 170,788 $ 116,751 $ 103,662 $
95,707 $
$ 499,483 $ 249,604 $ 170,845 $ 106,268 $
12,841
90,821
— $
— $
—
87,225
87,225 $
94,463 $
—
—
731,182
731,182
735,787
Total (1)
(1) Does not include amounts related to intercompany asset management agreements between NJRES and NJNG.
As of September 30, 2016, the Company’s future minimum lease payments under various operating leases will not be more
than $2.3 million annually for the next five years and $33.2 million in the aggregate for all years thereafter.
Page 116
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Guarantees
As of September 30, 2016, there were NJR guarantees covering approximately $294.2 million of NJRES’ natural gas purchases
and demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
Legal Proceedings
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of 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 May 2015, the BPU approved NJNG’s September 2014 filing, which requested approval of its MGP
expenditures incurred through June 2014, with recovery of $8.5 million annually related to the SBC RA factor with rates effective
June 1, 2015. On June 29, 2016, the BPU approved NJNG’s December 2015 filing, which requested approval of its MGP expenditures
incurred through June 30, 2015, with recovery of $9.4 million annually related to the SBC RA factor with rates effective July 9,
2016. As of September 30, 2016, $19.6 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 $143.9 million to $231.6 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, 2016, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $172 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
On February 24, 2015, a natural gas fire and explosion occurred in Stafford Township, New Jersey as a result of a natural gas
leak emanating from an underground pipe. There were no fatalities, although several employees of NJNG were injured and several
homes were damaged. NJNG notified its insurance carrier and believes that any costs associated with the incident, including attorneys’
fees, property damage and other losses, will be substantially covered by insurance. The Company believes the resolution of any
potential claims associated with the incident will not have a material effect on its financial condition, results of operations or cash
flows. As of September 30, 2016, NJNG estimates that liabilities associated with claims will range between $600,000 and $3.2
million and has accrued the lower end of the range.
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 117
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 a combination of factors, including its products and its regulatory environment. As a
result, the Company manages its 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 Clean Energy
Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated
wholesale energy operations; the Midstream segment consists of NJR’s investments in natural gas transportation and storage
facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services,
commercial real estate development, other investments and general corporate activities. Information related to the Company’s
various business segments and other operations is detailed below:
(Thousands)
Fiscal Years Ended September 30,
Operating revenues
Natural Gas Distribution
External customers
Clean Energy Ventures
External customers
Energy Services
External customers (1)
Intercompany
Subtotal
Home Services and Other
External customers
Intercompany
Eliminations
Total
Depreciation and amortization
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Interest income (2)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Midstream
Subtotal
Home Services and Other
Eliminations
Total
2016
2015
2014
$
594,346 $
781,970 $
819,415
53,540
32,513
14,575
1,187,754
1,872,781
2,858,703
9,499
61,526
72,114
1,845,139
2,748,790
3,764,807
45,265
46,723
45,452
3,232
(12,731)
1,235
(73,349)
$ 1,880,905 $ 2,733,987 $ 3,738,145
1,980
(63,506)
47,828 $
23,971
43,085 $
17,297
40,540
11,295
$
$
$
88
6
90
6
71,893
60,478
981
(126)
72,748 $
952
(31)
61,399 $
115 $
—
98
1,524
1,737
397
(2,006)
336 $
26
438
977
1,777
217
(1,414)
$
128 $
580 $
59
6
51,900
846
(4)
52,742
999
—
222
950
2,171
1
(950)
1,222
(1)
(2)
Includes sales to Canada, which accounted for 2, 3.7 and 3.3 percent of total operating revenues during fiscal 2016, 2015 and 2014, respectively.
Included in other income, net on the Consolidated Statements of Operations.
Page 118
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
Clean Energy Ventures
Energy Services
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Income tax provision (benefit)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Equity in earnings of affiliates
Midstream
Eliminations
Total
Net financial earnings
Natural Gas Distribution
Clean Energy Ventures
Energy Services
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 119
2016
2015
2014
19,930 $
10,304
1,095
287
31,616
252
(824)
31,044 $
34,951 $
(26,592)
7,030
6,130
21,519
1,387
624
23,530 $
18,534 $
16,683
7,635
1,209
717
5,300
1,725
1,396
28,095
25,104
49
(423)
27,721 $
359
—
25,463
39,544 $
(26,968)
39,043
6,849
58,468
1,551
(295)
59,724 $
39,374
(21,937)
26,458
5,227
49,122
2,460
258
51,840
13,936 $
(4,421)
9,515 $
17,487 $
(4,078)
13,409 $
14,078
(3,546)
10,532
76,104 $
28,393
21,934
9,406
76,287 $
20,101
42,122
9,780
74,204
12,654
79,735
7,498
135,837
148,290
2,882
(634)
138,085 $
3,420
(207)
151,503 $
174,091
2,798
(32)
176,857
205,133 $
149,063
354,196
1,896
356,092 $
168,875 $
152,566
151,002
319,877
209
135,543
288,109
1,179
320,086 $
289,288
11,176
11,176 $
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 net financial earnings
Less:
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
Consolidated net income
2016
138,085 $
$
2015
2014
151,503 $
176,857
46,883
(17,018)
(36,816)
13,364
131,672 $
(38,681)
14,391
(8,225)
3,058
180,960 $
28,534
(10,492)
26,639
(9,794)
141,970
$
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, SRECs and foreign currency contracts. Consequently, to reconcile between net
income and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item.
Additionally, realized derivative gains and losses are also included in current period net income. However, NFE includes only
realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives
with realized margins on physical gas flows. NJR also calculates a quarterly tax adjustment based on an estimated annual effective
tax rate for NFE purposes.
The Company’s assets for the various business segments and business operations are detailed below:
(Thousands)
Assets at end of period:
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Midstream
Subtotal
Home Services and Other
Intercompany assets (1)
Total
2016
2015
2014
$ 2,525,060 $ 2,305,293 $ 2,142,407
380,275
504,885
665,696
327,626
186,259
260,021
182,007
437,708
153,891
3,704,641
3,252,206
3,114,281
110,340
(87,899)
77,578
(66,471)
$ 3,727,082 $ 3,284,357 $ 3,125,388
88,880
(56,729)
(1)
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
15. RELATED PARTY TRANSACTIONS
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.
Page 120
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJRES may periodically enter into storage or park and loan agreements with its affiliated FERC-regulated natural gas storage
facility, Steckman Ridge. As of September 30, 2016, NJRES has entered into storage and park and loan transactions with Steckman
Ridge for varying terms, all of which expire by October 2020.
Demand fees, net of eliminations, associated with Steckman Ridge during the fiscal years ended September 30, are as follows:
(Thousands)
NJNG
NJRES
Total
2016
2015
2014
$
$
5,562 $
2,789
8,351 $
5,700 $
1,957
7,657 $
5,918
1,674
7,592
The following table summarizes demand fees payable to Steckman Ridge as of September 30:
(Thousands)
NJNG
NJRES
Total
2016
2015
$
$
775 $
375
1,150 $
775
375
1,150
NJNG and NJRES have entered into various asset management agreements, the effects of which are eliminated in
consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to NJRES. NJNG
retains the right to purchase market priced gas or fixed price storage gas from NJRES. As of September 30, 2016, NJNG and
NJRES had three asset management agreements with expiration dates ranging from October 2016 through March 2018.
NJNG has entered into a 15-year transportation precedent agreement for committed capacity of 180,000 Dths per day with
PennEast, which is estimated to be in service by the first quarter of fiscal 2019.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of fiscal 2016 and 2015 follows. Due to the seasonal nature of the Company’s
businesses, quarterly amounts vary significantly during the fiscal year. In the opinion of management, the information furnished
reflects all adjustments necessary for a fair presentation of the results of the interim periods.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 444,258 $ 574,193 $ 393,213 $ 469,241
42,480
$
25,400
$
(28,329) $
(17,363) $
59,451 $
50,281 $
93,933 $
73,354 $
$0.59
$0.58
$0.85
$0.84
$(0.20)
$(0.20)
$0.30
$0.29
$ 824,124 $ 1,013,090 $ 458,467 $ 438,306
6,257
$ 168,697 $
4,197
$ 123,320 $
82,806 $
60,903 $
(9,309) $
(7,460) $
$1.46
$1.44
$0.71
$0.71
$(0.09)
$(0.09)
$0.05
$0.05
(Thousands, except per share data)
2016
Operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
2015
Operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
(1)
The sum of quarterly amounts may not equal the annual amounts due to rounding.
Page 121
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, 2016, that has materially affected, or is reasonably likely to materially
affect, internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
Page 122
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 shareowner proposals, is incorporated by reference to the Company’s Proxy Statement for the 2017 Annual
Meeting of Shareowners, which will be filed with the SEC pursuant to Regulation 14A within 120 days after September 30, 2016.
The information regarding executive officers is included in this report following 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 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 shareowner 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 of Conduct 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 123
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 128
Page 124
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, 2016
Page
126
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 125
New Jersey Resources Corporation
Part IV
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2016, 2015 and 2014
(Thousands)
CLASSIFICATION
2016
Allowance for doubtful accounts
2015
Allowance for doubtful accounts
2014
Allowance for doubtful accounts
BEGINNING
BALANCE
ADDITIONS
CHARGED TO
EXPENSE
OTHER (1)
ENDING
BALANCE
$
$
$
5,189
5,357
5,330
1,616
2,859
2,504
(1,940) $
4,865
(3,027) $
5,189
(2,477) $
5,357
(1) Uncollectible accounts written off, less recoveries and adjustments.
Page 126
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 22, 2016
NEW JERSEY RESOURCES CORPORATION
(Registrant)
By:/s/ Patrick Migliaccio
Patrick Migliaccio
Senior 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 22, 2016
November 22, 2016
/s/ Laurence M. Downes
Laurence M. Downes
Chairman, President and
Chief Executive Officer
Director
/s/ Lawrence R. Codey
Lawrence R. Codey
Director
November 22, 2016
November 22, 2016
/s/ Donald L. Correll
Donald L. Correll
Director
/s/ Robert B. Evans
Robert B. Evans
Director
November 22, 2016
/s/ M. William Howard, Jr.
M. William Howard, Jr.
Director
November 22, 2016
/s/ Alfred C. Koeppe
Alfred C. Koeppe
Director
November 22, 2016
/s/ Patrick J. Migliaccio
Patrick J. Migliaccio
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
November 22, 2016
November 22, 2016
November 22, 2016
/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 22, 2016
/s/ Jane M. Kenny
Jane M. Kenny
Director
November 22, 2016
/s/ George R. Zoffinger
George R. Zoffinger
Director
Page 127
EXHIBIT INDEX
New Jersey Resources Corporation
Part IV
Exhibit
Number
3.1
3.2
4.1
4.2
Exhibit Description
Restated Certificate of Incorporation of New Jersey Resources Corporation, as amended through March 3, 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 September 12, 2016 (incorporated by reference
to Exhibit 3.1 to the Current Report on Form 8-K, as filed on September 12, 2016)
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)
Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement, 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)
4.2(a)
36th Supplemental Indenture dated as of September 1, 2014, between NJNG and U.S. Bank National Association,
as Trustee (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K, as filed on September 30,
2014)
4.2(b)
Second Supplemental Indenture dated as of June 1, 2016, between NJNG and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.2 to Form 8-K as filed on June 22, 2016)
4.3
4.4
4.5
4.5(a)
4.5(b)
4.6
4.6(a)
4.7
4.7(a)
4.8
$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 Exhibit 4.3 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, as Joint Lead Arrangers (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
4.8 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 4.9 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 99.1 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 128
New Jersey Resources Corporation
Part IV
Exhibit
Number
4.8(a)
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
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)
$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)
Note Purchase Agreement, dated as of March 22, 2016 among New Jersey Resources Corporation and each of the
Purchasers listed in Schedule A thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K, as filed on March 25, 2016)
$125,000,000 Note Purchase Agreement, dated as of June 21, 2016, 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 June 22, 2016)
Second Supplemental Indenture, dated as of June 1, 2016, by and between New Jersey Natural Gas Company and
U.S. Bank National Association (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, as
filed on June 22, 2016)
10.1*
Amended and Restated Supplemental Executive Retirement Plan Agreement between the Company and Laurence
M. Downes dated November 28, 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 to 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)
Amended and Restated 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 November 28, 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)
Page 129
New Jersey Resources Corporation
Part IV
Exhibit
Number
10.7*
10.8*
10.9*
Exhibit Description
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)
10.10*
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 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 Performance Share Agreement (NFE) (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 10.3 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 7, 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*
10.25*
10.26*
Form of Amended and Restated Employment Continuation Agreement between the Company and named executive
officer (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, as filed on December 16,
2015)
Form of Amended and Restated Employment Continuation Agreement between the Company and NJR Energy
Services Company named executive officer (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, as filed on December 16, 2015)
Form of Amendment of Deferred Stock Retention Award Agreement (incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q, as filed on August 3, 2016)
Page 130
New Jersey Resources Corporation
Part IV
Exhibit
Number
21.1+
Exhibit Description
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, 2016, 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 131
S h a r e o w n e r I n f o r m a t i o n
Annual Meeting
• Build your investment over time, starting with as little as $100, up to a
The Annual Shareowners Meeting will be held at 9:30 a.m. on January
maximum of $100,000 per calendar year.
25, 2017 at the Eagle Oaks Golf and Country Club, 20 Shore Oaks Drive,
• Increase your holdings in NJR by reinvesting all or some of your cash
Farmingdale, NJ 07727. Please refer to your proxy statement for directions.
dividends in our common stock.
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.
Investor and Media Information
• Invest automatically with optional withdrawals from your bank account.
• 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
Members of the financial community are invited to contact Joanne
deduction amount, if any.
Fairechio, director — Investor Relations, at 732-378-4967 or Dennis
• Execute plan transactions online.
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, 1415 Wyckoff Road, P.O. Box 1468, Wall, NJ 07719.
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.
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.
Dividends
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
General written inquiries and address changes may be sent to:
checks from WFSS, unless they have elected to reinvest their dividends
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
through the Plan. The company offers direct deposit of dividends into
shareowners’ bank accounts so the funds are available the same day
they are paid. Please 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
Shareowners can view their account information online at
Resources, 1415 Wyckoff Road, P.O. Box 1468, Wall, NJ 07719:
shareowneronline.com.
• Annual Report and Form 10-K
New Jersey Resources Direct Stock Purchase and Dividend
• Form 10-Q
Reinvestment Plan
• Form 8-K
The New Jersey Resources Direct Stock Purchase and Dividend
• Quarterly Earnings News Release
Reinvestment Plan, NJR Direct, provides a convenient and economical
• Audit Committee Charter
method for new eligible investors to make an initial investment in shares
• Corporate Governance Guidelines
of common stock and for existing shareowners to invest in additional
• Leadership Development and Compensation Committee Charter
shares of common stock or reinvest all or some of their common stock
• Nominating/Corporate Governance Committee Charter
cash dividends. This is neither an offer to sell nor a solicitation of an
• NJR Code of Conduct
offer to buy securities. The Plan is administered by WFSS.
These documents, as well as other filings made with the SEC, are also
As a participant in NJR Direct, you can:
available through njresources.com.
• Conveniently purchase our common stock without incurring brokerage
Information in this Annual Report should not be considered a solicitation
commissions or transaction/processing fees.
of the sale or purchase of securities.
Design: Decker Design, Inc., New York
1415 Wyckoff Road
Post Office Box 1468
Wall, NJ 07719
732-938-1480
www.njresources.com
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