FOCUSED
ON THE ENERGY FUTURE | 2017 ANNUAL REPORT
Building a Foundation for Sustainable Growth
www.njresources.com
Our Commitment to Stakeholders
Safe, Reliable and Competitively Priced Service
Customer Satisfaction
Growth
Quality
Valuing Employees
Corporate Citizenship
Superior Return
We are committed to enhancing our
customers’ quality of life by meeting their
expectations for reliability and value in
an environmentally responsible way —
every day.
Table of Contents
Financial Performance
Letter from the Chairman
Features
Corporate Profile
Directors and Officers
Presenting Our 2017 Form 10-K
Form 10-K
Shareowner Information
2
3
6
18
20
22
23
IBC
1
Financial Performance
DIVIDENDS DECLARED PER SHARE
PAYOUT RATIO (On an NFE‡ basis)
$0.92
$0.98
$1.04
$0.81
$0.86
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
59%
61%
60%
51%
41%
75%
50%
25%
0%
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
PERFORMANCE GRAPH*
VALUE OF $10,000 INVESTED
§ (9/30/12)
$250
$200
$150
$100
$50
Old
Peer Group†
New
Peer Group†
NJR
S&P 500
S&P 500
Utilities
$25,000
$20,000
$15,000
$10,000
$5,000
$0
$21,644
$16,433
$14,585
$11,882
$10,004
2012
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
* The performance graph shows a comparison of the five-year cumulative
return, including reinvestment of dividends, assuming $100 invested on
September 30, 2012, in the Old Peer Group, New Jersey Resources (NJR) stock,
the New Peer Group, the S&P 500 Index and the S&P 500 Utilities Index.
† The nine companies in the Old Peer Group noted above are comprised
of: Atmos Energy Corporation; Spire, 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.
Due to industry consolidation, the Leadership Development and
Compensation Committee (LDCC) made changes to our peer group
for fiscal 2017 compensation in consultation with FW Cook. Based
upon recommendations provided by FW Cook, the LDCC approved
revisions to the peer group for fiscal 2017. The companies in the peer
group were selected based on business model similarities, size and
other growth and business factors. The 12 companies in the New Peer
Group noted above are comprised of: Atmos Energy Corporation; Avista
Corp.; Black Hills Corporation; National Fuel Gas Company; NiSource Inc.;
Northwest Natural Gas Company; ONE Gas, Inc.; South Jersey Industries,
Inc.; Southwest Gas Corporation; Spire lnc.; Vectren Corporation and
WGL Holdings, Inc.
‡ 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 and net applicable tax
adjustments. For further discussion and a reconciliation to GAAP of this
non-GAAP financial measure, please see our fiscal 2017 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 2017 Form 10-K.
§ § New Jersey Natural Gas received the highest numerical score among
large utility providers in the East in the J.D. Power 2015-2017 Gas Utility
Residential Customer Satisfaction Studies. 2017 study based on 61,323
total responses, measuring the opinions of customers with their gas
utility company, surveyed September 2016-July 2017. Your experiences
may vary. Visit jdpower.com.
Information Regarding Forward-Looking Statements — This 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. NJR 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 report include, but are not limited to,
certain statements regarding NJR’s NFE guidance for fiscal 2018, forecasted
contribution of business segments to fiscal 2018 NFE, future NJNG customer
growth, future NJR capital expenditures and infrastructure investments, NJRCEV’s
ITC-eligible projects and demand for residential solar, future base rate cases,
earnings and dividend growth, the ability to close and successfully implement
the Adelphia Gateway acquisition, as well as, the SRL and PennEast Pipeline
projects.
The factors that could cause actual results to differ materially from NJR’s
expectations include, but are not limited to, 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; 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 acquisitions
and the related integration of acquired assets with our current operations;
volatility of natural gas and other commodity prices and their impact on NJNG
customer usage, NJNG’s BGSS incentive programs, our Energy Services
segment operations and on our risk management efforts; the level and rate at
which NJNG’s costs and expenses are incurred and the extent to which they
are approved for recovery from customers through the regulatory process,
including through future base rate case filings; the impact of a disallowance
of recovery of environmental-related expenditures and other regulatory
changes; the performance of our subsidiaries; operating risks incidental to
handling, storing, transporting and providing customers with natural gas;
access to adequate supplies of natural gas and dependence on third-party
storage and transportation facilities for natural gas supply; the regulatory and
pricing policies of federal and state regulatory agencies; 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 results of legal or administrative proceedings with respect to claims,
rates, environmental issues, gas cost prudence reviews and other matters;
risks related to cyberattack or failure of information technology systems;
changes in rating agency requirements and/or credit ratings and their effect
on availability and cost of capital to our company; the ability to comply
with current and future regulatory requirements; the impact of volatility in
the equity and credit markets on our access to capital; the impact to the
asset values and resulting higher costs and funding obligations of our pension
and postemployment benefit plans as a result of potential downturns in
the financial markets, lower discount rates, revised actuarial assumptions
or impacts associated with the Patient Protection and Affordable Care
Act; commercial and wholesale credit risks, including the availability of
creditworthy customers and counterparties, and liquidity in the wholesale
energy trading market; accounting effects and other risks associated with
hedging activities and use of derivatives contracts; the ability to optimize our
physical assets; any potential need to record a valuation allowance for our
deferred tax assets; changes to tax laws and regulations; weather and
economic conditions; the ability to comply with debt covenants; demographic
changes in NJR’s service territory and their effect on NJR’s customer growth;
the impact of natural disasters, terrorist activities and other extreme events
on our operations and customers; the costs of compliance with present
and future environmental laws, including potential climate change-related
legislation; environmental-related and other uncertainties related to litigation
or administrative proceedings; risks related to our employee workforce; and
risks associated with the management of our joint ventures and partnerships,
and investment in a master limited partnership. The aforementioned factors are
detailed in the “Risk Factors” sections of our Form 10-K that we filed with the
Securities and Exchange Commission (SEC) on November 21, 2017, which
is available on the SEC’s website at sec.gov. Information included in this 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.
To Our Shareowners,
As we close another fiscal year and look to the future, I’m reminded of two questions
investors asked us throughout the year: Did we execute New Jersey Resources’ (NJR)
strategic plan, and are we building a foundation for sustainable growth? Thanks
to the hard work of our team of more than 1,050 women and men, the answer to
these questions is a resounding, “yes.” Fiscal 2017 was another strong year for
our stakeholders.
• NJR’s net financial earnings (NFE)‡ were $149.4 million, compared with $138.1 million
in fiscal 2016.
• We met our earnings guidance range with NFE of $1.73 per share, compared with
$1.61 per share during fiscal 2016.
• Our closing stock price was $42.15, compared with $32.86 in fiscal 2016.
• On September 12, 2017, our board of directors approved a 6.9 percent dividend
increase to an annual rate of $1.09 per share, up from $1.02 per share last year.
This is our 22nd consecutive dividend increase and our 24th since 1995.
• If you owned NJR stock during fiscal 2017, you realized a total one-year return on
your investment of 31.7 percent from both stock price appreciation and dividends.
• New Jersey Natural Gas (NJNG), our principal subsidiary, delivered NFE of
$86.9 million, compared with $76.1 million last fiscal year. NJNG was the primary driver
of our financial performance this year, supported by higher base rates and strong
customer growth in both the new construction and conversion markets.
• Our clean energy subsidiary, NJR Clean Energy Ventures (NJRCEV), contributed
NFE of $24.9 million, compared with $28.4 million in fiscal 2016.
• NJR Energy Services (NJRES), our unregulated wholesale energy services business,
continued to perform well despite fiscal 2017’s unseasonably warm weather —
with NFE of $18.6 million, compared with $21.9 million last fiscal year.
• NJR Midstream, our natural gas storage and pipeline business, contributed NFE
of $12.9 million, compared with $9.4 million in fiscal 2016.
• And, NJR Home Services (NJRHS), our retail and appliance service business, earned
NFE of $1.7 million in fiscal 2017, compared with $2 million last fiscal year.
3
These accomplishments reflect the dedication of our entire team as we
pursue a safe, affordable, cleaner and more resilient energy future for our
customers. As we look ahead, what can you expect in fiscal 2018 and beyond?
NJR will continue to invest in energy infrastructure and provide energy services
to residential, commercial and industrial customers in New Jersey and across
the country. At fiscal year-end, we served customers in 41 states and Canada.
The decisions we make and the steps we take to grow our business are designed
to meet our stakeholders’ expectations today, and also for decades to come.
As demand for clean, affordable energy continues to grow, natural gas and clean
energy will play leading roles in the future supply mix. Technological advances make
natural gas more accessible and, as a result, consumption continues to reach record
levels. According to the Annual Energy Outlook 2017 Report from the U.S. Energy
Information Administration (EIA), natural gas use is projected to increase more than
any other fuel source, while prices are currently expected to remain relatively flat.
Because of its availability, low cost and lower emissions, natural gas is increasingly
becoming the choice for electric generation. As a result, energy-related carbon
emissions are 14 percent lower than 2005 levels.
Energy efficiency is another important part of our energy future. With new
technologies, building codes and energy appliance standards, along with goals
to reduce emissions and energy bills, the importance of energy efficiency has
never been stronger. We believe energy efficiency benefits all stakeholders,
including customers and investors, and is the best alternative for saving money
and improving the environment.
Clean energy also experienced significant growth. EIA statistics show
contributions from solar and wind have grown from 3 percent of U.S. energy
generation in 2011 to an estimated 8 percent today. Supported by state and federal
policies, declining manufacturing costs and growing customer demand, clean
energy is projected to grow to over 20 percent of the U.S. energy mix by 2040.
We are an energy infrastructure and services company focused on natural gas,
clean energy and energy efficiency. Through our diverse portfolio of infrastructure
assets — including pipelines, storage fields and solar arrays — we provide the services
our customers need for their homes, businesses and quality of life.
Our strategy is to invest in natural gas and clean energy — the two fastest
growing areas of energy supply — to meet the expected growth in energy demand.
And, we will continue to develop and implement programs that help our customers
use less energy and save money.
Natural gas is our core business and accounts for the majority of our investment
dollars, infrastructure assets and people. Combined with the continued growth of
our clean energy portfolio, NJR is well positioned to meet demand, support public
policy, reduce emissions, strengthen our communities, protect our environment and
provide an appropriate return to our investors. With our strong foundation of natural
gas and clean energy assets, and innovative energy-efficiency programs, we remain
focused on delivering performance and achieving our financial objectives of long-
term annual NFE growth of between 5 to 9 percent and dividend growth of between
6 to 8 percent.
The steps we
take to grow
our business
are designed
to meet our
stakeholders’
expectations
for decades
to come.
$149
MILLION NET
FINANCIAL EARNINGS
4
Our strategy
is designed to
contribute to
a new energy
future and meet
the expected
growth in energy
demand.
22nd
CONSECUTIVE DIVIDEND
INCREASE AND OUR
24TH SINCE 1995
The women and men of NJR, from our management team to the members
of the International Brotherhood of Electrical Workers (IBEW) Local 1820, are
committed to meeting our customers’ expectations, delivering safe, reliable
service, executing our strategic plan and achieving results. They are the driving
force behind our performance, and I’m grateful for all they do.
I’d like to acknowledge our regulators at the New Jersey Board of Public Utilities
(BPU), as well as the Division of Rate Counsel (Rate Counsel). Our shared focus
on affordability, system resiliency, energy efficiency and clean energy reflect our
shared commitment to promote safe, reliable, resilient service and advance New
Jersey’s environmental and energy policies.
I’d also like to express my personal appreciation to the members of our board
of directors for their vision and support. I’m pleased to welcome our two newest
members, Maureen A. Borkowski and Thomas C. O’Connor. I firmly believe the
willingness of our board to share their expertise and diverse perspectives makes
us a better, stronger company.
This year, Lawrence R. Codey, a member of our board since 2000 and our lead
director since 2003, announced his retirement. Over the past 17 years, we have
been the beneficiary of his invaluable leadership, and critical understanding of
key industry issues. We were also saddened by the untimely passing of Alfred C.
Koeppe, who served as a board member since 2003. Al was a person of integrity,
compassion and unique insight. He was strongly committed to labor and an
important voice in our company. We are incredibly fortunate to have had Larry and
Al as a part of our NJR family.
Our Annual Shareowners Meeting will be held at 9:30 a.m. on January 24, 2018,
at The Mansion in Mountain Lakes, New Jersey. I hope you will be able to join us.
Your feedback is important to me. Please feel free to write, call or send an e-mail
to lmdownes@njresources.com and share your thoughts on our performance, as
well as any suggestions for improvement.
As we look forward to the energy future, we see tremendous potential before
us. Guided by our sound strategy, core competencies and the dedication of our
employees, we’re positioned to capitalize on these opportunities. As we’ve shown
time and time again, we will execute our plan on behalf of our stakeholders and
build a foundation for sustainable long-term growth.
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. That’s our
promise to you.
Sincerely,
Laurence M. Downes
Chairman and CEO
5
9,126
NEW UTILITY CUSTOMERS
ADDED, THE MOST
SINCE 2006
20
OF 21 COUNTIES IN NEW
JERSEY WITH RESIDENTIAL
AND COMMERCIAL SOLAR
INVESTMENTS
NJR’s tradition of delivering performance begins with a strong financial profile,
disciplined capital allocation, a diverse investment portfolio and an unwavering
commitment to customers. In fiscal 2017, our team carried on our tradition of
rewarding the confidence of our customers and shareowners.
This year, we met our earnings guidance range with basic NFE of $1.73 per
share, and a closing stock price of $42.15. Including stock appreciation and dividends
paid, our shareowners enjoyed a 31.7 percent total return on their investment.
NJNG continues to drive our results. With its focus on regulated investments
and customer growth, including system growth and renewal projects, this year
we invested $177.7 million to ensure safe, reliable service and added 9,126 new
customers — our most since fiscal 2006. These new customers, along with the 600
existing customers who converted to natural gas heating and other services, are
expected to contribute $5.5 million in annual utility gross margin.††
In fiscal 2017, our Basic Gas Supply Service incentive programs saved
customers $68 million and generated $14 million in utility gross margin. Since 1992,
customers have saved $944 million and shareowners earned an average of
$0.05 per share annually.
Delivering
88,000
SERVICE REQUESTS
HANDLED BY NJRHS
IN FISCAL 2017
NJRCEV is a growing part of our business. Its footprint of residential and
commercial solar now extends to 20 of New Jersey’s 21 counties.
Despite the warmer-than-normal weather in fiscal 2017, NJRES continued to
contribute to NFE as it has done every year since its inception in 1995 — with its
portfolio of supply contracts, physical storage and transportation capacity.
Utilizing our team’s market expertise, we made strategic investments, including
the acquisition of Talen Energy Marketing’s natural gas trading business in August.
And in November 2017, we announced an agreement to purchase all the membership
interests in Interstate Energy Company (IEC), the owner and operator of an existing
84-mile oil and natural gas pipeline in southeastern Pennsylvania. The project,
known as Adelphia Gateway, will repurpose the IEC pipeline to transport natural
gas and provide needed, low-cost supply to the greater Philadelphia region.
NJRHS provided NFE of $1.7 million in fiscal 2017, compared to $2 million last year.
NJRHS installed 1,300 HVAC systems, 2,300 water heaters and 200 residential
solar systems, and completed 88,000 service requests this year.
6
Our team of employees
carried on our tradition of rewarding
the confidence of our customers and
shareowners with solid results.
6
In fiscal 2017, we delivered a total
return of 31.7 percent from stock
price and dividends.
7
7
$1 BILLION
INVESTED IN
INFRASTRUCTURE
SINCE 2008
7,400
MILES OF TRANSMISSION
AND DISTRIBUTION MAIN
As an energy infrastructure and services company, regulated infrastructure
investments are an essential part of what we do. From our network of over
7,400 miles of transmission and distribution main to our growing portfolio of
midstream assets, we invest in pipelines and storage to provide service to our
customers and meet their expectations for safety and reliability.
Since fiscal 2008, we’ve invested over $1 billion in utility infrastructure.
Through our Safety Acceleration and Facility Enhancement (SAFE) and New Jersey
Reinvestment in System Enhancement (NJ RISE) programs, we are strengthening
our system by replacing all the remaining unprotected steel main and constructing
six targeted storm-hardening projects. In fiscal 2017, we eliminated 69 of our
last 276 miles of unprotected main and associated services and are on track to
complete this upgrade over the next four years. We also completed a secondary
feed into Sea Bright, installed over 10,500 excess flow valves in storm prone areas
of our system and are working to raise and reconstruct our Ship Bottom regulator
station on Long Beach Island. The remaining storm-hardening work is expected
to be complete by the end of fiscal 2019.
Investing
69
MILES OF
UNPROTECTED
STEEL MAIN
REPLACED IN
FISCAL 2017
8
We continue to make progress on the Southern Reliability Link (SRL), a 30-mile
transmission pipeline project designed to significantly enhance the resiliency of
our delivery system. Following a thorough review, the SRL has received approval
from the BPU, New Jersey Department of Environmental Protection and New Jersey
Pinelands Commission. Once the final road opening permits and easements are
secured, we expect construction to begin, with a currently estimated in-service
date in the first quarter of fiscal 2019.
Additionally, we maintain a 50-percent ownership stake in the Steckman Ridge
storage field in Bedford County, Pennsylvania, which provides customers with a
range of natural gas storage options. This year, Steckman Ridge contributed
$8 million to NFE.
We also have a 20-percent interest in the proposed 120-mile PennEast Pipeline
(PennEast), designed to bring lower-cost natural gas from the Marcellus Shale
region of Pennsylvania to New Jersey markets. The project received its Final
Environmental Impact Statement from the Federal Energy Regulatory Commission
in 2017. Pending regulatory approvals, PennEast currently expects to be in service
in 2019.
Our investment in infrastructure
provides safe, reliable, resilient
service to our customers.
8
We now serve 530,000 customers
throughout Monmouth, Ocean, Morris,
Middlesex and Burlington counties.
9
9
$800
MILLION INVESTED
IN CLEAN ENERGY
1,300
RESIDENTIAL SOLAR
CUSTOMERS ADDED THIS
YEAR, AN INCREASE OF
16 PERCENT
Clean energy is a growing part of today’s energy mix and is projected to be an
increasingly important part of our energy future. With our team’s extensive industry
experience and market expertise, NJRCEV is strongly positioned to capitalize on
this growth opportunity.
Through our residential solar lease program, The Sunlight Advantage®,
we provide customers with an average savings of 25 to 30 percent, compared with
their current electric utilities’ rates. Building on the program’s success, this year
NJRCEV added 1,300 new residential solar customers, a 16 percent increase over
last fiscal year. We now serve over 6,400 Sunlight Advantage customers, with an
installed capacity of over 57 megawatts (MWs).
NJRCEV also completed five new roof- and ground-mounted commercial
projects, both grid connected and net metered, in New Jersey. Installations include
multiple locations, with Brick Township totaling 2.5 MWs, a two-part, 20 MW array in
Pemberton, a 3 MW brownfield project in Princeton and 1.6 MWs in Westfield. With the
addition of these projects, our commercial installations placed into service total 32,
with the capacity to produce 131.2 MWs.
Growing
60,000
HOMES POWERED
ANNUALLY THROUGH
OUR CLEAN ENERGY
INVESTMENT
Since 2009, we’ve installed in excess of 683,000 solar panels with a total of
190 MWs of installed capacity. These projects are estimated to generate more than
225,000 solar renewable energy certificates (SREC)** annually. SRECs can be sold
to electric suppliers to satisfy the requirement that a percentage of the state’s
electricity be generated by renewable sources. In fiscal 2017, SRECs contributed
$24 million to NFE.
Together, NJRCEV’s portfolio of clean energy assets produce over 315 MWs of
installed capacity, enough capacity to power 60,000 homes annually. With its clean
energy investment of over $800 million, NJRCEV is an important and growing part of
our business for the long term.
10
Clean energy is a growing part of
today’s energy mix, and an important
part of our energy future.
10
Our portfolio of clean energy
assets totals over 315 MWs of
installed capacity.
11
11
$374
MILLION SAVED BY
CUSTOMERS ON
ENERGY COSTS
49,000
CUSTOMERS BENEFITTED
FROM ENERGY-EFFICIENCY
UPGRADES WITH
SAVEGREEN
Energy efficiency is the easiest, most effective way to reduce energy bills and
emissions. When it comes to maintaining the comfort and value of their homes,
lowering expenses and reducing emissions, we are assisting more and more
customers with the decision to invest in energy-efficiency upgrades.
Working with the BPU and Rate Counsel, our prudent investments in energy
efficiency reflect our shared commitment to help our customers make wise
energy decisions, use less energy and support our state’s environmental and
energy policies.
In 2006, we launched our Conservation Incentive Program to help customers
save money and energy, while protecting utility gross margin. Over the last decade,
we’ve helped customers save $374 million through reduced usage, while generating
nearly $83 million in utility gross margin.
The SAVEGREEN Project® (SAVEGREEN), now in its eighth year, provides our
customers with incentives and financing options for energy-efficiency upgrades
and whole-house and building solutions to help offset energy costs and reduce
their carbon footprint. These offerings compliment those available through New
Jersey’s Clean Energy Program™, and support the state’s energy goals. This year,
we invested $13.1 million in SAVEGREEN.
Conserving
$371
MILLION IN ECONOMIC
ACTIVITY GENERATED
Since its inception in 2009, our SAVEGREEN team has helped over 49,000
customers invest in energy-efficiency upgrades to save money, reduce their
environmental impact, and improve the comfort and value of their homes and
businesses. The number of contractors who’ve participated in the program has
grown from 100 to 2,624. To date, NJNG has invested a total of $150 million, earning
an overall return on equity ranging from 9.75 percent to 10.3 percent, while also
generating $371 million of economic activity in our service territory. That’s the
power of conserving.
12
Energy efficiency is the fastest
and easiest way to reduce energy
bills and emissions.
12
Since the inception of SAVEGREEN
in 2009, we’ve invested $150 million
in energy efficiency.
13
13
99%
OF CALLS ANSWERED
WITHIN 20 SECONDS
25
YEARS HIGHEST
CUSTOMER
SATISFACTION
IN THE STATE
It’s the women and men of NJR who lead our company. It’s their commitment
and contributions that deliver on our promises year after year and drive us forward.
This year, according to the American Gas Association, NJNG ranked in the top
quartile for safety with emergency response. Through our continuous infrastructure
investments, we report the fewest leaks per mile of any natural gas distribution
company in the state.
We’re also dedicated to providing the highest quality service to our customers.
This fiscal year, our team in Customer Service answered over 99 percent of
calls with an average answer speed of 20 seconds. And, for the 25th year in
a row, we received the fewest complaints to the BPU of any natural gas utility
in the state.
Again, we ranked “Highest in Customer Satisfaction with Residential Natural
Gas Service in the East among Large Utilities,” according to the J.D. Power 2017 Gas
Utility Residential Customer Satisfaction Study§ §. This is the third consecutive year
we achieved this distinction, and our 11th J.D. Power award since 2002.
Leading
Our other businesses continue to distinguish themselves within their respective
fields. NJRES is recognized as a top 25 natural gas marketer in North America. With
187 MWs installed in New Jersey, NJRCEV is a leading solar provider in the state. And
NJRHS maintains a 5-star online customer rating.
We’re also dedicated to ensuring dignity and respect in the workplace and
beyond. This year, we established our Diversity and Inclusion department, and are
developing new initiatives and opportunities to promote diversity as a core value.
As a part of this effort, we launched a leadership development program for
early career women. The inaugural class of graduates were provided with tools,
resources and instruction to enhance their leadership skills and aid their
professional advancement. As we look ahead, we plan to expand this offering to
a new class of participants, as well as encourage development and provide training
to support the continued performance of our multigenerational workforce, now
and in the years ahead.
11th
J.D. POWER AWARD
14
The women and men of NJR are
the leaders of our company.
14
It’s our team’s commitment
and contributions that deliver
performance and drive us forward.
15
15
12,000
STUDENTS ENRICHED
BY ENERGY FOR EDUCATION
We take pride in the work we do for our customers, shareowners and the
communities we serve. We believe it’s the lives we touch — through our
commitment to corporate citizenship and volunteer efforts — that define our
company.
5,100
VOLUNTEER HOURS
Each year, our employees, retirees and their families give their time and talents to
support the work of nonprofit and community organizations throughout our service
territory. Through our Volunteers Inspiring Service In Our Neighborhoods (VISION)
program, we contributed 5,100 volunteer hours this year alone, helping to support
1,800 organizations and making a difference in the lives of those in need. Whether
planting flowers at the Ronald McDonald House or promoting environmental
stewardship at Ocean Fun Days, our volunteers are engaged.
Additionally, this summer our employees dedicated over 1,000 hours over the
course of two days to help restore and refurbish the grounds, walkways and cabins
at Camp Oakhurst, a facility that provides recreational services to children and
adults with special needs.
Caring
1,800
ORGANIZATIONS ASSISTED
16
This year, we also celebrated the dedication of our 145th home as a part of our
Home Ownership Program. What began in 1996 as a shared commitment with
Interfaith Neighbors to provide affordable housing in Asbury Park has grown to
include partnerships with Homes for All, Inc. in Ocean County and Morris Habitat
for Humanity. With each home, we are helping a deserving family realize their
dream of homeownership and building strong, vibrant communities.
We also recognize few initiatives have a more profound impact than our Energy
for Education programs. From our Project Venture mentoring program for Asbury
Park and Lakewood middle school students to college planning workshops that
help parents and students navigate the admissions process, we are dedicated to
encouraging academic excellence and a lifelong love of learning that will open a
world of possibility and opportunity for our future leaders.
We’re committed to making a positive and lasting impact where it is needed
most. Through our employee charity drive, walks, bake sales and raffles, our team
raises funds to support causes important to them and the community, and our
company is proud to support these efforts.
It’s the lives we touch — through our
commitment to corporate citizenship —
that define our organization.
16
This year alone, NJR had a positive
impact on 4,500,000 lives in our
neighborhoods and communities.
17
17
Corporate Profile
NEW JERSEY RESOURCES (NYSE: NJR) is a Fortune 1000 company that,
through its subsidiaries, provides safe and reliable natural gas and clean
energy services, including transportation, distribution, asset management and
home services. NJR is composed of five primary businesses:
NEW JERSEY NATURAL GAS, NJR’s principal subsidiary, operates and
maintains over 7,400 miles of natural gas transportation and distribution
infrastructure to serve over half a million customers in New Jersey’s
Monmouth, Ocean and parts of Morris, Middlesex and Burlington counties.
NJR CLEAN ENERGY VENTURES invests in, owns and operates solar and
onshore wind projects with a total capacity of over 315 megawatts, providing
residential and commercial customers with low-carbon solutions.
NJR ENERGY SERVICES manages a diversified portfolio of natural gas
transportation and storage assets and provides physical natural gas services
and customized energy solutions to its customers across North America.
For more information
NJR MIDSTREAM serves customers from local distributors and producers to
about NJR, visit njresources.
electric generators and wholesale marketers through its 50 percent equity
com, follow us on Twitter
@NJNaturalGas, “like”
us on facebook.com/
NewJerseyNaturalGas and
download our free NJR
investor relations app for
iPad, iPhone and Android.
ownership in the Steckman Ridge natural gas storage facility and its stake in
Dominion Midstream Partners, L.P., as well as its 20 percent equity interest in
the PennEast Pipeline Project.
NJR HOME SERVICES provides service contracts as well as heating, central
air conditioning, water heaters, standby generators, solar and other indoor and
outdoor comfort products to residential homes throughout New Jersey.
NJR and its more than 1,000 employees are committed to helping customers
save energy and money by promoting conservation and encouraging efficiency
through Conserve to Preserve® and initiatives such as The SAVEGREEN
Project® and The Sunlight Advantage®.
18
1913
Directors and Officers of New Jersey Resources
NEW JERSEY RESOURCES
Directors
Maureen A. Borkowski, 60
Chairman and President (retired)
Ameren Transmission Company
(2017)
Lawrence R. Codey, 73 (A,B,D)
Lead Director, President and
Chief Operating Officer (retired)
Public Service Electric and
Gas Company (2000)
Donald L. Correll, 67 (A,B,C)
Chief Executive Officer and
Co-founder
Water Capital Partners LLC
(2008)
Laurence M. Downes, 60 (B)
Chairman of the Board, President
and Chief Executive Officer
New Jersey Resources
(1995)
Robert B. Evans, 69 (A,B)
President and
Chief Executive Officer (retired)
Duke Energy Americas
(2009)
M. William Howard, 71 (B,C)
Pastor (retired)
Bethany Baptist Church
(2005)
Jane M. Kenny, 66 (B,C,D)
Co-owner and Managing Partner
The Whitman Strategy Group, LLC
(2006)
Thomas C. O’Connor, 61 (A)
Chairman, President and
Chief Executive Officer (retired)
DCP Midstream, LLC
(2017)
J. Terry Strange, 73 (A,B)
Vice Chairman and Managing Partner
U.S. Audit Practice (retired)
KPMG, LLP
(2003)
Sharon C. Taylor, 63 (C,D)
Senior Vice President
Human Resources (retired)
Prudential Financial
(2012)
David A. Trice, 69 (C,D)
President and
Chief Executive Officer (retired)
Newfield Exploration Company
(2004)
George R. Zoffinger, 69 (D)
President and
Chief Executive Officer
Constellation Capital Corporation
(1996)
Date represents year Director joined NJR Board.
(A) Member of Audit Committee
(B) Member of Executive Committee
(C) Member of Leadership Development and Compensation Committee
(D) Member of Nominating/Corporate Governance Committee
20
NEW JERSEY RESOURCES AND SUBSIDIARIES
Officers
Laurence M. Downes, 60 (1,2,3,4,5,7)
President and
Chief Executive Officer
(1985)
Laura Conover, 49 (1)
Chief Communications Officer
and Chief of Staff
(2016)
Amanda E. Mullan, 51 (1,7)
Senior Vice President and Chief Human
Resources Officer
(2015)
Kathleen T. Ellis, 64 (1)
Executive Vice President,
Policy and Strategic
Development
(2004)
Glenn C. Lockwood, 56 (1)
Executive Vice President
(1988)
Rhonda M. Figueroa, 58 (1)
Corporate Diversity Officer
(1981)
Richard Reich, 43 (1,2,3,4,5,7)
Corporate Secretary and
Assistant General Counsel
(2006)
Keith S. Hartman, 56 (6)
Vice President
(2015)
Ginger P. Richman, 53 (4)
Vice President
(2003)
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
Mark G. Kahrer, 55 (2)
Vice President, Regulatory Affairs
(2017)
Jaqueline K. Shea, 53 (1,7)
Vice President and
Chief Information Officer
(2016)
Linda B. Kellner, 58 (1)
Government Affairs Officer
(1995)
Timothy F. Shea, 52 (4)
Vice President
(1998)
James W. Kent, 48 (1,2,3,4,5,7)
Treasurer
(2013)
George C. Smith Jr., 60 (7)
Vice President,
Internal Audit
(1984)
Nancy A. Washington, 53 (1,2,3,4,5,6,7)
Senior Vice President and
General Counsel
(2017)
Stephen D. Westhoven, 49 (3,4,5)
Senior Vice President and
Chief Operating Officer
(1990)
Craig A. Lynch, 56 (2)
Senior Vice President,
Energy Delivery
(1984)
Thomas J. Massaro Jr., 51 (2)
Senior Vice President —
Marketing, Customer Service
and Energy Efficiency
(1989)
Patrick J. Migliaccio, 43 (1,3,4,5,6,7)
Senior Vice President
and Chief Financial Officer
(2009)
21
Presenting Our 2017 Form 10-K
Our 2017 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
• Regulatory outlook for the utility business
our businesses, properties we own and other matters.
• Risk factors related to our business
• Description of properties owned and operated by NJR
All publicly held companies in the United States are
• Legal proceedings
required to file a Form 10-K report with the U.S. Securities
• Information about our executive officers
and Exchange Commission (SEC) every year. Our Form
10-K is required by the rules and regulations of the SEC
PART II: Management’s Discussion of Results and
to contain certain company information in addition to
Financial Statements Items 5 and 6 include:
the financial information included in our previous annual
• Quarterly dividend and stock price information
reports to shareowners. We are supplying our 2017 Form
• Selected financial data for NJR
10-K (without exhibits) consistent with our commitment
• Operational statistics for NJNG
to provide transparency and full disclosure to
our shareowners.
Items 7 and 7a include:
The 2017 Form 10-K is amended, supplemented and
Condition and Results of Operations, which provides a
updated by any amendment we may file, and by all of the
discussion of changes in earnings and cash flows over
quarterly reports on Form 10-Q and current reports on
the past three years
Form 8-K we file or furnish with the SEC during the year.
• Quantitative and qualitative disclosures about
• Management’s Discussion and Analysis of Financial
We urge you to read all such reports. Copies may be
market risk
obtained as described under “Request for Documents”
on the inside back cover of this Annual Report.
Items 8 and 9 include:
• Management’s reports on internal control over financial
Form 10-K Overview
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 2017 Form 10-K. Use the
• Financial statements and footnotes for NJR
listing below, which includes highlights of the 2017 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
PART III: Information about board members,
can be found on page “i” of the 2017 Form 10-K.
executive officers and auditors includes:
• Information about members of the board of directors,
executive compensation and accounting fees is
incorporated by reference to NJR’s proxy statement
PART IV: Exhibits and signatures include:
• Index of exhibits
• Signatures of members of the board of directors and
certain officers
22
2017 Form 10-K
2325
24
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017
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 S K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b 2 of the
Exchange Act.
Large accelerated filer:
Accelerated filer:
Non-accelerated filer:
(Do not check if a smaller reporting company)
Smaller reporting company:
Emerging growth company:
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 $3,356,717,008 based on the closing price of $39.60 per share on
March 31, 2017, as reported on the New York Stock Exchange.
The number of shares outstanding of $2.50 par value Common Stock as of November 17, 2017 was 86,866,461.
Portions of the Registrant’s definitive Proxy Statement for the Annual Meeting of Shareowners (Proxy Statement) to be held on January 24, 2018, are incorporated
DOCUMENTS INCORPORATED BY REFERENCE
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reporting 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. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4. Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5. Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6. Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7. Investments in Equity Investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8. Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10. Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12. Asset Retirement Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14. Commitments and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15. Reporting Segment and Other Operations Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17. Selected Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18. Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
* 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
Adelphia
AFUDC
AOCI
ARO
ASC
ASU
Bcf
BGSS
BPU
CIP
CME
CR&R
Degree-Day
DM
DM Common Units
Dodd-Frank Act
DRP
Dths
EDA
EDA Bonds
EDECA
EE
FASB
FCM
FERC
Financial Margin
FMB
FRM
GAAP
HCCTR
Home Services and Other
ICE
IEC
Iroquois
IRS
ISDA
ITC
LIBOR
LNG
Loan Agreement
MetLife
MetLife Facility
MGP
MLP
Moody’s
Mortgage Indenture
MW
MWh
NAESB
NFE
NGV
Adelphia Gateway, LLC
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
Conservation Incentive Program
Chicago Mercantile Exchange
Commercial Realty & Resources Corp.
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
Energy Efficiency
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
Interstate Energy Company, LLC
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
Page 1
New Jersey Resources Corporation
GLOSSARY OF KEY TERMS (cont.)
NJ RISE
NJCEP
NJDEP
NJNG
NJNG Credit Facility
NJR Credit Facility
NJR Energy
NJR or The Company
NJRCEV
NJRES
NJRHS
NJRPS
NJRRS
NJR Retail Holdings
Non-GAAP
NPNS
NYMEX
O&M
OCI
OPEB
PBO
PennEast
PEP
PIM
PPA
Prudential
Prudential Facility
PTC
RAC
REC
S&P
SAFE
Sarbanes-Oxley
SAVEGREEN
Savings Plan
SBC
SEC
SREC
SRL
Steckman Ridge
Superstorm Sandy
Talen
Tetco
The Exchange Act
Trustee
TSR
U.S.
Union
USF
New Jersey Reinvestment in System Enhancement
New Jersey’s Clean Energy Program
New Jersey Department of Environmental Protection
New Jersey Natural Gas Company or Natural Gas Distribution segment
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 Services Company
NJR Retail Holdings Corporation
Not in accordance with Generally Accepted Accounting Principles of the United States
Normal Purchase/Normal Sale
New York Mercantile Exchange
Operation and Maintenance
Other Comprehensive Income
Other Postemployment Benefit Plans
Projected Benefit Obligation
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 Clause
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
Talen Energy Marketing, LLC or Talen Generation, LLC
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 2018 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
our ability to obtain governmental and regulatory approvals, land-use rights, electric grid connection (in the case of clean energy projects) and/or
financing for the construction, development and operation of our unregulated energy investments and NJNG’s infrastructure projects in a timely
manner;
risks associated with acquisitions and the related integration of acquired assets with our current operations;
volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG’s BGSS incentive programs, our Energy
Services segment operations and on our risk management efforts;
the level and rate at which NJNG’s costs and expenses are incurred and the extent to which they are approved for recovery from customers through
the regulatory process, including through future base rate case filings;
the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;
the performance of our subsidiaries;
operating risks incidental to handling, storing, transporting and providing customers with natural gas;
access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;
the regulatory and pricing policies of federal and state regulatory agencies;
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 results of legal or administrative proceedings with respect to claims, rates, environmental issues, gas cost prudence reviews and other matters;
risks related to cyberattacks or failure of information technology systems;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to our Company;
our ability to comply with current and future regulatory requirements;
the impact of volatility in the equity and credit markets on our access to capital;
the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of
potential downturns in the financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection
and Affordable Care Act;
commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale energy
trading market;
accounting effects and other risks associated with hedging activities and use of derivatives contracts;
our ability to optimize our physical assets;
any potential need to record a valuation allowance for our deferred tax assets;
changes to tax laws and regulations;
weather and economic conditions;
our ability to comply with debt covenants;
demographic changes in NJR’s service territory and their effect on NJR’s customer growth;
the impact of natural disasters, terrorist activities and other extreme events on our operations and customers;
the costs of compliance with present and future environmental laws, including potential climate change-related legislation;
environmental-related and other uncertainties related to litigation or administrative proceedings;
risks related to our employee workforce; and
risks associated with the management of our joint ventures and partnerships, and investment in a master limited partnership.
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.
We are an energy services holding company whose principal business is the distribution of natural gas through a regulated utility,
providing other retail and wholesale energy services to customers and investing in clean energy projects and midstream assets.
We are an exempt holding company under section 1263 of the Energy Policy Act of 2005. Our subsidiaries include:
New Jersey Natural Gas Company provides regulated retail natural gas service to approximately 529,800 residential
and commercial customers in central and northern New Jersey and participates in the off-system sales and capacity
release markets. NJNG, a local natural gas distribution company, is regulated by the BPU and comprises the Company’s
Natural Gas Distribution segment and is referred to herein as NJNG or Natural Gas Distribution.
NJR Clean Energy Ventures Corporation 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. NJRCEV comprises the Company’s Clean Energy Ventures segment and is referred to herein as Clean
Energy Ventures.
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.
NJR Retail Services Company provides unregulated retail natural gas supply and transportation services to commercial
and industrial customers in Delaware, Maryland, Pennsylvania and New Jersey.
NJRES and NJRRS comprise our Energy Services segment and are referred to herein as Energy Services.
NJR Energy Investments Corporation is an unregulated affiliate that consolidates our unregulated energy-related
investments.
NJR Midstream Holdings Corporation invests in energy-related ventures through its subsidiaries, NJR Steckman
Ridge Storage Company, which holds the Company’s 50 percent combined interest in Steckman Ridge, 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 Retail Holdings Corporation is an unregulated affiliate that consolidates our unregulated retail operations.
NJR Home Services Company provides heating, ventilation and cooling service, sales and installation of appliances
to approximately 112,000 service contract customers, as well as solar installation projects.
Commercial Realty & Resources Corp., holds commercial real estate.
NJR Plumbing Services, Inc. provides plumbing repair and installation services.
NJR Service Corporation 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)
REPORTING SEGMENTS
We operate within four reporting 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 and retail 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 reporting segment and other operations for the years ended September 30, are as follows:
* Energy Services’ net income for fiscal 2017 was $476,000 and does not show clearly in the above graph.
Assets by reporting segment and other operations at September 30, are as follows ($ in Thousands):
Page 5
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Management uses NFE, a non-GAAP financial measure, when evaluating our operating results. 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. Energy Services economically hedges its natural gas inventory with financial derivative instruments
and calculates the related tax effect based on the statutory rate.
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 (gain) loss 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:
2017
2016
$ 132,065 $ 131,672 $ 180,960
2015
(11,241)
4,062
38,470
(13,964)
46,883
(17,018)
(36,816)
13,364
(38,681)
14,391
(8,225)
3,058
$ 149,392 $ 138,085 $ 151,503
$
2.12
1.53 $
1.53 $
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
Basic NFE per share
(0.13)
0.05
0.45
(0.17)
1.73 $
0.55
(0.20)
(0.43)
0.16
1.61 $
(0.45)
0.17
(0.10)
0.04
1.78
$
NFE by reporting segment and other operations for the years ended September 30, are as follows:
Additional financial information related to these reporting segments are set forth in Note 15. Reporting 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
Our Natural Gas Distribution segment consists of regulated utility operations that provide natural gas service to approximately
529,800 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’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:
2017
2016
2015
Operating
Revenue
Operating
Revenue
Operating
Revenue
$
$
Bcf
Bcf
($ in thousands)
Residential
Commercial and other
Firm transportation
Total residential and commercial
Interruptible
Total system
BGSS incentive programs (1)
Total
(1) Does not include 128.9, 160.1 and 174.6 Bcf for the capacity release program and related amounts of $6.5 million, $8.1 million and $8.9 million, which are
recorded as a reduction of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30, 2017, 2016 and 2015,
respectively.
466,464
106,505
77,974
650,943
10,049
660,992
120,978
781,970
395,315
98,777
73,206
567,298
7,970
575,268
120,369
695,637
345,597
80,994
69,696
496,287
8,867
505,154
89,192
594,346
45.9
9.6
16.0
71.5
47.1
118.6
47.8
166.4
40.7
8.7
14.4
63.8
55.0
118.8
49.5
168.3
36.9
7.3
14.1
58.3
61.5
119.8
56.6
176.4
Bcf
$
$
$
$
NJNG added 9,126 and 8,170 new customers and added natural gas heat and other services to another 662 and 644 existing
customers in fiscal 2017 and 2016, respectively. NJNG expects its new customer annual growth rate to continue to be approximately
1.7 percent with projected additions in the range of approximately 26,000 to 28,000 new customers over the next three years. This
anticipated customer growth represents approximately $5.3 million in new annual utility gross margin, a non-GAAP financial
measure, as calculated under NJNG’s current CIP tariff. For a definition of utility gross margin see Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Natural Gas Distribution Segment.
In fiscal 2017, no single customer represented more than 10 percent of consolidated operating revenues.
Seasonality of Gas Revenues
Therm sales are significantly affected by weather conditions with customer demand being greatest during the winter months
when natural gas is used for heating purposes. The relative measurement of the impact of weather is in degree-days. Degree-day
data is used to estimate amounts of energy required to maintain comfortable indoor temperature levels based on each day’s average
temperature. A degree-day is the measure of the variation in the weather based on the extent to which the average daily temperature
falls below 65 degrees Fahrenheit. Each degree of temperature below 65 degrees Fahrenheit is counted as one heating degree-day.
Normal heating degree-days are based on a 20-year average, calculated based on three reference areas representative of NJNG’s
service territory.
Page 7
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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.
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 4.
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 2017, 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.
Transcontinental Gas Pipe Line Corp.
Tennessee Gas Pipeline Co.
Algonquin Gas Transmission
Total
(1) Numbers are shown net of any capacity release contracted amounts.
Dths(1)
300,738
50,000
42,531
25,166
12,000
430,435
Expiration
Various dates between 2018 and 2023
Various dates between 2024 and 2030
Various dates between 2018 and 2032
Various dates between 2018 and 2023
2019
Dominion Energy Transmission, Inc. provides NJNG firm contract transportation service and supplies the pipelines included
in the table above.
In addition, NJNG has storage contracts that provide an 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
2019
2019
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
Expiration
Various dates between 2020 and 2023
2020
2023
Dths
154,714
38,000
25,337
218,051
Page 8
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
NJNG utilizes its transportation contracts to transport gas to NJNG’s citygates from the Dominion Transmission Corporation,
Steckman Ridge and Central New York Oil & Gas storage fields. NJNG has sufficient firm transportation, storage and supply
capacity to fully meet its firm sales contract obligations.
Citygate Supplies from Energy Services
NJNG has several citygate supply agreements with Energy Services. NJNG and Energy Services have an agreement where
NJNG releases 10,000 Dths/day of Texas Eastern Transmission capacity, 2,200 Dths/day of Dominion Energy Transmission, Inc.
capacity, 10,728 Dths/day of Tennessee Gas Pipeline capacity and 1.6 million Dths of Central New York Oil & Gas storage capacity
to Energy Services for the period of April 1, 2017 to March 31, 2018. NJNG can call upon a supply of up to 20,000 Dths/day
delivered to NJNG’s Texas Eastern citygate. Energy Services 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 Energy Services
for the period of April 1, 2016 to October 31, 2020. 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 16. 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 now allows NJNG to convert natural gas into LNG to fill NJNG’s existing LNG storage tanks.
See Item 2. Properties-Natural Gas Distribution for additional information regarding the LNG storage facilities.
Basic Gas Supply Service
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.
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. Decreases in the BGSS rate and BGSS refunds can be implemented
with five days’ notice to the BPU. Rate changes, as well as other regulatory actions related to BGSS, are discussed further in Note
4. Regulation in the accompanying Consolidated Financial Statements.
Wholesale natural gas prices are, by their nature, volatile. NJNG mitigates the impact of volatile price changes on customers
through the use of financial derivative instruments, which are part of its storage incentive program, its BGSS clause and was part
of its FRM program. The FRM program was terminated effective November 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 safety and 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. In September 2016, the BPU approved NJNG's filing for an increase to base rates in the amount
of $45 million, effective October 2016. See Note 4. Regulation in the accompanying Consolidated Financial Statements for
additional information regarding NJNG’s rate proceedings.
Page 9
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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, 2017, NJNG had 32,653 residential and
10,137 commercial and industrial customers utilizing the transportation service.
Clean Energy Ventures
Our Clean Energy Ventures segment 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, 2017, Clean Energy Ventures constructed a total of 189.1 MW of solar capacity in New Jersey 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, Clean Energy Ventures 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. Clean Energy Ventures 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
Clean Energy Ventures using qualified contracting 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. Clean
Energy Ventures competes on price, quality and brand reputation, leveraging its partner network and customer referrals.
Clean Energy Ventures’ 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 fifth largest solar market
in the U.S. according to the Solar Energy Industries Association®, 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. Clean Energy Ventures 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, Clean Energy Ventures invests in small to mid-size onshore wind projects that fit its
investment profile. As of September 30, 2017, Clean Energy Ventures has a total of 126.6 MW of wind capacity. 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. An $89 million, 39.9 MW wind project in Somerset
County, Pennsylvania was completed in December 2016.
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New Jersey Resources Corporation
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ITEM 1. BUSINESS (Continued)
Clean Energy Ventures 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
Our Energy Services segment consists of unregulated wholesale and retail natural gas operations and provides producer and
asset management services to a diverse customer base across North America. Energy Services 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. Energy Services’ activities are conducted in the
market areas in which it has strong expertise, including the U.S. and Canada. Energy Services 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. Energy Services’ 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, Energy Services’ activities specifically
consist of the following elements:
•
Providing natural gas portfolio management services to nonaffiliated and affiliated natural gas utilities, electric generation
facilities and natural gas producers;
• Managing strategies for new and existing natural gas storage and transportation assets to capture value from changes in
price due to location or timing differences as a means to generate financial margin (as defined below);
• Managing transactional logistics to minimize the cost of natural gas delivery to customers while maintaining security of
supply. Transactions utilize the most optimal and advantageous natural gas supply transportation routing available within
its contractual asset portfolio and various market areas; and
• Managing economic hedging programs that are designed to mitigate the impact of changes in market prices on financial
margin generated on its natural gas storage and transportation commitments.
On July 27, 2017, we acquired certain wholesale transportation and retail natural gas energy contracts from Talen, providing
service to large industrial retail and commercial customers in Delaware, Maryland, New Jersey and Pennsylvania. Our competitors
include other retail marketing companies that provide service in the same states.
In fiscal 2017, Energy Services purchased over 10 percent of its natural gas from one supplier. Energy Services 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
Energy Services 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, Energy Services may hedge
these price differentials through the use of financial instruments. In addition, Energy Services 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 Energy Services to capture geographic pricing differences across various regions as delivered natural gas prices may
change favorably as a result of market conditions. Energy Services 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.
Energy Services also engages in park-and-loan transactions with storage and pipeline operators, where Energy Services 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, Energy Services evaluates the economics of the transaction
to determine if it can capture pricing differentials in the marketplace and generate financial margin. Energy Services evaluates
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New Jersey Resources Corporation
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ITEM 1. BUSINESS (Continued)
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, Energy Services may enter
into the transaction and hedge with natural gas futures contracts, thereby locking in financial margin.
Energy Services 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 2017 and 2016, Energy Services managed and sold 521.6 Bcf and
551.1 Bcf of natural gas, respectively. In addition, as of September 30, 2017 and 2016, Energy Services had 53.9 Bcf or $122.9
million of gas in storage and 62 Bcf or $130.5 million of gas in storage, respectively.
Weather/Seasonality
Energy Services 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, Energy Services can be subject to variations in earnings and working capital throughout the year as a result
of changes in weather.
Volatility
Energy Services’ activities are also subject to 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 Energy Services’ financial margin, described below, that is generated from the optimization of transportation
and storage assets. With its focus on risk management, Energy Services continues to diversify its revenue stream by identifying
new growth opportunities in producer and asset management services. Energy Services has added new counterparties and strategic
storage and transportation assets to its portfolio, which currently includes an average of approximately 44.6 Bcf of firm storage
and 1.1 Bcf/day of firm transportation capacity. Energy Services continues to expand its geographic footprint.
Financial Margin
To economically hedge the commodity price risk associated with its existing and anticipated commitments for the purchase
and sale of natural gas, Energy Services 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. Energy Services views “financial margin” as a key internal financial metric.
Energy Services’ 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 excluding 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, Energy Services mitigates risk by following formal risk management guidelines, including
transaction limits, segregation of duties and formal contract and credit review approval processes. Energy Services continuously
monitors and seeks to reduce the risk associated with its counterparty credit exposures. The Risk Management Committee of the
Company 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 Enbridge Inc., 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 a 20 percent equity investment in PennEast. PennEast is expected to construct
a 120-mile FERC-regulated interstate natural gas pipeline system that will extend from northern Pennsylvania to western
New Jersey and is estimated to be completed and operational in 2019; and
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New Jersey Resources Corporation
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ITEM 1. BUSINESS (Continued)
• NJR Midstream Holdings Corporation, which, through its subsidiary NJNR Pipeline Company, holds 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
112,000 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;
• NJR Energy, which was dissolved on November 28, 2016, invested in energy-related ventures; and
• NJR Service Corporation, which provides shared administrative and financial services to the Company and all of its
subsidiaries.
ENVIRONMENT
We along with our subsidiaries are subject to legislation and regulation by federal, state and local authorities with respect
to environmental matters. We believe that we are, in all material respects, in compliance 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 MGP sites for which it is responsible will range from approximately
$117.6 million to $205.2 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 2017. 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, 2017,
NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $149 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. NJNG currently recovers approximately $9.4 million annually through its SBC RAC. NJNG will continue to seek
recovery of these costs through its remediation rider. On November 17, 2017, NJNG filed it's annual SBC application requesting
a reduction in the RAC, which will decrease the annual recovery to $7 million, effective April 1, 2018.
EMPLOYEE RELATIONS
As of September 30, 2017, the Company and its subsidiaries employed 1,052 employees compared with 1,034 employees
as of September 30, 2016. Of the total number of employees, NJNG had 444 and 441 and NJRHS had 104 and 106 Union or
“Represented” employees as of September 30, 2017 and 2016, respectively. NJNG and NJRHS have collective bargaining
agreements with the Union, which is affiliated with the American Federation of Labor and Congress of Industrial Organizations,
that expire in December 2018 and April 2019, respectively. The labor agreements cover wage increases and other benefits, including
the defined benefit pension (which was closed to all employees hired on or after January 1, 2012, with the exception of certain
rehires who are eligible to resume active participation), the postemployment benefit plan (which was closed to all employees hired
on or after January 1, 2012) and the enhanced 401(k) retirement savings plan. The Company considers its relationship with
employees, including those covered by collective bargaining agreements, to be in good standing.
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New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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.
The following documents are available free of charge on our website (http://njr360.client.shareholder.com/governance.cfm):
• Bylaws;
• Corporate Governance Guidelines;
• Wholesale Trading Code of Conduct;
• NJR Code of Conduct;
• Charters of the following Board of Directors Committees: Audit, Leadership Development and Compensation and
Nominating/Corporate Governance;
• Audit Complaint Procedure;
• Communicating with Non-Management Directors Procedure; and
•
Statement of Policy with Respect to Related Person Transactions.
In Part III of this Form 10-K, we incorporate certain information by reference from our Proxy Statement for our 2018 Annual
Meeting of Shareowners. We expect to file that Proxy Statement with the SEC on or about December 14, 2017. 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 the Company and its subsidiaries.
Our investments in clean energy projects are subject to substantial risks and competition.
Commercial and residential solar energy projects and onshore wind projects, such as those in which we invest, are dependent
upon current regulatory and tax incentives and there is uncertainty about the extent to which such incentives will be available in
the future. The potential return on investment of these solar projects is based substantially on our eligibility for ITCs and the future
market for SRECs that are traded in a competitive marketplace in the State of New Jersey. As a result, these projects face the risk
that the current regulatory regimes and tax laws may expire or be adversely modified during the life of the projects. Furthermore,
a sustained decrease in the value of SRECs would negatively impact the return on investment of solar projects. Legislative changes
or declines in the price of SRECs could also lead to an impairment of solar project assets. The market for such projects is also
limited, which creates competition for customers and higher investment costs and could potentially result in lost investment
opportunities.
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New Jersey Resources Corporation
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ITEM 1A. RISK FACTORS (Continued)
In addition, there are risks associated with our ability to develop and manage such projects profitably, including logistical
risks and potential delays related to construction, permitting, regulatory approvals (including any approvals by the BPU required
pursuant to recently enacted solar energy legislation in the State of New Jersey) and electric grid interconnection, as well as the
operational risk that the projects in service will not perform according to expectations due to equipment failure, suboptimal weather
conditions or other 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.
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 and IEC, 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 and cash flows.
Uncertainties associated with our planned acquisition of IEC could adversely affect our business, results of operations,
financial condition and cash flows. Furthermore, any acquisitions that we undertake might involve risks and uncertainties. We
may not realize the anticipated synergies, cost savings and growth opportunities as a result of these transactions.
In October 2017, we announced the entry into an agreement to purchase IEC, whose principle operations relate to the
operation and maintenance of an oil and natural gas transmission pipeline extending approximately 90 miles into eastern
Pennsylvania. As part of the acquisition we expect to convert the remaining sections of the southern mainline of the pipeline
utilized to transport oil to transport natural gas. The completion of the acquisition is subject to various closing conditions, including,
but not limited to, receipt of necessary permits and regulatory actions, such as those from the FERC and the Pennsylvania Public
Utility Commission, and other pending regulatory determinations, such as compliance with anti-trust laws. There can be no
assurance that we will receive the necessary approvals for the transaction or receive them within the expected timeframe. The
announcement and pendency of the IEC acquisition, as well as any delays in the expected timeframe, could cause disruption and
create uncertainties, which could have an adverse effect on our business, results of operations and financial condition, regardless
of whether the acquisition is completed.
Furthermore, the integration of any acquisition requires significant time and resources, which could result in significant
ongoing operating expenses and may divert resources and management attention from other areas of our business. If we fail to
successfully integrate assets and liabilities through the entities which we acquire, we may not realize the benefits expected from
the transaction and, as a result, the fair value of assets acquired could be impaired and could have a material impact on our financial
condition and results of operations.
The benefits that we expect to achieve from acquisitions will depend, in part, on our ability to realize anticipated growth
opportunities and other synergies with our existing businesses. The success of these transactions will depend on our ability to
integrate these transactions within our existing businesses timely and seamlessly. We may experience challenges when combining
separate business cultures, information technology systems and employees. Even if we are able to complete the integration
successfully, we may not fully realize all of the growth opportunities, cost savings and other synergies that we expect.
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 condition, results of operations and cash flows.
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New Jersey Resources Corporation
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ITEM 1A. RISK FACTORS (Continued)
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,
remediation costs associated with NJNG's MGP sites, CIP, NJCEP, economic stimulus plans, certain deferred income tax and
pension and other postemployment benefit plans. If there were to be a change in regulatory positions surrounding the collection
of these deferred costs there could be a material impact on NJNG’s financial condition, results of operations and cash flows.
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 are unable to 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.
NJNG’s regulated operations are subject to certain operating risks incidental to handling, storing, transporting and providing
customers with natural gas.
NJNG’s regulated 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, safety issues 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.
NJNG and Energy Services rely on storage, transportation assets and suppliers, which they do not own or control, to deliver
natural gas.
NJNG and Energy Services depend on natural gas pipelines and other storage and transportation facilities owned and operated
by third parties to deliver natural gas to wholesale and retail 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 that 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.
Energy Services 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 Energy Services 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 Energy Services, these
conditions could have a material impact on our financial condition, results of operations and cash flows.
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 and transmission 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
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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, RAC and SAVEGREEN programs or continue the opportunity to earn its currently authorized rates of return.
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 that we apply an effective tax rate to interim periods that is consistent with our estimated annual effective
tax rate. As a result, we project quarterly the annual effective tax rate and then adjust 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 our 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 we fail to
qualify for ITCs or are 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. This could have a
material adverse impact on our financial condition, results of operations and cash flows.
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 “five percent safe harbor”).
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.
Cyberattacks or failure of information technology systems could adversely affect our business operations, 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 cyberattack, 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 have implemented to
protect against cyberattack and other unauthorized access to secured data, are adequate to safeguard against all failures of technology
or security breaches.
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 Energy Services, Clean Energy Ventures and Midstream, which rely on our creditworthiness, would be adversely
affected. Energy Services 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. Clean Energy Ventures 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.
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 and retail
markets 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.
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 bills for gas delivered to customers. 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.
If we are unable to access the financial markets or there are adverse conditions in the equity or 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
equity or credit markets or otherwise obtain debt financing on terms favorable to us or at all. In addition, because certain state
Page 18
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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;
volatility in the equity markets;
• 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.
Energy Services 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.
The cost of providing pension and postemployment health care benefits to eligible former employees is subject to changes
in pension fund values, interest rates and changing demographics and may have a material adverse effect on our financial results.
We have two defined benefit pension plans and two OPEB plans for the benefit of eligible full-time employees and qualified
retirees, which were closed to all employees hired on or after January 1, 2012. The cost of providing these benefits to eligible
current and former employees is subject to changes in the market value of the pension and OPEB fund assets, changing discount
rates and changing actuarial assumptions based upon demographics, including longer life expectancy of beneficiaries, an expected
increase in the number of eligible former employees over the next five years, impacts from healthcare legislation and increases
in health care costs.
Significant declines in equity markets and/or reductions in bond yields can have a material adverse effect on the funded
status of our pension and OPEB plans. In these circumstances, we may be required to recognize increased pension and OPEB
expenses and/or be required to make additional cash contributions into the plans.
The funded status of these plans, and the related cost reflected in our financial statements, are affected by various factors
that are subject to an inherent degree of uncertainty. Under the Pension Protection Act of 2006, losses of asset values may necessitate
increased funding of the plans in the future to meet minimum federal government requirements. A significant decrease 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.
We are exposed to market risk and may incur losses in our wholesale business.
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.
Page 19
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 Energy Services’ 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, Energy Services 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.
Energy Services' earnings and cash flows are dependent upon optimization of its physical assets.
Energy Services' 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 Energy Services' market areas, including as a result
of increased production along the Marcellus Shale, can reduce Energy Services' ability to take advantage of pricing fluctuations
in the future. Changes in pricing dynamics and supply could have an adverse impact on Energy Services' optimization activities,
earnings and cash flows. Energy Services 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 Energy Services is not able to
recoup these costs from its customers, the cash flows and earnings at Energy Services, and ultimately the Company, could be
adversely impacted.
A valuation allowance may be required for our deferred tax assets.
A valuation allowance may need to be recorded against our net deferred tax assets, which are predominantly related to net
operating losses, based on available evidence, including cumulative and forecasted taxable income at the time the estimate is made.
A valuation allowance related to deferred tax assets can be affected by changes to tax laws, statutory tax rates and future taxable
income levels. In the event that we determine that we would not be able to realize all or a portion of our net deferred tax assets in
the future, we would reduce such amounts accordingly through a charge to income tax expense in the period in which that
determination was made, which could have a material adverse impact on our financial condition and results of operations.
Changes in tax laws or regulations may negatively affect our results of operations, net income, financial condition and cash
flows.
We are subject to taxation by various taxing authorities at the federal, state and local levels. The current administration has
made federal corporate tax reform one of its priorities and the possibility of such reform is thought to be increased in light of the
Republican-led Congress. While such reform is likely to be favorable to corporations generally, the structure of any such reform
is unknown and a change in tax laws or rates could in fact adversely affect our results of operations, net income, financial condition
and cash flows. We cannot predict the timing or structure of such tax-related developments.
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 Energy Services 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 Energy Services' earnings and cash flows.
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.
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 an independent source and is subject to the aforementioned risks and
uncertainties, which could cause actual results to materially deviate from the estimate.
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 financial condition, results of operations and cash flows.
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 be 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 financial condition, results of operations and cash
flows.
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
Page 21
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 natural
gas prices. Higher cost levels could impact the competitive position of natural gas and negatively affect our growth opportunities,
cash flows and earnings.
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.
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, an 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.
Page 22
New Jersey Resources Corporation
Part I
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Natural Gas Distribution Segment
NJNG owns approximately 7,197 miles of distribution main, 7,424 miles of service main, 226 miles of transmission main
and approximately 549,000 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 $672 million as of September 30, 2017. In addition, under the
terms of the Mortgage Indenture, NJNG could have issued up to $960 million of additional first mortgage bonds as of September 30,
2017.
Clean Energy Ventures Segment
Clean Energy Ventures 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, Clean Energy Ventures owns solar panels with a total of 189.1 MW of capacity
throughout New Jersy and owns 79.5 acres of land in Vineland, New Jersey.
Clean Energy Ventures 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. Clean Energy Ventures has a total of 126.6 MW of wind capacity and owns wind projects in Two
Dot, Montana, Carroll County, Iowa, Rush County, Kansas, Carbon County, Wyoming and Somerset County, Pennsylvania. In
addition to the lease agreements and easements, Clean Energy Ventures owns 1.8 acres and 7.1 acres of land for its Carroll County
and Rush County wind projects, respectively. Clean Energy Ventures also owns a building on .16 acres in Rush County, Kansas
that is used for operation and maintenance purposes.
Clean Energy Ventures leases office space in Wall Township, New Jersey.
Energy Services Segment
As of September 30, 2017, Energy Services leases office space in Wall Township, New Jersey, Houston, Texas, and Allentown,
Pennsylvania.
Midstream Segment
As of September 30, 2017, 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,
2017, PennEast owned 74 acres of land in Carbon County, Pennsylvania and 58.7 acres of land in Mercer County, New Jersey.
Page 23
New Jersey Resources Corporation
Part I
ITEM 2. PROPERTIES (Continued)
All Other Business Operations
As of September 30, 2017, 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.
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 2018 and 2019 capital expenditures, as applicable to the Company’s reporting 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 a Memoranda of Agreement with the NJDEP.
NJNG may recover its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC
approved by the BPU. NJNG currently recovers approximately $9.4 million annually through it's SBC RAC. On November 17,
2017, NJNG filed it's annual SBC application requesting a reduction in the RAC, which will decrease the annual recovery to $7
million, effective April 1, 2018. As of September 30, 2017, $28.5 million of previously incurred remediation costs, net of recoveries
from customers and insurance proceeds, are included in regulatory assets on the Consolidated Balance Sheets.
NJNG 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 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 $117.6 million to $205.2 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, 2017, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $149 million on
the Consolidated Balance Sheets, based on the most likely amount. This was reduced from $172 million in fiscal 2016, due to the
completion of remediation work at certain sites and a reduction to the remediation scope at another site. 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.
Litigation
We are involved, and from time to time in the future may be involved, in a number of pending and threatened judicial,
regulatory and arbitration proceedings relating to matters that arise in connection with the conduct of its business, certain of which
litigation matters are described in Note 14. Commitments and Contingent Liabilities in the accompanying Consolidated Financial
Statements. In view of the inherent difficulty of predicting the outcome of litigation matters, particularly when such matters are
in their early stages or where the claimants seek indeterminate damages, we cannot state with confidence what the eventual outcome
of the pending litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines
or penalties related to each pending matter will be, if any.
Page 24
New Jersey Resources Corporation
Part I
ITEM 3. LEGAL PROCEEDINGS
In accordance with applicable accounting guidance, we establish reserves for litigation for those matters that present loss
contingencies as to which it is both probable that a loss will be incurred and the amount of such loss can be reasonably estimated.
Based upon currently available information, we believe that the results of litigation that is currently pending, taken together, will
not have a materially adverse effect on our financial condition, results of operations or cash flows. The actual results of resolving
the pending litigation matters may be substantially higher than the amounts reserved.
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
60
Patrick J. Migliaccio
43
2013
Officer
since Office held during last five years
1986
Chairman of the Board (September 1996 - present)
President and Chief Executive Officer (July 1995 - present)
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)
Stephen D. Westhoven
49
2004
Kathleen T. Ellis
64
2004
Amanda E. Mullan
51
2015
Jacqueline K. Shea
53
2016
Nancy A. Washington
53
2017
Executive Vice President and Chief Operating Officer (November 2017 - present)
Senior Vice President and Chief Operating Officer, NJRES and NJRCEV (October 2016 -
October 2017)
Senior Vice President, NJRES (May 2010 - September 2016)
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)
Senior Vice President and Chief Human Resources Officer (January 2017 - present)
Vice President and Chief Human Resources Officer (April 2015 - December 2016)
Senior Vice President of HR, N. America, Willis Group Holdings, a risk management and
insurance intermediary (April 2012 - April 2015)
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)
Senior Vice President and General Counsel (March 2017 - present)
Senior Vice President and Chief Litigation Counsel, CIT Group Inc., a Livingston, NJ-based
financial services firm (September 2010 - March 2017)
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, 2017,
NJR had 48,784 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
2017
2016
Dividends Paid
High
Low
High
Low
2017
2016
$37.30
$39.95
$43.50
$44.30
$30.46
$33.70
$38.95
$39.50
$34.07
$36.85
$38.56
$38.92
$28.02
$32.32
$33.91
$32.27
$0.255
$0.255
$0.255
$0.255
$0.240
$0.240
$0.240
$0.240
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, 2017:
Period
7/01/17 - 7/31/17
8/01/17 - 8/31/17
9/01/17 - 9/30/17
Total
Total Number
of Shares
(or Units)
Purchased
—
—
—
—
Average
Price Paid
per Share
(or Unit)
Total Number of Shares (or
Units) Purchased as Part of
Publicly Announced Plans
or Programs
$
$
$
$
—
—
—
—
—
—
—
—
Maximum Number (or Approximate
Dollar Value) of Shares (or Units) That
May Yet Be Purchased Under the
Plans or Programs
2,431,053
2,431,053
2,431,053
2,431,053
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) (2)
COMMON STOCK DATA
Earnings per share-basic
Earnings per share-diluted
Dividends declared per share
NON-GAAP RECONCILIATION
Net income
Add:
Unrealized (gain) loss on derivative instruments and
related transactions
Tax effect
Effects of economic hedging related to natural gas
inventory
Tax effect
Net financial earnings (3)
Basic earnings per share
Add:
Unrealized (gain) loss 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 (3)
Diluted earnings per share
Add:
Unrealized (gain) loss 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 (3)
2017
2016
2015
2014
2013
132,065 $
$ 2,268,617 $ 1,880,905 $ 2,733,987 $ 3,738,145 $ 3,198,068
$ 1,703,767 $ 1,352,686 $ 2,085,645 $ 3,139,525 $ 2,712,223
$
114,809
$ 3,928,507 $ 3,718,570 $ 3,284,357 $ 3,125,388 $ 3,001,414
$ 1,236,643 $ 1,166,591 $ 1,106,956 $
887,384
$
512,886
843,595 $
966,166 $
598,209 $
997,080 $ 1,055,038 $
141,970 $
180,960 $
131,672 $
$1.53
$1.52
$1.038
$1.53
$1.52
$0.975
$2.12
$2.10
$0.915
$1.69
$1.67
$0.855
$1.38
$1.37
$0.810
$
132,065 $
131,672 $
180,960 $
141,970 $
114,809
(11,241)
4,062
46,883
(17,018)
(38,681)
14,391
28,534
(10,492)
(9,418)
3,462
38,470
(13,964)
149,392 $
(36,816)
13,364
138,085 $
(8,225)
3,058
151,503 $
26,639
(9,794)
176,857 $
7,635
(2,807)
113,681
$
$1.53
$1.53
$2.12
$1.69
$1.38
(0.13)
0.05
0.45
(0.17)
$1.73
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
$1.52
$1.52
$2.10
$1.67
$1.37
(0.13)
0.05
0.44
(0.17)
$1.71
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
Includes long-term capital leases of $28.9 million, $30.7 million, $35.7 million, $40.4 million and $43 million, respectively.
Includes long-term solar asset financing obligation of $28.2 million in fiscal 2017.
(1)
(2)
(3) NFE is a non-GAAP financial measure that eliminates the timing differences surrounding the recognition of certain derivative gains or losses, to effectively
match the earnings effects of economic hedges associated with the physical sale or purchase of gas and, therefore, eliminate the impact of volatility to GAAP
earnings associated with the related derivative instruments. For further discussion of this financial measure, see the Energy Services segment in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Page 27
New Jersey Resources Corporation
Part II
ITEM 6. SELECTED FINANCIAL DATA (Continued)
NJNG OPERATING STATISTICS
Fiscal Years Ended September 30,
Operating revenues ($ 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
2017
2016
2015
2014
2013
$ 395,315
98,777
73,206
567,298
7,970
575,268
120,369
$ 695,637
$ 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
40.7
8.7
14.4
63.8
55.0
118.8
178.4
297.2
460,013
26,947
42,790
529,750
33
27
529,810
7.96
885
11,183
4,129
90.0%
680
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
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
824
11,378
3,867
82.5%
670
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
(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 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. In September 2016, the BPU approved an increase in base tariff rates in the amount of $45 million, effective
October 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 Energy Services’ 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 are recognized in gas purchases on the Consolidated Statements of Operations.
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. Energy Services’ 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, Energy Services may utilize additional published pipeline tariff information and/or other
services to determine an equivalent market price. As of September 30, 2017, fair value of its derivative assets and liabilities reported
on the Consolidated Balance Sheets that is based on such pricing is immaterial.
Page 29
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Should there be a significant change in the underlying market prices or pricing assumptions, Energy Services 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 a sensitivity analysis related to the impact to derivative fair values resulting from changes in
commodity prices. The valuation methods we use to determine fair values remained consistent for fiscal 2017, 2016 and 2015.
We apply a discount to our derivative assets to factor in an adjustment associated with the credit risk of its physical natural gas
counterparties and to our derivative liabilities to factor in an adjustment associated with its own credit risk. We determine this
amount by using historical default probabilities corresponding to the appropriate S&P issuer ratings. Since the majority of our
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.
Clean Energy Ventures hedges certain of its expected production of SRECs through forward and futures contracts. Clean
Energy Ventures 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 or cash flow hedges as of September 30, 2017 and 2016.
Business Combinations
We account for business combinations by applying the acquisition method of accounting. Identifiable assets acquired and
liabilities assumed are measured separately at their fair value as of the acquisition date and associated transactions costs are
expensed as incurred.
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various
assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these
valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as other
assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the
risk inherent in the acquired assets and related cash flows. Terminal values are based on the expected life of assets acquired,
forecasted life cycles and expected cash flows over that period. Our valuation of an acquired business is based on available
information at the acquisition date and assumptions that we believe are reasonable, however a change in facts and circumstances
as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the
acquisition date. See Note 3. Acquisition for information related to our acquisition of a gas marketing business on July 27, 2017.
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 that some or all of the deferred income
tax assets won’t be realized. We had net deferred tax liabilities of $506.3 million and $464.6 million, and a valuation allowance
of approximately $1 million and $262,000 related to certain deferred state tax assets, as of September 30, 2017 and 2016,
respectively. Any significant changes to the estimates and judgments with respect to the interpretations, timing or deductibility
could result in a material change to earnings and cash flows. For a more detailed description of Income Taxes see Note 13. Income
Taxes in the accompanying Consolidated Financial Statements.
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
to 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)
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, 2017 and 2016, 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 to 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.
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, 2017, NJNG estimated these expenditures
will range from approximately $117.6 million to $205.2 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 $149 million on the Consolidated Balance Sheets, which is based on the most
likely amount. This was reduced from $172 million in fiscal 2016, due to the completion of remediation work at certain sites and
a reduction to the remediation scope of work at another site.
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, 2017 and 2016, $28.5 million and $19.6
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
Our 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 us.
Page 31
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Our 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
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) %
1.00 %
(1.00) %
Increase/
(Decrease)
1.00 %
(1.00) %
Estimated
Increase/(Decrease) on PBO
(Thousands)
$(38,398)
$ 48,110
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (3,875)
$
4,720
$ (2,493)
2,493
$
Estimated
Increase/(Decrease) on PBO
(Thousands)
$(25,977)
$ 33,412
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (2,447)
3,072
$
(615)
$
615
$
Estimated
Increase/(Decrease) on PBO
(Thousands)
$ 32,019
$(25,466)
Estimated
Increase/(Decrease) to Expense
(Thousands)
4,353
$
$ (3,624)
On October 1, 2016, we changed our 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, we determine our 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. Refer to Note 11. Employee Benefit Plans in the accompanying
Consolidated Financial Statements for further discussion of our 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 Clean Energy Ventures’ 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
Clean Energy Ventures’ ARO is recognized as a component of operations and maintenance expense on our 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.
Page 32
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
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. 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.
Reporting Segments
We have four primary reporting segments as presented in the chart below:
Page 33
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In addition to our four reporting segments, we have non-utility operations that either provide corporate support services or
do not meet the criteria to be treated as a separate reporting segment. These operations, which comprise Home Services and Other,
include: appliance repair services, sales and installations at NJRHS; and commercial real estate holdings at CR&R.
A summary of our consolidated results in net income and assets by reporting segment and operations for the fiscal years
ended September 30, is as follows:
($ in thousands)
2017
2016
2015
Net Income
Assets
Net Income
Assets
Net Income
Assets
Natural Gas Distribution
$
76,104 $ 2,517,401 $
76,287 $ 2,305,293
Clean Energy Ventures
Energy Services
Midstream
Home Services and Other
Intercompany (1)
Total
86,930 $ 2,519,578 $
24,873
771,340
476
12,857
6,811
118
398,277
232,806
114,801
(108,295)
28,393
14,265
9,406
2,882
622
665,696
327,626
186,259
109,487
(87,899)
$
132,065 $ 3,928,507 $
131,672 $ 3,718,570 $
20,101
72,044
9,780
504,885
260,021
182,007
3,420
(672)
88,880
(56,729)
180,960 $ 3,284,357
(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 increase in net income of $393,000 during fiscal 2017, compared with fiscal 2016, was primarily driven by increased
gross margin at our Natural Gas Distribution segment due primarily to increased base rates which were effective October 1, 2016,
increased other income at Home Services and Other due to the sale of available for sale securities and increased equity in earnings
of affiliates at Midstream. These increases were partially offset by decreased operating income at Energy Services due primarily
to a decrease of $16.4 million related to changes in the value of financial hedges and a decrease at Clean Energy Ventures due
primarily to increased depreciation, operating and interest expenses, partially offset by increased revenues and increased PTCs.
The decrease in net income of $49.3 million during fiscal 2016, compared with fiscal 2015, was primarily driven by a decrease
at Energy Services related to lower operating income 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 Clean Energy Ventures due primarily to
operating revenue related to higher SREC and electricity sales, partially offset by increased costs related to depreciation, O&M
and interest expense.
Assets
The increase in assets during fiscal 2017, compared with fiscal 2016, was due primarily to additional solar expenditures at
Clean Energy Ventures, the acquisition of Talen's wholesale and retail energy contract assets at Energy Services, increased PennEast
capital contributions and an increase in the market value of our DM Common Units at Midstream, along with additional utility
plant expenditures at our Natural Gas Distribution segment. The increase in assets during fiscal 2016, compared with fiscal 2015,
was due primarily to additional utility plant expenditures at Natural Gas Distribution and additional solar expenditures at Clean
Energy Ventures, as well as increased broker margin and gas in storage at Energy Services.
Non-GAAP Financial Measures
Our management uses NFE, a non-GAAP financial measure, when evaluating our operating results. Energy Services
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 we utilize forwards, futures, or other derivatives to hedge forecasted SREC production,
unrealized gains and losses are also eliminated for NFE purposes.
Page 34
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 (gain) loss 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 (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory (1)
Tax effect
2017
2016
$ 132,065 $ 131,672 $ 180,960
2015
(11,241)
4,062
38,470
(13,964)
(38,681)
14,391
(8,225)
3,058
$ 149,392 $ 138,085 $ 151,503
46,883
(17,018)
(36,816)
13,364
$
1.53 $
1.53 $
2.12
(0.13)
0.05
0.45
(0.17)
1.73 $
0.55
(0.20)
(0.43)
0.16
1.61 $
(0.45)
0.17
(0.10)
0.04
1.78
$
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 reporting 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)
$
2017
58% $
86,930
17
24,873
12
18,554
9
12,857
6,811
4
(633) —
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) —
Total
(1) Consists of transactions between subsidiaries that are eliminated in consolidation.
$ 149,392 100% $ 138,085
100% $ 151,503
100%
The increase in NFE during fiscal 2017, compared with fiscal 2016, was due primarily to increases at our Natural Gas
Distribution segment, Midstream and Home Services and Other, as previously discussed, partially offset by lower financial margin
at Energy Services due primarily to lower sales volumes and fewer market opportunities and the decrease at Clean Energy Ventures,
as previously discussed.
The decrease in NFE during fiscal 2016, compared with fiscal 2015, was driven primarily by decreased financial margin at
Energy Services 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 Clean Energy
Ventures due primarily to increase in SREC and energy sales.
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 529,800 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 4. 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 1.7 percent annually through fiscal 2019;
• 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
In September 2016, the BPU approved NJNG's base rate case, effective October 2016, which included 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 recovery of SAFE I capital investments and the rate mechanism and five-year extension of SAFE II. 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 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.
The BPU approved recovery of SAFE I capital investments through September 30, 2016, and approved the rate mechanism
and 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 accelerated cost recovery
methodology for the $157.5 million associated with the extension of SAFE II was approved in NJNG’s new base rates. The
remaining $42.5 million in capital expenditures will be requested for recovery in a future base rate case.
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 weather
events to customers that live in the most storm prone areas of NJNG's service territory. Recovery of NJ RISE investments through
June 30, 2016, is included in NJNG’s base rates.
On March 30, 2017, NJNG filed its annual petition with the BPU requesting a base rate increase for the recovery of NJ
RISE and SAFE II capital investment costs, with a weighted cost of capital of 6.9 percent including a return on equity of 9.75
percent, related to the period ending June 30, 2017, based on estimates, pursuant to the September 2016 base rate case. On July 20,
Page 37
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
2017, NJNG filed an update to this petition with actuals, requesting a $4.1 million annual increase in recoveries, which was
approved by the BPU, effective October 1, 2017.
NGV Advantage
In June 2012, the BPU approved a pilot program for NJNG to invest up to $10 million to build NGV refueling stations. 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. All
three of the NGV stations are open to the public and NJNG is recovering its costs through base rates effective October 2016.
Liquefaction/LNG
In June 2016, NJNG’s Liquefaction facility became operational and allows NJNG to convert natural gas into LNG to fill its
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 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 $180 million and $200 million. In January 2016,
the BPU issued an order approving NJNG’s modified, proposed SRL pipeline installation, operation and route selection. In March
2016, the BPU issued an order designating the SRL route and exempting the SRL from municipal land use ordinances, regulations,
permits and license requirements. In February 2017, the New Jersey Department of Environmental Protection issued a permit
authorizing construction of the SRL within the jurisdiction of the Coastal Area Facility Review Act, as well as a Freshwater
Wetlands permit. On September 14, 2017, the NJ Pinelands Commission approved construction of the SRL as being compliant
with the Commission's Comprehensive Management Plan. All approvals and permits have been appealed by third parties. Once
the final road opening permits and easements are secured, construction is expected to begin, with an estimated in-service date
during the first quarter of fiscal 2019.
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
2017
2016
2015
460,013
26,947
32,653
10,137
529,750
60
529,810
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
During fiscal 2017, NJNG added 9,126 new customers, which represents a new customer growth rate of approximately 1.7
percent. During that same time period, NJNG converted 662 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
$5.5 million, on an annualized basis, to utility gross margin. NJNG also added 8,170 and 7,858 new customers and converted 644
and 636 existing customers to natural gas heat and other services during the fiscal years ended September 30, 2016 and 2015,
respectively.
Page 38
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In addition, NJNG currently expects to add approximately 26,000 to 28,000 new customers during the three-year period of
fiscal 2018 to 2020. NJNG's estimates are based on information from municipalities and developers, as well as external industry
analysts and management’s experience. NJNG estimates that approximately 60 percent of the growth will come from new
construction markets and 40 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 $5.3 million annually, as
calculated under NJNG’s CIP tariff. See the Natural Gas Distribution Segment 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, which 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.
Since inception, $149.7 million in grants, rebates and loans has been provided to customers, with a total annual recovery
of approximately $20 million. In June 2016, the BPU approved NJNG's extension of SAVEGREEN through December 31, 2018.
In October 2016, the BPU approved NJNG’s filing to maintain the existing SAVEGREEN recovery rate. On October 20, 2017,
the BPU approved NJNG's filing to decrease its EE recovery rate, which would result in an annual decrease of $3.9 million,
effective November 1, 2017. The recovery includes a weighted average cost of capital that ranges from 6.69 percent to 7.76 percent,
with a return on equity of 9.75 percent to 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. Refer to
Note 4. 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
(1)
2017
2016
2015
$
$
19,261 $
(2,309)
16,952 $
27,547 $
10,420
37,967 $
(9,268)
3,132
(6,136)
Compared with the CIP 20-year average, weather was 10 percent and 17.5 percent warmer-than-normal during fiscal 2017 and 2016, respectively, and
8.3 percent colder-than-normal during 2015.
As of September 30, 2017 and 2016, NJNG has $17.7 million and $37 million, respectively, in regulatory assets related to
CIP to be collected from customers in future periods on the Consolidated Balance Sheets.
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.
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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)
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 $8.71, $4.74 and $21.09 and the minimum daily price was $0.36, $0.67 and $0.77 for the
fiscal years ended September 30, 2017, 2016 and 2015, 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 September 22, 2017, the BPU provisionally approved NJNG's petition to maintain its BGSS rate for residential and small
commercial customers, and increase its balancing charge rate, which will result in a $3.7 million increase to the annual revenues
credited to BGSS, effective October 2017. During fiscal 2017 and 2016, NJNG issued bill credits of $42 million and $61.6 million,
respectively, as a result of a decline in the wholesale price of natural gas. Refer to Note 4. Regulation - BGSS and CIP in the
accompanying Consolidated Financial Statements, for a further discussion of NJNG’s periodic BGSS rate adjustments and bill
credits.
Page 40
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing
programs that include off-system sales, capacity release and storage incentive programs. 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. Utility gross margin from incentive programs was $13.7 million, $15 million and $17.7 million during the
fiscal years ended September 30, 2017, 2016 and 2015, respectively. A more detailed discussion of the impacts to utility gross
margin can be found in the Natural Gas Distribution Segment 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
NJNG's qualifying customers are eligible for the USF program, which is administered by the New Jersey Department of
Community Affairs, to help make energy bills more affordable. In September 2016, the BPU approved NJNG's annual USF
compliance filing proposing to increase the statewide USF rate, resulting in a $1.3 million annual increase in USF recoveries,
effective October 2016. Refer to Note 4. Regulation - Societal Benefits Clause in the accompanying Consolidated Financial
Statements, for a further discussion of NJNG's USF rates.
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 $149 million as of September 30, 2017, a decrease
of $23 million, compared with the prior fiscal period. The reduction was due to the completion of remediation work at certain sites
and a reduction to the remediation scope of work at another site.
Other
In May 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 in
July 2016, and the associated costs were approved for recovery through NJNG’s new base rates, effective October 2016.
Page 41
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 4. Regulation in
the accompanying Consolidated Financial Statements.
Commodity Service to Customers
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.
Operating Results
NJNG’s operating results for the fiscal years ended September 30, are as follows:
(Thousands)
Operating revenues
Operating expenses
Gas purchases (1) (2)
Operation and maintenance
Regulatory rider expense (3)
Depreciation and amortization
Energy and other taxes (4)
Total operating expenses
Operating income
Other income, net
Interest expense, net of capitalized interest
Income tax provision
Net income
2017
2016
$ 695,637 $ 594,346 $ 781,970
2015
269,480
142,509
40,243
49,347
42,417
543,996
151,641
4,592
25,818
43,485
86,930 $
$
215,849
130,575
39,300
47,828
34,561
468,113
126,233
4,752
19,930
34,951
76,104 $
355,779
129,774
75,779
43,085
47,506
651,923
130,047
4,318
18,534
39,544
76,287
(1)
(2)
(3)
(4)
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, $10.8 million and $50.8 million during fiscal 2017, 2016 and 2015, respectively, a
portion of which are eliminated in consolidation.
Consists of expenses associated with state-mandated programs, the RAC and energy efficiency programs, and are calculated on a per-therm basis. These
expenses are passed through to customers and offset by corresponding revenues.
Consists primarily of sales tax, which is passed through to customers and offset by corresponding revenues.
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 increased 17 percent during fiscal 2017 and decreased 24 percent during fiscal 2016. Gas purchases
increased 24.8 percent during fiscal 2017 and decreased 39.3 percent during fiscal 2016. The factors contributing to the increases
(decreases) in operating revenues and gas purchases during fiscal 2017 and 2016, are as follows:
2017 v. 2016
2016 v. 2015
$
Operating
revenue
(Millions)
Firm sales
Rate impact (1)
Bill credits (2)
Off-system sales
Average BGSS rates (3)
CIP adjustments
Other (4)
Total increase (decrease)
(1)
(2) Operating revenues include changes in sales tax of $1.3 million and $4 million during during fiscal 2017 and 2016, respectively.
(3) Operating revenues include changes in sales tax of $1.4 million and $200,000 during fiscal 2017 and 2016, respectively.
(4) Other includes changes in rider rates, including those related to NJCEP and other programs.
44.4 $
37.4
19.6
29.2
(17.9)
(21.0)
9.6
101.3 $
Includes rate adjustments for the base rate case, CIP and demand charges.
Gas
purchases
21.6
—
18.3
29.1
(16.5)
—
1.1
53.6
$
$
$
Operating
revenue
Gas
purchases
(116.1) $
—
(61.6)
(32.1)
(2.7)
44.1
(19.2)
(187.6) $
(50.4)
—
(57.6)
(31.8)
(2.5)
—
2.4
(139.9)
Fiscal 2017 compared with fiscal 2016
The changes in operating revenues and gas purchases during fiscal 2017 were due primarily to:
•
•
increased firm sales due primarily to customer growth and higher usage, related to weather being 6.8 percent colder;
increased base rates resulting from the settlement of the base rate case;
• higher off-system sales due primarily to a 49.8 percent increase in the average price of gas sold, partially offset by a 12.2
percent reduction in volumes;
• a decrease in bill credits issued to residential and small commercial customers during the months of November 2016
through February 2017 compared with the same period last year; partially offset by
• a decrease in CIP due primarily to weather, partially offset by changes in the CIP as a result of the settlement of the base
rate case.
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, which 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.
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 taxes
Regulatory rider expense
Utility gross margin
2017
695,637 $
2016
594,346 $
2015
781,970
269,480
37,917
40,243
347,997 $
215,849
29,832
39,300
309,365 $
355,779
42,929
75,779
307,483
$
$
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 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:
($ 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
Utility Firm Gross Margin
2017
2016
2015
Margin
Bcf
Margin
Bcf
Margin
Bcf
$ 218,093
51,510
58,172
327,775
13,724
6,498
$ 347,997
40.7
8.7
14.4
63.8
178.4
55.0
297.2
$ 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
45.9
9.6
16.0
71.5
222.4
47.1
341.0
A description of the factors contributing to the increases in utility firm gross margin during fiscal 2017 and 2016, are as
follows:
(Thousands)
Rate impact
Customer growth
SAVEGREEN
Total increase
2017 v. 2016
$ 35,019
3,619
(345)
$ 38,293
2016 v. 2015
$
$
—
3,436
862
4,298
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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)
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 2017 and 2016, are as follows:
(Thousands)
Capacity release
Storage
Off-system sales
FRM
Total (decrease) increase
Fiscal 2017 compared with fiscal 2016
2017 v. 2016
$ (1,672)
378
39
—
$ (1,255)
2016 v. 2015
$
(758)
(1,184)
(278)
(509)
$ (2,729)
The increase in utility gross margin was due primarily to the base rate increase and customer growth, along with an increase
in interruptible/off-tariff agreements, partially offset by decreased margins related to capacity release due to lower volumes and
lower value of capacity.
Fiscal 2016 compared with fiscal 2015
The increase in utility gross margin was due primarily to customer growth, partially offset by decreased BGSS incentives.
BGSS incentives were lower due primarily to decreases 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 the lower capacity value. 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 2015.
Operation and Maintenance Expense
A summary and description of the factors contributing to the increases (decreases) in O&M expense during fiscal 2017 and
2016, are as follows:
(Thousands)
Compensation and benefits
Base rate amortization of regulatory assets
Shared corporate costs
Other
Total increase
Fiscal 2017 compared with fiscal 2016
2017 v. 2016
$
5,412
3,264
3,061
197
11,934
$
2016 v. 2015
$
$
898
—
2,378
(2,475)
801
The increase in O&M expense during fiscal 2017 was due primarily to:
•
increased compensation costs due primarily to increases in headcount, incentives, healthcare premiums, lower capitalized
labor and increased pension/OPEB benefit costs related to changes in actuarial assumptions, partially offset by
implementation of the spot rate method to measure interest and service cost components;
• additional amortization of regulatory assets that are being recovered as a result of the settlement of the base rate case;
and
•
increased shared corporate costs resulting primarily from increased software maintenance, incentives, postemployment
costs and healthcare premiums.
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;
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New Jersey Resources Corporation
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
•
•
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.
Depreciation Expense
Depreciation expense increased $1.5 million in fiscal 2017, compared with fiscal 2016, as a result of additional utility plant
being placed into service, as well as an increase in the overall depreciation rate from 2.34 percent to 2.4 percent resulting from
the settlement of the base rate case. Depreciation expense increased $4.7 million in fiscal 2016, compared with fiscal 2015, as a
result of additional utility plant being placed into service.
Operating Income
Operating income increased $25.4 million, or 20.1 percent, in fiscal 2017, compared with fiscal 2016, due primarily to the
increase in total utility gross margin of $38.6 million, partially offset by the increase in O&M, as previously discussed. Operating
income decreased $3.8 million, or 2.9 percent, in fiscal 2016, compared with fiscal 2015, due primarily to the increase in
depreciation, partially offset by the increase in total utility gross margin of $1.9 million, as previously discussed.
Income Tax Provision
Income tax provision increased $8.5 million during fiscal 2017, compared with fiscal 2016, due primarily to an increase in
pre-tax income, partially offset by increased costs associated with the removal of distribution main that was placed in service
before 1981, for which the tax benefit is passed on to customers in base rates.
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 of retiring assets placed into service prior to 1981.
Net Income
Net income increased $10.8 million to $86.9 million in fiscal 2017, compared with fiscal 2016, due primarily to an increase
in operating income as discussed above, partially offset by an increase in the income tax provision as discussed above and interest
expense associated with debt issued in June 2016.
Net income decreased $183,000 to $76.1 million in fiscal 2016, compared with fiscal 2015, due primarily to a decrease in
operating income as discussed above, an increase in interest expense associated with higher long-term debt outstanding, partially
offset by a decrease in the income tax provision as discussed above and an increase in other income related to AFUDC interest
earned on infrastructure projects.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Clean Energy Ventures Segment
Overview
Our Clean Energy Ventures segment actively pursues opportunities in the clean energy markets, including solar and onshore
wind. Clean Energy Ventures has entered into various agreements to install solar net-metered systems for residential and commercial
customers, as well as large commercial grid-connected projects. In addition, Clean Energy Ventures has entered into various long-
term agreements, including PPAs, to supply energy from wind and solar projects.
Solar
Since its inception, Clean Energy Ventures has constructed a total of 189.1 MW of solar capacity and has an additional 11.2
MW under construction.
Solar expenditures for the fiscal years ended September 30, are as follows:
($ in Thousands)
Placed in service
Grid-connected (1)
Net-metered:
2017
Projects MW Costs
2016
Projects MW Costs
2
20.0 $
62,700
5
21.8 $ 51,240
2015
Projects MW
4
26.1 $
Costs
66,424
Commercial (1)
Residential
Total placed in service
(1)
3
1,300
1,305
Includes projects subject to sale-leaseback arrangements.
7.1
19,714
37,901
12.4
39.5 $ 120,315
— —
3
34,318
10.4
32.2 $ 85,561
1,123
1,128
1
829
834
0.4
7.8
34.3 $
1,382
24,973
92,779
During fiscal 2017, Clean Energy Ventures entered into sale-leaseback arrangements for two of its commercial solar projects,
for which the ITCs and other tax benefits associated with these solar projects were transferred to the buyer. During fiscal 2017,
excluding those cost related to the commercial solar projects of $31.1 million that were included in the sale-leaseback transactions,
$89.2 million of solar-related capital expenditures were ITC eligible. During fiscal 2016 and 2015, all solar-related capital
expenditures were ITC eligible. We estimate total solar-related capital expenditures for ITC eligible projects during fiscal 2018 to
be between $132 million and $140 million.
As part of its solar investment portfolio, Clean Energy Ventures 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. Clean Energy Ventures 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.
Onshore Wind
Clean Energy Ventures invests in small to mid-size onshore wind projects that fit its investment profile and has a total of
126.6 MW of wind capacity as of September 30, 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. An $89 million, 39.9 MW wind project in Somerset County, Pennsylvania was completed in December
2016.
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. Further, changes in prices
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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 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 significantly affect earnings.
Operating Results
Clean Energy Ventures’ financial results for the fiscal years ended September 30, are summarized as follows:
(Thousands)
Operating revenues
Operating expenses
Operation and maintenance
Depreciation and amortization
Other taxes
Total operating expenses
Operating income (loss)
Other income, net
Interest expense, net
Income tax (benefit)
Net income
Operating Revenues
2017
2016
2015
$
64,394 $
53,540 $
32,513
23,448
31,834
1,209
56,491
7,903
2,072
18,897
23,971
900
43,768
9,772
2,333
16,263
(31,161)
24,873 $
10,304
(26,592)
28,393 $
$
15,248
17,297
726
33,271
(758)
1,526
7,635
(26,968)
20,101
Operating revenues increased $10.9 million and $21 million during fiscal 2017 and 2016, respectively, compared with the
previous fiscal years, and is comprised of the following:
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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)
SREC activity for the fiscal years ended September 30, is as follows:
Inventory balance as of October 1,
SRECs generated
SRECs delivered
Inventory balance as of September 30,
2017
2016
2015
24,135
197,521
(173,299)
48,357
33,203
160,009
(169,077)
24,135
29,970
126,133
(122,900)
33,203
SRECs generated increased 23.4 percent and 26.9 percent, for the fiscal years ended September 30, 2017 and 2016,
respectively, compared with the previous fiscal years. The average SREC sales price was $233 in fiscal 2017, $214 in fiscal 2016
and $183 in fiscal 2015.
Clean Energy Ventures 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:
Energy Year (1)
2018
2019
2020
Percent of SRECs Hedged
90%
70%
11%
(1) Energy years are compliance periods for New Jersey's renewable portfolio standard that run from June 1 to May 31.
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 $4.6 million in fiscal 2017 and $3.6 million in fiscal 2016, due primarily to additional maintenance,
leasing and administrative costs associated with wind and solar projects placed in service, as well as increased shared corporate
costs.
Depreciation Expense
Depreciation expense increased $7.9 million in fiscal 2017 and $6.7 million in fiscal 2016, as a result of increases in wind
and solar projects placed in service.
Income Tax (Benefit)
Income tax benefit during fiscal 2017, 2016 and 2015, includes $24.6 million, $25.7 million and $27.8 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 2017, 2016 and 2015 includes $9.9 million and $6.7 million, and $2 million respectively, of PTCs associated
with wind projects. Clean Energy Ventures recognized $29.2 million, $27 million, and $24.1 million related to tax credits, net of
deferred taxes, during fiscal 2017, 2016 and 2015, respectively.
Net Income
Net income in fiscal 2017 decreased $3.5 million, compared with fiscal 2016, due primarily to increased costs related to
depreciation and O&M as previously discussed, as well as an increase in interest expense related to higher debt associated with
capital expenditures, partially offset by an increase in operating revenues, as well as an increase in tax benefits recognized due
primarily to an increase PTCs, as previously discussed.
Net income during 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.
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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)
Energy Services Segment
Overview
Energy Services markets and sells natural gas to wholesale and retail customers and manages natural gas storage and
transportation assets throughout major market areas across North America. Energy Services 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 allows Energy Services to generate market opportunities
by capturing price differentials over specific time horizons and between geographic market locations.
Energy Services 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, Energy Services 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, Energy Services 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, Energy Services is able to implement strategies that allow them to capture margin by improving the respective
time or geographic spreads on a forward basis.
On July 27, 2017, we acquired certain retail and wholesale natural gas energy contract assets from Talen. The acquisition
included sales agreements with large commercial and industrial retail customers in Delaware, Maryland, New Jersey and
Pennsylvania, pipeline and storage capacity agreements on various pipelines and various wholesale transportation contracts.
Energy Services 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 or gas purchases on the Consolidated Statements of Operations. Volatility
in reported net income at Energy Services 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. 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 from storage and sold, at which time Energy Services
realizes the entire margin on the transaction.
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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)
Operating Results
Energy Services’ financial results for the fiscal years ended September 30, are summarized as follows:
(Thousands)
Operating revenues (1)
Operating expenses
Gas purchases (including demand charges (2)(3))
Operation and maintenance
Depreciation and amortization
Other taxes
Total operating expenses
Operating (loss) income
Other income
Interest expense, net
Income tax (benefit) provision
Net income
2017
2016
$ 1,462,681 $ 1,197,253 $ 1,934,307
2015
1,441,310
20,313
63
1,788
1,463,474
(793)
1
2,747
(4,015)
$
476 $
1,153,911
20,025
88
937
1,174,961
22,292
98
1,095
7,030
14,265 $
1,795,719
25,403
90
1,237
1,822,449
111,858
438
1,209
39,043
72,044
(1)
(2)
(3)
Includes related party transactions of approximately $316,000, $9.5 million and $61.5 million during fiscal 2017, 2016 and 2015, 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 $4.6 million, $14.6 million and $27.9 million during fiscal 2017, 2016 and 2015, respectively, a portion
of which are eliminated in consolidation.
As of September 30, Energy Services’ portfolio of financial derivative instruments are composed of:
(in Bcf)
Net short futures contracts
Net long options
Operating Revenues and Gas Purchases
2017
16.4
—
2016
79.1
1.2
2015
91.1
1.2
During fiscal 2017, operating revenues increased $265.4 million and gas purchases increased $287.4 million, due primarily
to an approximate 36.8 percent increase in the average price of natural gas and the acquisition of Talen's sales, pipeline and storage
capacity agreements, as well as various wholesale transactions, partially offset by a 5.4 percent decrease in wholesale volumes.
Gas purchases also include a decrease due to the changes in the economic hedging of natural gas inventory of $75.3 million,
partially offset by an increase of $63.4 million in unrealized gains on derivative instruments.
During fiscal 2016, operating revenues decreased $737.1 million and gas purchases decreased $641.8 million due primarily
to a 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.
Future results at Energy Services 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 Energy Services’ 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.
Operation and Maintenance Expense
O&M expense remained relatively flat during fiscal 2017, compared with fiscal 2016. 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.
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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)
Net Income
Net income decreased $13.8 million during fiscal 2017, compared with fiscal 2016, due primarily to the decrease in operating
income, partially offset by the related decrease in income tax expense. Net income decreased $57.8 million during fiscal 2016,
compared with fiscal 2015, due primarily to lower operating income, partially offset by the related decrease in income tax expense.
Non-GAAP Financial Measures
Management uses financial margin and NFE, non-GAAP financial measures, when evaluating the operating results of Energy
Services. 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 Energy Services’ 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,
Energy Services’ 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 Energy Services 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 Energy Services’ financial margin for the fiscal years ended September 30.
(Thousands)
Operating revenues
Less: Gas purchases
Add:
Unrealized (gain) loss on derivative instruments and related transactions (1)
Effects of economic hedging related to natural gas inventory (2)
2017
2016
$ 1,462,681 $ 1,197,253 $ 1,934,307
1,795,719
1,153,911
1,441,310
2015
(10,063)
38,470
49,778 $
48,855
(36,816)
55,381 $
(39,408)
(8,225)
90,955
$
Financial margin
(1)
Includes unrealized (gains) losses related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation
of approximately $(751,000), $(1.3) million and $465,000 for the fiscal years ended September 30, 2017, 2016 and 2015, respectively.
Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.
(2)
A reconciliation of operating income, the closest GAAP financial measure to Energy Services’ financial margin, is as follows
for the fiscal years ended September 30:
(Thousands)
Operating (loss) income
Add:
Operation and maintenance
Depreciation and amortization
Other taxes
Subtotal
Add:
Unrealized (gain) loss on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Financial margin
2017
$
(793) $
2016
22,292 $ 111,858
2015
20,313
63
1,788
21,371
20,025
88
937
43,342
25,403
90
1,237
138,588
(10,063)
38,470
49,778 $
48,855
(36,816)
55,381 $
(39,408)
(8,225)
90,955
$
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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)
Financial margin decreased $5.6 million during fiscal 2017, compared with fiscal 2016, due primarily to fewer market
opportunities related to transportation assets and timing of certain transactions related to storage withdrawals along with a warmer
than normal winter and a milder than normal spring. 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.
Net Financial Earnings
A reconciliation of Energy Services’ 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:
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect (1)
Effects of economic hedging related to natural gas inventory
Tax effect
Net financial earnings
2017
2016
2015
$
476 $ 14,265 $ 72,044
(10,063)
3,635
38,470
(13,964)
(39,408)
14,653
(8,225)
3,058
$ 18,554 $ 21,934 $ 42,122
48,855
(17,734)
(36,816)
13,364
(1)
Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately
$427,000 and $716,000 and $(262,000) for the fiscal years ended September 30, 2017, 2016 and 2015, respectively.
NFE decreased $3.4 million during fiscal 2017, compared with fiscal 2016, due primarily to a decrease in financial margin,
as previously discussed, and higher interest expense related to increased borrowing, partially offset by a reduction in income tax
expense related to the decrease in NFE. NFE decreased $20.2 million during fiscal 2016, compared with fiscal 2015, due primarily
to a decrease in financial margin, partially offset by lower O&M.
Future results are subject to Energy Services’ 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.
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 us a growth opportunity. 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 to be completed and operational in 2019. PennEast may revise the project timeline further upon receipt of a
Certificate of Public Convenience and Necessity from FERC. As of September 30, 2017, our net investments in Steckman Ridge
and PennEast were $120.3 million and $52.3 million, respectively.
In September 2015, Midstream exchanged its 5.53 percent ownership interest in Iroquois with Dominion Midstream Partners,
L.P. for 1.84 million DM Common Units. As of September 30, 2017, the market value of the DM Common Units was $58.8
million. See Note 2. Summary of Significant Accounting Policies - Available for Sale Securities in the accompanying Consolidated
Financial Statements for a more detailed discussion.
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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)
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
2017
2016
2015
$
$
$
$
$
$
17,797 $
2,302 $
4,162 $
960 $
5,820 $
12,857 $
13,936 $
1,197 $
3,130 $
287 $
6,130 $
9,406 $
17,487
1,136
977
717
6,849
9,780
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.
2017
2016
2015
$
$
13,351 $
—
4,446
17,797 $
14,050 $
—
(114)
13,936 $
12,330
5,164
(7)
17,487
Equity in earnings of affiliates increased $3.9 million during fiscal 2017, compared with fiscal 2016, due primarily to the
AFUDC earned at PennEast. 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.
O&M expense increased $1.1 million during fiscal 2017, compared with fiscal 2016, due primarily to increased consulting
expenses, charitable donations and shared services costs. O&M expense remained relatively flat during fiscal 2016, compared
with fiscal 2015.
Other income increased $1 million during fiscal 2017, compared with fiscal 2016, due primarily to increased interest income
and dividend income from our investment in DM Common Units. Other income increased $2.2 million during fiscal 2016, compared
with fiscal 2015, due primarily to dividend income from the DM Common Units.
Interest expense, net increased $673,000 during fiscal 2017, compared with fiscal 2016, due primarily to increased
intercompany borrowing related to our PennEast investment and decreased $430,000 during fiscal 2016, compared with fiscal
2015, due primarily to proceeds generated by our investments that are being used to reduce intercompany loans.
The income tax provision remained relatively unchanged during fiscal 2017, compared with fiscal 2016. Equity in earnings
increased, however, the tax benefits associated with AFUDC reduced the overall tax expense. 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.
Net income in fiscal 2017 increased $3.5 million, compared with fiscal 2016, due primarily to the increase in equity in
earnings of affiliates, as discussed above. Net income decreased $374,000 in fiscal 2016, 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 net interest expense.
Page 54
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Home Services and Other Operations
Overview
The financial results of Home Services and Other consist primarily of the operating results of NJRHS and CR&R. NJRHS
provides service, sales and installation of appliances to approximately 112,000 service contract customers and has been focused
on growing its installation business and expanding its service contract customer base. Home Services and Other also includes
organizational expenses incurred at NJR. NJR Energy, a subsidiary of CR&R, which invested in other energy-related ventures, was
dissolved on November 28, 2016, and all assets were moved to CR&R during the first quarter of fiscal 2017.
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
Other income, net
Income tax provision
Net income
2017
2016
2015
$
$
$
$
$
$
49,591 $
40,245 $
3,938 $
6,467 $
3,857 $
6,811 $
48,497 $
40,106 $
3,777 $
869 $
1,387 $
2,882 $
48,703
39,601
3,815
685
1,551
3,420
Operating revenue increased $1.1 million during fiscal 2017, compared with fiscal 2016, due primarily to increased furnace/
air conditioner combination installations at NJRHS related to increased marketing promotions, along with increased contract
revenue, partially offset by decreased operating revenue at CR&R due to the sale of a 56,400 square foot office building.
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 enhanced plans and expanded service contract product
lines.
Other income, net increased $5.6 million during fiscal 2017, compared with fiscal 2016, due primarily to the sale of available
for sale securities, which resulted in a pre-tax gain during fiscal 2017 of $5.4 million. Other income, net remained relatively flat
during fiscal 2016, compared with fiscal 2015.
Income taxes increased $2.5 million during fiscal 2017, compared with fiscal 2016, due primarily to the increase in other
income, as previously discussed. 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.
Net income increased $3.9 million during fiscal 2017, compared with fiscal 2016, due primarily to the increases in other
income and operating revenue, partially offset by the increase in the income tax provision, as discussed above. Net income during
fiscal 2016 decreased $538,000, 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.
Page 55
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity and Capital Resources
Our objective is to maintain an efficient consolidated capital structure that reflects the different characteristics of each
reporting segment and business operations and provides adequate financial flexibility for accessing capital markets as required.
Our consolidated capital structure as of September 30, was as follows:
Common stock equity
Long-term debt
Short-term debt
Total
Common Stock Equity
2017
46%
38
16
100%
2016
48%
44
8
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. In December 2015, we registered an additional 5 million shares of our common stock for issuance under the DRP. We
raised $17.5 million and $16 million of equity through the DRP by issuing approximately 472,000 and 471,000 shares of treasury
stock during fiscal 2017 and 2016, respectively.
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,
2017, we have repurchased a total of approximately 17.1 million shares and may repurchase an additional 2.4 million shares under
the approved program. There were 105,000 and 126,600 shares of common stock shares repurchased during fiscal 2017 and 2016,
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-lived assets through the issuance of long-term debt securities.
As of September 30, 2017, we had a working capital deficit of $223.5 million, net income of $132.1 million and cash flows
from operations of $248 million. The working capital deficit was primarily caused by the reclassification of approximately $150
million of long-term debt to current maturities. We believe that our existing borrowing availability, equity proceeds and cash
flows from operations will be sufficient to satisfy our working capital, capital expenditures and dividend requirements for the
next 12 months. NJR, NJNG, Clean Energy Ventures and Energy Services 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 and solar sale-
leasebacks and proceeds from our DRP, including utilizing the waiver discount feature.
We believe that as of September 30, 2017, 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 Energy Services’ short-term liquidity needs, Midstream segment’s
PennEast contributions, share repurchases and, on an initial basis, Clean Energy Ventures’ investments. Energy Services’ use of
high volume storage facilities and anticipated pipeline park-and-loan arrangements, combined with related economic hedging
activities in the volatile wholesale natural gas market, create significant short-term cash requirements.
NJNG satisfies its debt needs by issuing short- and long-term debt based on its financial profile. The seasonal nature of
NJNG’s operations creates large short-term cash requirements, primarily to finance natural gas purchases and customer accounts
receivable. NJNG obtains working capital for these requirements and for the temporary financing of construction and MGP
remediation expenditures and energy tax payments, based on its financial profile, through the issuance of commercial paper
supported by the NJNG Credit Facility or through short-term bank loans under the NJNG Credit Facility.
Page 56
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, 2017, NJR and NJNG, respectively, had revolving credit facilities totaling $425 million and $250
million, and letters of credit outstanding totaling $13.4 million and $731,000, which reduced the amounts available under the
facilities along with short-term borrowings to $157 million and $238 million. Short-term borrowings were as follows:
($ 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
Three Months
Ended
Twelve Months
Ended
September 30, 2017
$
$
$
$
$
$
255,000
2.14%
259,672
2.11%
299,400
11,000
—%
889
0.38%
11,000
$
$
$
$
$
$
255,000
2.14%
239,591
1.80%
299,400
11,000
1.13%
222
0.09%
11,000
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.
NJR
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. 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, 2017, the
consolidated total indebtedness to total capitalization ratio, as defined in the NJR Credit Facility, was 54 percent.
As of September 30, 2017, NJR had $255 million outstanding under the NJR Credit Facility. Neither NJNG nor its assets
are obligated or pledged to support the NJR Credit Facility.
During fiscal 2017, NJR’s average interest rate under the NJR Credit Facility was 1.8 percent, resulting in interest expense
of $4.4 million. Based on average borrowings under the facilities of $239.6 million during the period, a 100 basis point change
in the underlying average interest rate would have caused a change in interest expense of approximately $2.5 million during fiscal
2017.
As of September 30, 2017, NJR has six letters of credit outstanding totaling $13.4 million. Three letters of credit totaling
$10.4 million are on behalf of Energy Services and three letters of credit totaling $3 million are on behalf of Clean Energy
Ventures. These letters of credit reduce the amount available under NJR’s committed credit facility by the same amount. NJR
does not anticipate that these letters of credit will be drawn upon by the counterparties and they will be renewed as necessary.
Page 57
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Energy Services’ letters of credit are used for margin requirements for natural gas transactions and expire on dates ranging
from December 2017 to September 2018. Clean Energy Ventures’ 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 2018 to August 2018.
NJNG
NJNG’s commercial paper is sold through several commercial banks under an issuing and paying agency agreement and
is supported by the $250 million NJNG Credit Facility. 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, 2017, NJNG’s consolidated total indebtedness to total capitalization ratio was 45 percent. As of September 30,
2017, the unused amount available under the NJNG Credit Facility, including amounts allocated to the backstop under the
commercial paper program and the issuance of letters of credit, was $238 million. During fiscal 2017, NJNG’s weighted average
interest rate on outstanding commercial paper was .09 percent, resulting in interest expense of $2,500. Based on average borrowings
under the facility of $222,169 during the period, a 100 basis point change in the underlying average interest rate would have
caused a change in interest expense of approximately $2,200 during fiscal 2017.
As of September 30, 2017, 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 2018.
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.
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;
Page 58
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
• 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 outstanding $25 million of 2.51 percent senior notes due September 15, 2018, which were issued under a now-
expired facility with MetLife and as of September 30, 2017, were classified as a current maturity of long-term debt.
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 were used for general corporate purposes, including working capital and capital expenditures.
On August 18, 2017, NJR entered into a $100 million credit agreement due August 16, 2019. The term loan will accrue
interest at a variable rate determined monthly, which is LIBOR plus 70 basis points. The weighted average interest rate on the
on the term loan as of September 30, 2017, was 1.95 percent. Proceeds from the term loan will be used for general corporate
purposes and working capital.
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 NJNG's outstanding FMB. 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, 2017, NJNG’s long-term debt consisted of $575 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 $28.9 million in capital leases with various maturities ranging from 2017 to 2025.
On May 31, 2017, the BPU approved a petition filed by NJNG requesting authorization over a three-year period to issue
up to $400 million of medium-term notes with a maturity of not more than 40 years, for up to five years with an option for two
additional one-year extensions; enter into interest rate risk management transactions related to debt securities and redeem and
refinance or defease any of NJNG’s outstanding long-term debt securities.
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 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. NJNG may at any time prepay all or a portion of the notes at a make-whole prepayment price.
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, which as of September 30, 2017, were classified as a
current maturity of long-term debt on the Consolidated Balance Sheets.
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. 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.
On January 17, 2017, the Company completed the purchase of three FMBs in lieu of redemption with an aggregate principal
amount totaling $35.8 million. The FMBs bore interest at rates ranging from 4.5 percent to 4.9 percent. The bonds purchased in
lieu of redemption are being held by the Company to provide an opportunity to evaluate remarketing alternatives.
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 at a variable rate determined monthly, which was initially calculated as a rate of .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, 2017, was 1.42 percent.
The interest rates on variable rate debt may vary based upon market conditions. Sudden increases in the interest rate could
cause a change in interest expense and cash flow for the Company in the future.
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;
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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)
• make dividends or restricted payments;
•
enter into transactions with affiliates; and
• merge, consolidate, transfer, sell or lease substantially all of the borrower’s assets.
The aforementioned covenants are subject to a number of exceptions and qualifications set forth in the applicable note
purchase agreements.
In addition, the FMB issued by NJNG under the Mortgage Indenture are subject to certain default provisions. Events of
Default, as defined in the Mortgage Indenture, consist mainly of:
•
•
•
•
failure for 30 days to pay interest when due;
failure to pay principal or premium when due and payable;
failure to make sinking fund payments when due;
failure to comply with any other covenants of the Mortgage Indenture after 30 days’ written notice from the Trustee;
failure to pay or provide for judgments in excess of $30 million in aggregate amount within 60 days of the entry
•
thereof; or
•
certain events that are or could be the basis of a bankruptcy, reorganization, insolvency or receivership proceeding.
Upon the occurrence and continuance of such an Event of Default, the Mortgage Indenture, subject to any provisions of
law applicable thereto, provides that the Trustee may take possession and conduct the business of 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.
Sale-Leaseback
NJNG
NJNG received $9.6 million, $7.1 million and $7.2 million in fiscal 2017, 2016 and 2015, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2017, 2016 and 2015, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $2.4 million, $1.9 million and $768,000, respectively. NJNG
continues to evaluate this sale-leaseback program based on current market conditions. As noted, natural gas meters are accepted
as property under the Mortgage Indenture.
Clean Energy Ventures
During September 2017, Clean Energy Ventures entered into transactions to sell two of its commercial solar assets concurrent
with agreements to lease the assets back over seven year periods. These sale-leasebacks are financing obligations secured by the
solar assets and related future cash flows from SREC and energy sales. ITCs and other tax benefits associated with these solar
projects were transferred to the buyer. Clean Energy Ventures will continue to operate the solar projects and retain ownership of
SRECs generated and has the option to renew the lease or repurchase the assets at the end of the lease term. Clean Energy Ventures
received proceeds of $32.9 million in connection with these sale-leasebacks.
Page 61
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual Obligations
The following table is a summary of NJR, NJNG, Energy Services and Clean Energy Ventures contractual cash obligations
and financial commitments and their applicable payment due dates as of September 30, 2017:
(Thousands)
Long-term debt (1)
Capital lease obligations (1)
Solar asset financing 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
Total
Up to
1 Year
2-3
4-5
After
Years
Years
5 Years
$ 1,548,726 $
184,769 $ 157,472 $ 105,694 $ 1,100,791
44,154
18,866
51,073
266,000
14,202
23,120
149,000
94,720
1,187,054
12,436
18,524
2,719
2,387
266,000
14,202
23,120
19,300
51,050
98,586
5,438
5,239
—
—
—
8,380
5,438
5,156
—
—
—
4,814
5,271
38,291
—
—
—
37,000
43,670
27,600
65,100
—
—
244,959
197,125
646,384
Natural gas supply purchase obligations-Energy Services
445,066
296,491
137,087
11,488
—
Demand fee commitments-Energy Services
Total contractual cash obligations
259,195
22,057
$ 4,101,176 $ 1,059,846 $ 741,593 $ 417,029 $ 1,882,708
92,204
88,786
56,148
(1)
(2)
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 14. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
We 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. We
do 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, we may elect to make discretionary contributions to the plans in excess of the minimum required amount. We made
no discretionary contributions to the pension plans in fiscal 2017. There are no Federal requirements to pre-fund OPEB benefits.
However, we are required to fund certain amounts due to regulatory agreements with the BPU. We anticipate that the annual
funding level to the OPEB plans will range from $4 million to $7 million annually over each of the next five years. Additional
contributions may vary based on market conditions and various assumptions.
As of September 30, 2017, there were NJR guarantees covering approximately $331.4 million of natural gas purchases and
Energy Services 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
2017, committed and spent capital expenditures totaled $177.6 million. In fiscal 2018 and 2019, NJNG’s total capital expenditures
are projected to be $399.8 million and $235 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, 2017, NJNG deferred $13 million in regulatory assets that
was approved for recovery through NJNG’s new base rates, effective October 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, 2017, NJNG’s future MGP expenditures are estimated to be $149 million. For a more detailed description
of MGP see Note 14. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
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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)
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.
Clean Energy Ventures’s expenditures include clean energy projects that support our goal to promote renewable energy.
Accordingly, Clean Energy Ventures enters into agreements to install solar equipment involving both residential and commercial
projects. During fiscal 2017, capital expenditures related to the purchase and installation of the solar equipment were $115.1
million. An additional $13.3 million has been committed or accrued for solar projects to be placed into service during fiscal 2018
and beyond. We estimate solar-related capital expenditures placed in service in fiscal 2018 to be between $132 million and $140
million.
During the first quarter of fiscal 2017, Clean Energy Ventures completed construction of a $89 million, 39.9 MW onshore
wind project in Somerset County, Pennsylvania.
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 2017, Midstream had a total of $27.1 million of expenditures related to our investment in the PennEast pipeline
project. Expenditures in the PennEast pipeline are expected to total between $220 million and $280 million.
Energy Services does not currently anticipate any significant capital expenditures in fiscal 2018 and 2019.
Off-Balance-Sheet Arrangements
Our off-balance-sheet arrangements consist of guarantees covering approximately $331.4 million of natural gas purchases,
SREC sales and demand fee commitments, see Note 14. Commitments and Contingent Liabilities, and eight outstanding letters of
credit totaling $14.1 million, as noted above, see Note 9. Debt.
Cash Flows
Operating Activities
Cash flows from operating activities during fiscal 2017, totaled $248 million compared with $142.6 million during fiscal
2016. 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.
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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)
The increase of $105.4 million in operating cash flows during fiscal 2017, compared with fiscal 2016, was due primarily to
increased base rates, increased working capital due primarily to lower broker margin requirements, a decrease in bill credits issued,
and a discretionary contribution of $30 million to our pension plan during fiscal 2016 that did not recur in fiscal 2017.
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, which contributed to
a lower profitability and decrease in working capital at Energy Services, including a reduction in natural gas sold out of storage
and an increase in broker margin due to decreases in the fair value of derivatives and higher initial margin requirements. Also
contributing to the decrease in operating cash flows were 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.
Investing Activities
Cash flows used in investing activities totaled $390.7 million during fiscal 2017, compared with $363.2 million during fiscal
2016. The increase of $27.5 million was due primarily to our acquisition of Talen's retail and wholesale energy contract assets
totaling $55.7 million and increased investments in solar projects and PennEast of $39.4 million and $15.9 million, respectively,
partially offset by a decrease in capital expenditures in wind investments of $39.1 million and utility plant of $32 million, along
with net proceeds of $9.4 million from the sale of an office building and $6.6 million from the sale of available for sale securities.
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 of $36.3 million and an increase in capital
expenditures at Clean Energy Ventures of $14.5 million related to solar projects. We also contributed an additional $5.4 million
for the investment in PennEast during fiscal 2016. The increases were partially offset by a decrease of $16.5 million in capital
expenditures related to solar projects at Clean Energy Ventures.
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. NJNG’s capital
expenditures, including cost of removal, totaled $176.2 million and $205.1 million in fiscal 2017 and fiscal 2016, 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 2017 and fiscal 2016, capital expenditures on these projects totaled
$149.4 million and $149.1 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. On March 8, 2017, CR&R sold a 56,400 square foot office building on five acres of
land located in Monmouth County for $9.4 million, net of closing costs, generating a pre-tax gain of $1.9 million.
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 Energy Services and clean energy
investments at Clean Energy Ventures.
Cash flows from financing activities during fiscal 2017 totaled $107.3 million, compared with cash flows used in financing
activities of $253.2 million during fiscal 2016. The decrease of $145.9 million is due primarily to the issuance of $100 million of
long-term debt compared with $275 million in the previous year, the purchase of three FMBs in lieu of redemption totaling $35.8
million at NJNG and $50 million redemption of long-term debt at NJR, partially offset by an increase in short-term borrowings
at NJR and proceeds of $32.9 million from the solar sale-leasebacks at Clean Energy Ventures.
Cash flows used in financing activities during fiscal 2016 totaled $253.2 million, compared with $66.4 million during fiscal
2015. The decrease 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.
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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)
NJNG received $9.6 million, $7.1 million and $7.2 million for fiscal 2017, 2016 and 2015, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2017, 2016 and 2015, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $2.4 million, $1.9 million and $768,000, respectively. NJNG continues
to evaluate the natural gas meter sale-leaseback program based on current market conditions.
Credit Ratings
The table below summarizes NJNG’s current credit ratings issued by two rating entities, S&P and Moody’s, as of
September 30, 2017:
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 October 26, 2017, and by Moody’s on October 4, 2017. 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 reporting segments.
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. Energy Services 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 Energy Services’ and NJNG’s positions. As a result of the
Dodd-Frank Act, certain Energy Services 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.
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New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and
sales from September 30, 2016 to September 30, 2017:
(Thousands)
NJNG
Energy Services
Total
Balance
September 30,
2016
$ (2,485)
(21,742)
$ (24,227)
Increase
(Decrease) in Fair
Market Value
$
5,288
Less
Amounts
Settled
$
3,952
19,703
$
24,991
$
3,513
7,465
Balance
September 30,
2017
$ (1,149)
(5,552)
$ (6,701)
There were no changes in methods of valuations during the year ended September 30, 2017.
The following is a summary of fair market value of financial derivatives as of September 30, 2017, 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
2018
2019
2020 - 2022 After 2022
$
— $
(6,115)
$ (6,115) $
—
(736)
(736)
$
$
—
147
147
$ —
3
3
$
Total
Fair Value
$
—
(6,701)
$ (6,701)
The following is a summary of financial derivatives by type at September 30, 2017:
NJNG
Energy Services
Total
(1) Million British thermal unit
Volume
Bcf
18.2
(16.4)
—
Futures
Futures
Options
Price per
MMBtu (1)
$1.12-$3.33
$0.90-$5.30
Amounts included
in Derivatives
(Thousands)
$ (1,149)
(5,552)
$ (6,701)
The following table reflects the changes in the fair market value of physical commodity contracts from September 30, 2016
to September 30, 2017:
(Thousands)
NJNG - Prices based on other external data
Energy Services - Prices based on other external data
Total
Balance
September 30,
2016
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
$
(919)
(2,891)
$ (3,810)
(10,096)
(11,765)
(21,861)
(11,094)
(11,072)
(22,166)
Balance
September 30,
2017
$
79
(3,584)
$ (3,505)
The following table reflects the changes in the fair market value of interest rate contracts from September 30, 2016 to
September 30, 2017:
(Thousands)
NJNG - Prices based on other external data
Balance
September 30,
2016
$ (23,073)
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
14,606
—
Balance
September 30,
2017
$
(8,467)
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New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Foreign Currency Market Risks
The following table reflects the changes in the fair market value of financial derivatives related to foreign currency hedges
from September 30, 2016 to September 30, 2017:
(Thousands)
Energy Services
Balance
September 30,
2016
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2017
$
(31)
43
(32)
$
44
There were no changes in methods of valuations during the fiscal year ended September 30, 2017.
The following is a summary of fair market value of financial derivatives related to foreign currency hedges at September 30,
2017, by method of valuation and by maturity for each fiscal year period:
(Thousands)
2018
2019
2020 - 2022 After 2022
Total
Fair Value
Prices based on other external data
$
40
4
—
—
$
44
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 $17.7
million. This analysis does not include potential changes to reported credit adjustments embedded in the $2.1 million reported fair
value.
Derivative Fair Value Sensitivity Analysis
(Thousands)
Percent increase in NYMEX natural gas futures prices
0%
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
Henry Hub Futures and Fixed Price Swaps
— $
2,110 $
10%
5%
(8,844) $ (17,689) $ (26,534) $ (35,378)
(6,734) $ (15,579) $ (24,424) $ (33,268)
20%
15%
0%
(5)%
(10)%
(15)%
(20)%
— $
8,844 $
17,689 $
26,534 $
35,378
2,110 $
10,954 $
19,799 $
28,644 $
37,488
NJNG and Energy Services engage in wholesale marketing activities and Clean Energy Ventures engages in SREC sales.
We monitor and manage the credit risk of our 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 our 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.
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New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade
counterparties, as of September 30, 2017. 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.
Energy Services’ and Clean Energy Ventures’ counterparty credit exposure as of September 30, 2017, 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, 2017, is as follows:
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Gross Credit
Exposure
Net Credit
Exposure
$ 133,431
$ 100,703
16,725
16,282
9,483
14,069
48,960
$ 215,398
4,886
$ 129,141
Gross Credit
Exposure
Net Credit
Exposure
$
3,373
$
2,211
164
96
—
83
19,538
23,171
$
13,452
15,746
$
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.
Retail Credit Risk
NJR is exposed to retail credit risk through NJRRS' natural gas retail business, which serves customers in Pennsylvania,
New Jersey, Delaware and Maryland. Retail credit risk could result in losses if a customer failed to pay for natural gas that has
been delivered.
NJR manages retail credit risk through the use of established credit policies that include customer credit evaluation software,
monitoring of the portfolio and the use of credit mitigation measures such as deposits, letters of credit or prepayment arrangements,
where applicable.
As of September 30, 2017, our retail customer credit exposure was diversified across many customers and various industries,
as well as government entities. Credit exposure for NJRRS at September 30, 2017, was $25.4 million. Non-performance by any
of these customers would not be material to our financial position, results of operations or cash flows.
Page 68
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
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, 2017, 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, 2017, the EDA Bonds had a weighted average interest rate of 1.42 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 $903,000 during fiscal 2017.
As of September 30, 2017, NJR is obligated to make principal and interest payments under a loan agreement securing $100
million of variable rate debt dated August 18, 2017. The term loan will accrue interest at a variable rate determined monthly,
which is LIBOR plus 70 basis points. The weighted average interest rate on the on the term loan as of September 30, 2017, was
1.95 percent. A 100 basis point change in the average interest rate would have caused a change in interest expense for this variable
rate debt by approximately $990,000 during fiscal 2017.
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.
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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, 2017. 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, 2017,
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, 2017, which appears herein.
November 21, 2017
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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, 2017 and 2016, 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, 2017. 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, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2017, 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, 2017, 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 21, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 21, 2017
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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, 2017, 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, 2017, 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, 2017 of the
Company and our report dated November 21, 2017 expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 21, 2017
Page 72
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
2017
2016
2015
$
695,637 $
594,346 $
1,572,980
2,268,617
1,286,559
1,880,905
781,970
1,952,017
2,733,987
258,687
1,436,740
8,340
226,356
40,243
81,841
49,366
2,101,573
167,044
14,437
44,886
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
136,595
18,343
13,813
132,065 $
145,687
23,530
9,515
131,672 $
227,275
59,724
13,409
180,960
$
$1.53
$1.52
$1.0375
$1.53
$1.52
$0.9750
$2.12
$2.10
$0.9150
86,321
87,144
85,884
86,731
85,186
86,265
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
Fiscal years ended September 30,
Net income
Other comprehensive income, net of tax:
Unrealized gain (loss) on available for sale securities, net of tax of $(4,401), $1,499,
and $(1,135), respectively (1)
Net unrealized gain on derivatives, net of tax of $0, $0 and $(56), respectively
Adjustment to postemployment benefit obligation, net of tax of $(3,487), $2,466 and
$3,688 respectively
Other comprehensive income (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 73
2017
2016
$ 132,065 $ 131,672 $ 180,960
2015
6,846
—
(2,187)
—
1,603
93
5,053
11,899
(5,496)
(3,800)
$ 143,964 $ 125,911 $ 177,160
(3,574)
(5,761)
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Fiscal years ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash flows from operating activities
Unrealized (gain) loss on derivative instruments
Gain on sale of property and available for sale securities, net
Depreciation and amortization
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 of delivered shares 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
Acquisition of retail and wholesale energy contracts
Investments in equity investees
Distributions from equity investees in excess of equity in earnings
Withdrawal from (payment to) restricted cash construction fund
Proceeds from sale of investment
Proceeds from sale of property
Proceeds from sale of available for sale securities
Cash flows (used in) investing activities
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from long-term debt
Payments of long-term debt
Net proceeds from (payments of) short-term debt
Proceeds from sale-leaseback transaction - solar
Proceeds from sale-leaseback transaction - other
Payments of common stock dividends
Proceeds from issuance of common stock
Purchases of treasury stock
Tax withholding payments related to net settled stock compensation
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 74
2017
2016
2015
$ 132,065
$ 131,672
$ 180,960
(11,241)
(7,287)
81,841
(3,867)
2,023
41,442
(10,934)
(462)
(484)
(6,077)
1,285
17,081
14,740
(2,079)
248,046
(144,106)
(149,400)
(2,434)
(32,143)
(55,661)
(27,070)
2,749
1,322
—
9,443
6,639
(390,661)
100,000
(97,854)
144,300
32,901
9,587
(87,988)
17,492
(6,355)
(4,788)
107,295
(35,320)
37,546
2,226
$
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)
275,000
(13,289)
55,350
—
7,107
(82,445)
16,010
(1,008)
(3,547)
253,178
32,618
4,928
37,546
$
$ (56,974)
3,022
(90)
20,663
2
10,366
13,086
22,570
(5,877)
10,313
17,081
$
$
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)
250,000
(37,039)
(234,650)
—
7,216
(76,532)
37,299
(10,589)
(2,146)
(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
$
$
$
$
$
$
$
44,362
(6,877)
21,769
$
$
$
— $
31,996
(3,516)
48,881
$
$
$
— $
24,208
28,790
28,676
24,601
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
Intangible assets
Other noncurrent assets
Total noncurrent assets
Total assets
See Notes to Consolidated Financial Statements
Page 75
2017
2016
$
2,241,324 $
119,318
843,142
7,286
3,211,070
(489,122)
2,107,375
122,268
631,696
93,791
2,955,130
(467,702)
(112,207)
2,609,741
(79,776)
2,407,652
2,226
37,546
196,467
142,658
7,202
(5,181)
50,791
5,744
(4,865)
54,286
202,063
206,251
11,944
24,764
30,081
25,827
—
33,260
579,444
172,585
375,919
9,164
65,752
41,084
74,818
739,322
3,928,507 $
$
10,778
34,179
29,964
47,644
7,660
35,419
607,264
141,148
441,294
5,227
55,789
—
60,196
703,654
3,718,570
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CAPITALIZATION AND LIABILITIES
(Thousands, except share data)
September 30,
CAPITALIZATION
Common stock, $2.50 par value; authorized 150,000,000 shares;
outstanding September 30, 2017 — 86,555,507; September 30, 2016 — 86,086,355
Premium on common stock
Accumulated other comprehensive (loss), net of tax
Treasury stock at cost and other;
shares September 30, 2017 — 2,347,380; September 30, 2016 — 2,575,139
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
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 14)
Total capitalization and liabilities
See Notes to Consolidated Financial Statements
Page 76
2017
2016
$
222,258 $
219,696
(3,256)
(70,039)
867,984
1,236,643
997,080
2,233,723
221,654
215,580
(15,155)
(81,044)
825,556
1,166,591
1,055,038
2,221,629
165,375
266,000
160,115
1,152
96,878
23,586
2,031
78
14,202
46,544
26,957
61,452
121,700
139,452
1,150
107,184
21,975
1,080
9,469
14,232
61,080
32,834
802,918
571,608
514,708
473,847
4,297
27,728
11,330
149,000
128,888
14,507
31,420
9,988
4,619
28,519
25,252
172,000
141,604
41,411
28,379
9,702
891,866
925,333
$
3,928,507 $
3,718,570
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, 2014
84,356 $ 218,223 $ 199,739
$
(5,594)
$ (121,031) $ 674,829 $ 966,166
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 ($.915 per share)
Treasury stock and other
(333)
(3,800)
19,096
180,960
180,960
(3,800)
5,908
27,538
(1,344)
(78,044)
(78,044)
9,771
9,572
5,013
6,722
(1,344)
(199)
Balance at September 30, 2015
85,531
220,838
209,931
(9,394)
(92,164)
777,745
1,106,956
Net income
Other comprehensive loss
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Cash dividend declared ($.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
Net income
Other comprehensive income
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Cash dividend declared ($1.0375 per share)
Treasury stock and other
241
472
(243)
604
5,090
(946)
(28)
11,899
132,065
132,065
11,899
5,694
17,622
(89,637)
(89,637)
(7,591)
18,568
(7,563)
Balance at September 30, 2017
86,556 $ 222,258 $ 219,696
$
(3,256)
$ (70,039) $ 867,984 $ 1,236,643
(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
2016 and fiscal 2017.
See Notes to Consolidated Financial Statements
Page 77
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:
New Jersey Natural Gas Company provides natural gas utility service to approximately 529,800 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 and NJR Retail Services Company comprise the Energy Services segment. NJRES 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. NJRRS provides retail natural gas supply and transportation services to
commercial and industrial customers in Delaware, Maryland, Pennsylvania and New Jersey;
NJR Midstream Holdings Corporation, which comprises the Midstream segment, 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, 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. See Note 7. Investments 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 Home Services Company
and Commercial Realty & Resources 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 the Company to determine if it has the power to direct business activities
and, therefore, would be considered a controlling interest that the Company would have to consolidate. Based on those evaluations,
NJR has determined that it does not have any investments in variable interest entities as of September 30, 2017, 2016 and 2015.
Investments in entities over which the Company does not have a controlling financial interest are either accounted for under
the equity method or cost method of accounting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates that affect the
reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period. On
a monthly basis, the Company 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. The Company’s estimates are based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Page 78
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company has legal, regulatory and environmental proceedings during the normal course of business that can result in
loss contingencies. When evaluating the potential for a loss, the Company will establish a reserve if a loss is probable and can be
reasonably estimated, in which case it is the Company’s policy to accrue the full amount of such estimates. Where the information
is sufficient only to establish a range of probable liability, and no point within the range is more likely than any other, it is the
Company’s policy to accrue the lower end of the range. In the normal course of business, estimated amounts are subsequently
adjusted to actual results that may differ from estimates.
Business Combinations
The Company accounts for business combinations by applying the acquisition method of accounting. Identifiable assets
acquired and liabilities assumed are measured separately at their fair value as of the acquisition date and associated transactions
costs are expensed as incurred.
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various
assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these
valuations are discount rates, the number of years on which to base the cash flow projections, as well as other assumptions and
estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent in
the acquired assets and related cash flows. Our valuation of an acquired business is based on available information at the acquisition
date and assumptions that we believe are reasonable. However, a change in facts and circumstances as of the acquisition date can
result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date. See Note 3.
Acquisition for information related to the Company’s acquisition of a gas marketing business on July 27, 2017.
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.
Our Natural Gas Distribution segment maintains its accounts in accordance with the FERC Uniform System of Accounts
as prescribed by the BPU and in accordance with the 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 4. Regulation for a more detailed description of NJNG’s regulatory assets and liabilities.
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)
Energy Services
Natural Gas Distribution
Total
Demand Fees
2017
Gas in Storage Bcf
$ 122,884
79,179
$ 202,063
53.9
21.8
75.7
2016
Gas in Storage Bcf
$ 130,493
75,758
$ 206,251
62.0
21.3
83.3
For the purpose of securing storage and pipeline capacity in support of their respective businesses, our Energy Services and
Natural Gas Distribution segments enter into storage and pipeline capacity contracts, which require the payment of associated
demand fees and charges that allow them access to a high priority of service in order to maintain the ability to access storage or
pipeline capacity during a fixed time period, which generally ranges from one to 10 years. Many of these demand fees and charges
are based on established tariff rates as established and regulated by FERC. These charges represent commitments to pay storage
providers and pipeline companies for the priority right to transport and/or store natural gas utilizing their respective assets.
Page 79
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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)
Energy Services
Natural Gas Distribution
Total
2017
2016
2015
$
$
126.4 $
80.2
206.6 $
141.0 $
77.8
218.8 $
130.6
80.5
211.1
Energy Services expenses demand charges ratably over the term of the service being provided.
Our Natural Gas Distribution segment’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
The Company 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 Energy Services, as
derivatives, and therefore recognizes them at fair value on the Consolidated Balance Sheets. The Company’s unregulated
subsidiaries record changes in the fair value of their financial commodity derivatives in 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. Energy Services 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. The Company did not have
derivatives designated as fair value hedges during fiscal 2016 and 2017.
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, the Company prospectively applies this normal scope exception on a case-by-case basis to physical
commodity contracts at NJNG and forward SREC contracts at Clean Energy Ventures. When applied, 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 5. Derivative Instruments for additional details regarding natural gas trading and hedging activities.
Fair values of exchange-traded instruments, including futures, swaps, and certain options, are based on unadjusted, quoted
prices in active markets. The Company’s non-exchange-traded financial instruments, foreign currency derivatives, over-the-counter
physical commodity contracts at Energy Services and 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.
Page 80
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG records unbilled revenue for natural gas services. Natural gas sales to individual customers are based on meter
readings, which are performed on a systematic basis throughout the month. At the end of each month, the amount of natural gas
delivered to each customer after the last meter reading through the end of the respective accounting period is estimated, and
recognizes unbilled revenues related to these amounts. The unbilled revenue estimates are based on estimated customer usage by
customer type, weather effects, unaccounted-for gas and the most current tariff rates.
Clean Energy Ventures recognizes revenue when SRECs are transferred to counterparties. SRECs are physically delivered
through the transfer of certificates as per contractual settlement schedules.
Revenues for Energy Services are recognized when the natural gas is physically delivered to the customer. In addition,
changes in the fair value of derivatives that economically hedge the forecasted sales of the natural gas are recognized in operating
revenues as they occur, as noted above. Energy Services also recognizes changes in the fair value of SREC derivative contracts
as a component of operating revenues.
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 it to recover the cost of natural gas through rates
charged to its customers and is typically revised on an annual basis. As part of computing its BGSS rate, NJNG projects its cost
of natural gas, net of supplier refunds, the impact of hedging activities and cost savings created by BGSS incentive programs.
NJNG subsequently recovers or credits the difference, if any, of actual costs compared with those included in current rates. Any
underrecoveries or overrecoveries are either credited to customers or deferred and, subject to BPU approval, reflected in the BGSS
rates in subsequent years.
Gas purchases at Energy Services are comprised of gas costs to be paid upon completion of a variety of transactions, as well
as realized gains and losses from settled derivative instruments and unrealized gains and losses on the change in fair value of
derivative instruments that have not yet settled. Changes in the fair value of derivatives that economically hedge the forecasted
purchases of natural gas are recognized in 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 13. Income Taxes. In addition, the Company
evaluates its tax positions to determine the appropriate accounting and recognition of future obligations associated with
unrecognized tax benefits.
The Company invests in property that qualifies for federal ITCs and utilizes the ITCs, as allowed, based on the cost and life
of the assets. ITCs at NJNG are deferred and amortized as a reduction to the tax provision over the average lives of the related
equipment in accordance with regulatory treatment. ITCs at NJR’s unregulated subsidiaries are recognized as a reduction to income
tax expense when the property is placed in service. 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 construction work in progress. For all NJNG construction
projects, an incremental cost of equity is recoverable during periods when NJNG’s short-term debt balances are lower than its
construction work in progress. For more information on AFUDC treatment with respect to certain accelerated infrastructure
projects, see Note 4. Regulation - Infrastructure programs.
Page 81
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
2017
2016
2015
$
$
$
$
1,311
3,867
5,178
6.90%
$
$
5,009
4,375
9,384
5.06%
2,472
3,825
6,297
4.63%
Pursuant to a BPU order, NJNG is permitted to recover carrying costs on uncollected balances related to SBC program costs,
which include NJCEP, RAC and USF expenditures. See Note 4. 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 2.55 percent, 2.05 percent and 2.54
percent for the fiscal years ended September 30, 2017, 2016 and 2015, respectively. Accordingly, other income included $78,000,
$54,000 and $61,000 in the fiscal years ended September 30, 2017, 2016 and 2015, respectively.
Sale-Leasebacks
The Company utilizes sale-leaseback arrangements to fund certain of its capital expenditures, whereby the physical asset is
sold concurrent with an agreement to lease the asset back, with options that allow the Company to renew the lease at the end of
the term or repurchase the asset. Proceeds from sale-leaseback transactions are included in long-term debt on the Consolidated
Balance Sheets.
For certain of its commercial solar energy projects, the Company enters into lease agreements that provide for the sale of
commercial solar energy assets to third-parties and the concurrent leaseback of the assets. For sale-leaseback transactions where
the Company has concluded that the terms of the arrangement create a continuing involvement in the asset and the asset is considered
integral equipment, the Company uses the financing method to account for the transaction. Under the financing method, the
Company recognizes the proceeds received from the lessor that constitute a payment to acquire the solar energy asset as a financing
arrangement, which is recorded as a component of debt on the Consolidated Balance Sheets.
During fiscal 2017 and 2016, NJNG received $9.6 million and $7.1 million, respectively, in connection with the sale-
leaseback of its natural gas meters with terms ranging from seven to 11 years.
In September 2017, Clean Energy Ventures received $32.9 million in proceeds related to the sale of two commercial solar
assets. Clean Energy Ventures simultaneously entered into an agreement to lease the assets back over seven-year terms. The
Company will continue to operate the solar assets including related expenses and retain the revenue generated from SRECs and
energy sales. The ITCs and other tax benefits associated with these solar projects were transferred to the buyer, however, the lease
payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Accordingly,
Clean Energy Ventures will recognize the equivalent value of the ITC in other income on the Consolidated Statements of Operations
over the respective five-year ITC recapture periods that are recognized as the recapture periods expire, starting at the beginning
of the second year of the lease. There were no sale-leaseback transactions at Clean Energy Ventures during fiscal 2016.
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. During fiscal 2017, 2016 and 2015, sales tax collected was $39.4 million, $31 million and $44.1 million,
respectively. Effective January 1, 2017, the New Jersey sales tax rate decreased from 7 percent to 6.875 percent.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and temporary investments with maturities of three months or less,
and excludes restricted cash of $243,000 and $1.6 million as of September 30, 2017 and 2016, respectively, related to escrow
balances for utility plant projects, which is recorded in other current and noncurrent assets on the Consolidated Balance Sheets.
Page 82
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Property Plant and Equipment
Regulated property, plant and equipment and solar and wind equipment are stated at original cost. Regulated property, plant
and equipment costs include direct labor, materials and third-party construction contractor costs, AFUDC and certain indirect costs
related to equipment and employees engaged in construction. Upon retirement, the cost of depreciable regulated property, plus
removal costs less salvage, is charged to accumulated depreciation with no gain or loss recorded.
Depreciation is computed on a straight-line basis over the useful life of the assets for 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 2.25 percent of average depreciable property in fiscal 2017, 2.32 percent in fiscal 2016 and 2.31 percent in
fiscal 2015. The Company recorded $81.8 million, $72.7 million and $61.4 million in depreciation expense during fiscal 2017,
2016 and 2015, 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
Estimated Useful Lives
38 to 74 years
35 to 56 years
34 to 47 years
20 to 25 years
25 years
5 to 35 years
2017
2016
$ 1,952,697 $ 1,823,672
292,433
78,238
479,948
228,644
52,195
2,955,130
(547,478)
$ 2,609,741 $ 2,407,652
294,586
78,245
587,345
244,764
53,433
3,211,070
(601,329)
On March 8, 2017, CR&R sold a 56,400 square foot office building on five acres of land located in Monmouth County for
$9.4 million, net of closing costs, generating a pre-tax gain of $1.9 million, which was recognized as a reduction to O&M on the
Consolidated Statements of Operations.
Intangible Assets
Finite-lived intangible assets are stated at cost less accumulated amortization. The Company amortizes intangible assets
based upon the pattern in which the economic benefits are consumed over the life of the asset unless a pattern cannot be reliably
determined, in which case the Company uses a straight-line amortization method. As of September 30, 2017, the Company has
an intangible asset, net of amortization, of $41.1 million related to its acquisition of Talen's wholesale natural gas energy contracts.
These contracts are being amortized based upon expected cash flows over the respective terms of the agreements. The estimated
future amortization expense for the next five years as of September 30, is as follows:
(Thousands)
2018
2019
2020
2021
2022
Thereafter
$
$
$
$
$
$
18,222
8,424
4,925
4,604
2,561
2,348
See Note 3. Acquisition for more information about the acquisition of Talen's gas marketing business.
Long-lived Assets
The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes
in circumstances indicate that the carrying value of such assets may not be recoverable. If there are changes indicating that the
carrying value of such assets may not be recoverable, an undiscounted cash flows test is performed. If the sum of the expected
future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the
recorded value of the asset to its fair value. During the year, there were no events or circumstances that indicated that the carrying
value of assets is not recoverable.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 7. Investments in Equity Investees for more information.
Available for Sale Securities
The Company had investments in two publicly traded energy companies that have a fair value of $65.8 million and $55.8
million as of September 30, 2017 and 2016, respectively, which are included in available for sale securities on the Consolidated
Balance Sheets. Total unrealized gains associated with these investments are included as a part of accumulated other comprehensive
income, a component of common stock equity, and were $18.4 million, $11 million after tax, and $7.2 million, $4.2 million after
tax, as of September 30, 2017 and 2016, respectively.
During fiscal 2017, the Company received proceeds of approximately $6.6 million from the sale of available for sale securities
and realized a pre-tax gain of approximately $5.4 million, which is included in other income, net on the Consolidated Statements
of Operations. 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.
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. The Company
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. The Company 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)
Energy Services
NJNG (1)
Clean Energy Ventures
NJRHS and other
Total
(1) Does not include unbilled revenues of $7.2 million and $5.7 million as of September 30, 2017 and 2016, respectively.
$ 150,322
37,432
2,655
6,058
$ 196,467
2017
77% $ 102,884
19
30,951
1
1,807
3
7,016
100% $ 142,658
2016
72%
22
1
5
100%
Loans Receivable
NJNG currently provides loans, with terms ranging from three 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 6. Fair Value for a discussion of the Company’s fair value
measurement policies and level disclosures. The Company has recorded $8.9 million and $7.8 million in other current assets and
$40.4 million and $39.5 million in other noncurrent assets as of September 30, 2017 and 2016, 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 2017 and 2016.
Asset Retirement Obligations
The Company 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, the Company 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, the Company 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 84
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Pension and Postemployment Plans
The Company has two noncontributory defined pension plans covering eligible employees, including officers. Benefits are
based on each employee’s years of service and compensation. The Company’s funding policy is to contribute annually to these
plans at least the minimum amount required under 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 the 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 2017 and 2015.
The Company also provides two primarily noncontributory medical and life insurance plans for eligible retirees and
dependents. Medical benefits, which make up the largest component of the plans, are based upon an age and years-of-service
vesting schedule and other plan provisions. Funding of these benefits is made primarily into Voluntary Employee Beneficiary
Association trust funds. The Company contributed $6 million, $3.2 million and $5.7 million in aggregate to these plans in fiscal
2017, 2016 and 2015, respectively.
See Note 11. Employee Benefit Plans, for a more detailed description of the Company’s pension and postemployment plans.
Accumulated Other Comprehensive Income
The following table presents the changes in the components of accumulated other comprehensive income, net of related tax
effects, as of September 30:
(Thousands)
Balance as of September 30, 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
Other comprehensive income, net of tax
Other comprehensive income, before reclassifications, net
of tax of $(6,593), $0, $(2,619), $(9,212)
Amounts reclassified from accumulated other
comprehensive (loss) income, net of tax of $2,192, $0,
$(868), $1,324
Net current-period other comprehensive income, net of tax
of $(4,401), $0, $(3,487), $(7,888)
Balance at September 30, 2017
Unrealized gain
(loss) on
available for
sale securities
$
6,385
Net unrealized
gain (loss) on
derivatives
$
—
Adjustment to
postemployment
benefit obligation
$
(15,779)
Total
$ (9,394)
(2,187)
(17)
(4,600)
(6,804)
—
17 (1)
1,026 (2)
1,043
(2,187)
4,198
$
10,019
(3,173)
6,846
11,044
$
$
$
—
—
—
— (1)
—
—
$
$
(3,574)
(19,353)
(5,761)
$ (15,155)
3,783
13,802
1,270 (2)
(1,903)
5,053
(14,300)
11,899
$ (3,256)
(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 11. Employee Benefit Plans.
Foreign Currency Transactions
Energy Services’ market area includes Canadian delivery points and as a result, Energy Services incurs certain natural gas
commodity costs and demand fees denominated in Canadian dollars. Gains or losses that occur as a result of these foreign currency
transactions are reported as a component of gas purchases on the Consolidated Statements of Operations and were not material
during the fiscal years ended September 30, 2017, 2016 and 2015.
Page 85
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Recently Adopted Updates to the Accounting Standards Codification
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 Company adopted the new guidance in the first quarter of fiscal 2017 and applied the new
provisions on a prospective basis, which did 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 Company adopted the new guidance in the first quarter of fiscal 2017 and applied the new provisions on a full retrospective
basis, which did 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 amendment does 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 amendment contained within ASU No. 2015-03 does
not require companies to modify their accounting for costs incurred in obtaining revolving credit facilities. The Company adopted
the new guidance in the first quarter of fiscal 2017 and applied the new provisions on a full retrospective basis.
In addition, the following amounts on the Consolidated Balance Sheets have been adjusted, retrospectively, as of September
30, 2016.
(Thousands)
Assets
Other noncurrent assets
Total noncurrent assets
Total assets
Capitalization and Liabilities
Long-term debt
Total capitalization
Total capitalization and liabilities
Intangibles
As Previously
Reported
Effect of
Change
As Adjusted
$
$
$
$
$
$
68,708
712,166
3,727,082
1,063,550
2,230,141
3,727,082
$
$
$
$
$
$
(8,512)
(8,512)
(8,512)
(8,512)
(8,512)
(8,512)
$
$
$
$
$
$
60,196
703,654
3,718,570
1,055,038
2,221,629
3,718,570
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 amendment provides 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 Company adopted the new guidance in the first quarter of fiscal 2017 and applied the
new provisions on a prospective basis, which did not impact its financial position, results of operations or cash flows upon adoption.
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 not be early adopted and will be 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
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
or cash flows upon adoption. The Company anticipates significant new disclosures as a result of the new standard and expects to
transition to the new guidance using the modified retrospective approach. The Company is also monitoring industry specific
developments that may have an impact on its financial position, results of operation and cash flows.
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 amendment will be applied on a prospective basis. The Company
does not expect any impact on its financial position, results of operations and cash flows upon adoption.
Financial Instruments
In January 2016, the FASB issued ASU No. 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 amendment will be
applied on a modified retrospective basis. The Company evaluated the amendment and noted that, upon adoption, subsequent
changes to the fair value of the Company’s available for sale securities will be recorded in the Consolidated 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 No. 2016-13, an amendment to ASC 326, Financial Instruments - Credit Losses, which
changes the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan
receivables. The new model requires recognition based upon an estimation of expected credit losses rather than recognition of
losses when it is probable that they have been incurred. 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 amendment
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 No. 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 continues to evaluate the
provisions of ASC 842 and is actively monitoring industry specific developments including the exposure draft issued by the FASB
that would introduce a land easement practical expedient to ASC 842. At this time the Company does not plan to early adopt the
new guidance and expects to elect the practical expedient package in the new guidance during transition.
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 amendment
will be applied on a retrospective basis. The Company does not expect any material impacts to its cash flows upon adoption.
In November 2016, the FASB issued ASU No. 2016-18, an amendment to ASC 230, Statement of Cash Flows, which requires
that any amounts that are deemed to be restricted cash or restricted cash-equivalents be included in cash and cash-equivalent
balances on the cash flow statement and, therefore, transfers between cash and restricted cash accounts will no longer be recognized
within the statement of cash flows. The guidance is effective for the Company’s fiscal year ending September 30, 2019, with early
adoption permitted. Upon adoption, the amendment will be applied on a retrospective basis. Based on the Company's historical
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
restricted cash balances, it does not expect any material impacts to its financial position, results of operations or cash flows upon
adoption.
Business Combinations
In January 2017, the FASB issued ASU No. 2017-01, an amendment to ASC 805, Business Combinations, clarifying the
definition of a business in the ASC, which is intended to reduce the complexity surrounding the assessment of a transaction as an
asset acquisition or business combination. The amendment provides an initial fair value screen to reduce the number of transactions
that would fit the definition of a business, and when the screen threshold is not met, provides an updated model that further clarifies
the characteristics of a business. 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 amendment will be applied on a prospective basis. The
amendment could potentially have material impacts on future transactions that the Company may enter into by altering the
Company’s conclusion on what accounting to apply to acquisitions.
Gains and Losses from the Derecognition of Nonfinancial Assets
In February 2017, the FASB issued ASU No. 2017-05, an amendment to ASC 610-20, Other Income - Gains and Losses
from the Derecognition of Nonfinancial Assets, which clarifies the scope and accounting related to the derecognition of nonfinancial
assets, including partial sales and contributions of nonfinancial assets to a joint venture or other non-controlled investee. The
guidance is effective concurrently with ASC 606, which is effective for the Company’s fiscal year ending September 30, 2019,
and interim periods within that year with early adoption permitted. ASU No. 2017-05 may be applied retrospectively for all periods
presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company has determined that to the
extent a deferred gain exists related to nonfinancial assets on the balance sheet upon adoption, it would be recognized under the
new accounting guidance as a cumulative effect adjustment to the opening balance of retained earnings for the earliest period
presented.
Compensation - Retirement Benefits
In March 2017, the FASB issued ASU No. 2017-07, an amendment to ASC 715, Compensation - Retirement Benefits, which
changes the presentation of net periodic benefit cost on the income statement by requiring companies to present all components
of net periodic benefit cost, other than service cost, outside a subtotal of income from operations. The amendment also states that
only the service cost component of net periodic benefits costs is eligible for capitalization, when applicable. 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 amendment will be applied on a retrospective basis for presentation and changes to capitalization
of costs will be applied on a prospective basis. The Company is continuing to evaluate the amendment to fully understand the
impact on its financial position, results of operations and cash flows upon adoption. The Company is also monitoring industry
specific developments on the new guidance to determine the appropriate treatment of these changes in a rate regulated environment.
Stock Compensation
In May 2017, the FASB issued ASU No. 2017-09, an amendment to ASC 718, Compensation - Stock Compensation, which
clarifies the accounting for changes to the terms or conditions of share-based payments. 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 prospectively to awards modified on or after the adoption date. The Company is currently evaluating
the amendments to understand the impact on its financial position, results of operations and cash flows upon adoption.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, an amendment to ASC 815, Derivatives and Hedging, which is intended
to make targeted improvements to the accounting for hedging activities by better aligning an entity’s risk management activities
and financial reporting for hedging relationships. These amendments modify the accounting for both nonfinancial and financial
risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the
financial statements. Additionally, the amendments are intended to simplify the application of the hedge accounting guidance and
provide relief to companies by easing certain hedge documentation requirements. The guidance is effective for the Company’s
fiscal year ending September 30, 2020, and interim periods within that year, with early adoption permitted. Upon adoption, the
transition requirements and elections will be applied to hedging relationships existing on the date of adoption. The Company does
not currently apply hedge accounting to any of its risk management activities and thus does not expect the amendments to have
any impact on its financial position, results of operations and cash flows upon adoption.
Page 88
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
3. ACQUISITION
On July 27, 2017, NJR, through its wholly owned subsidiary NJRRS, signed an asset purchase agreement with Talen to
acquire certain of their retail and wholesale natural gas energy contract assets. The acquisition included sales agreements with
large commercial and industrial retail customers, pipeline and storage capacity agreements on various pipelines, and various
wholesale transportation contracts. The final purchase price totaled $55.7 million upon satisfaction of certain conditions as set
forth in the asset purchase agreement.
The following table summarizes the purchase price allocation for the fair value of the assets acquired and liabilities assumed
as of July 27, 2017:
(Thousands)
Total purchase price consideration transferred
Identifiable assets acquired
Wholesale energy contracts (1)
Retail energy contracts (2)
Net assets acquired
(1) Wholesale energy contracts are presented within Intangible assets, net on the Consolidated Balance Sheets.
(2)
Retail energy contracts are presented within the Derivatives, at fair value line items on the Consolidated Balance Sheets.
Estimated
Fair Value
55,661
$
$
$
41,846
13,815
55,661
The purchase price equaled the estimated fair value of the net assets acquired and, therefore, no goodwill or bargain purchase
was recorded as of September 30, 2017. Identifiable assets were recorded at their estimated fair value as determined by management
and were based upon significant estimates and assumptions that are judgmental in nature, including the projected amount and
timing of future cash flows, a discount rate reflecting risk inherent in the future cash flows and future natural gas prices. During
fiscal 2017, the Company incurred approximately $300,000 in acquisition related transaction costs, which are recorded in operations
and maintenance expense on the Consolidated Statements of Operations.
The useful lives of the acquired assets are based upon the terms of the contractual arrangements. The acquired wholesale
energy contracts have useful lives ranging from 1 to 9 years, and the acquired retail energy contracts have useful lives ranging
from 0 to 4 years. The acquisition date fair value of the wholesale contracts is presented as an intangible asset on the Consolidated
Balance Sheet and is amortized based upon the pattern of expected future cash flows. The related amortization expense totaled
$762,000 during fiscal 2017, and is included in gas purchases on the Consolidated Statements of Operations. The acquired retail
contracts consist of natural gas physical forward sales agreements and therefore are subsequently measured and accounted for in
accordance with ASC 815, Derivatives and Hedging. Accordingly, the acquisition date fair value of the retail contracts is presented
within the Derivatives, at fair value line items on the Consolidated Balance Sheets and is relieved in subsequent periods as the
underlying physical forward contracts settle. During fiscal 2017, operating revenues of approximately $20.5 million, and operating
income of approximately $281,000 attributable to the acquisition are included in the Consolidated Statements of Operations.
As the assets were acquired from a non-public company that did not prepare financial information for the specific assets
involved in the transaction, historical financial information was impracticable to obtain. As a result, pro forma results for the
acquired assets are not presented.
4. REGULATION
The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape. NJNG is required,
pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas
suppliers. Customers can choose the supplier of their natural gas commodity in NJNG’s service territory.
As required by EDECA, NJNG’s rates are segregated into two primary components the commodity portion, which represents
the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the 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.
Page 89
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 implemented all audit recommendations with the approval of BPU staff and is waiting for final BPU approval.
NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a
reasonable return on its utility capital investments based on the BPU’s approval. The impact of the ratemaking process and decisions
authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as
regulatory assets, and to recognize certain obligations representing amounts that are probable future expenditures as regulatory
liabilities in accordance with accounting guidance applicable to regulated operations.
NJNG’s recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to
make an annual filing to the BPU by June 1 of each year for review of its BGSS, CIP and other programs and related rates. Annual
rate changes are requested to be effective at the beginning of the following fiscal year. In addition, NJNG is 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.
In September 2016, the BPU approved NJNG's base rate case, effective October 2016, which included 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 a depreciation rate of 2.4 percent. The approval also included the rate mechanism and five-year extension
of SAFE II, rate recovery of NJ RISE capital investment costs through June 30, 2016, recovery of NJNG’s SAFE I, NGV and
LNG capital investments and recovery of other costs previously deferred in regulatory assets.
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
Underrecovered gas costs
Derivatives at fair value, net
Total current regulatory assets
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries
Liability for future expenditures
Deferred income taxes
Derivatives at fair value, net
SAVEGREEN
Postemployment and other benefit costs
Deferred Superstorm Sandy costs
Other noncurrent regulatory assets
Total noncurrent regulatory assets
Regulatory liability-current
Derivatives at fair value, net
Overrecovered gas costs
Total current regulatory liabilities
Regulatory liabilities-noncurrent
Cost of removal obligation
New Jersey Clean Energy Program
Other noncurrent regulatory liabilities
Derivatives at fair value, net
Total noncurrent regulatory liabilities
Page 90
2017
2016
$
$
$
$
$
$
$
17,669 $
14,202
9,910
9,010
50,791 $
28,547 $
149,000
21,795
—
16,302
141,433
13,030
5,812
375,919 $
78
—
78 $
7,902 $
5,795
664
146
14,507 $
36,957
14,232
—
3,097
54,286
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
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
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. This program has no expiration date.
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 2018. 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 5. Derivative Instruments.
Environmental Remediation Costs
NJNG is responsible for the cleanup of certain former gas manufacturing facilities. Actual expenditures are recovered from
customers, with interest, over seven year rolling periods, through a RAC rate rider. Recovery for NJNG’s estimated future liability
will be requested and/or recovered when actual expenditures are incurred. See Note 14. Commitments and Contingent Liabilities.
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 on the unamortized balance 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 $2.4 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 2016 base rate case decision and order, the BPU approved the recovery of the tax charge over a seven-year amortization
period. See Note 11. Employee Benefit Plans.
Page 91
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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. In October 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 2016, over a seven-year amortization period.
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, 2017, NJNG recorded $3.8 million of PIM in other regulatory assets. The deferred PIM costs were approved for
recovery through NJNG’s new base rates effective October 2016, over a seven-year amortization period. As of October 1, 2016,
NJNG will no longer defer costs associated with PIM.
Over and Underrecovered 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 occur during periods when NJNG’s
BGSS rates are lower than actual costs, in which case NJNG records a regulatory asset and requests amounts to be recovered from
customers in the future.
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.
The following is a description of certain regulatory proceedings during fiscal 2016 and 2017:
BGSS and CIP
BGSS rates are normally revised on an annual basis. In addition, to manage the fluctuations in wholesale natural gas costs,
NJNG has the ability to make two interim filings during each fiscal year to increase residential and small commercial customer
BGSS rates on a self-implementing and provisional basis. NJNG is also permitted to refund or credit back a portion of the commodity
costs to customers at any time given five days notice when the natural gas commodity costs decrease in comparison to amounts
projected or to amounts previously collected from customers. Concurrent with the annual BGSS filing, NJNG files for an annual
review of its CIP. NJNG’s annual BGSS and CIP filings are summarized as follows:
• June 2015 BGSS/CIP filing — In February 2016, the BPU approved NJNG’s proposal to continue its existing BGSS
rate and to increase its CIP rates resulting in a $1.1 million annual recovery increase, 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.
Page 92
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
• June 2016 BGSS/CIP filing — In September 2016, the BPU approved NJNG's filing to increase its CIP rates resulting
in a $43.9 million annual recovery increase and to decrease its annual BGSS rate for residential and small commercial
customers resulting in a $22.6 million annual recovery decrease, effective October 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. In September 2016, NJNG notified the BPU
that the estimated bill credits would be approximately $48 million; however, customer usage was lower due to warmer
weather during winter months and therefore, a total of $42 million in bill credits were issued during fiscal 2017.
• June 2017 BGSS/CIP filing — On September 22, 2017, the BPU provisionally approved NJNG's petition to maintain
its BGSS rate for residential and small commercial customers, increase its balancing charge rate, which will result in a
$3.7 million increase to the annual revenues credited to BGSS and decrease its CIP rates, which will result in a $16.2
million annual recovery decrease, effective October 2017.
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
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 October 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 2015.
Energy Efficiency Programs
SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are
designed to encourage the installation of high efficiency heating and cooling equipment and other 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, 2017, the BPU has approved total SAVEGREEN
investments of approximately $219.3 million, of which, $149.7 million in grants, rebates and loans have been provided to customers,
with a total annual recovery of approximately $20 million. The recovery includes a weighted average cost of capital on the
unamortized balance 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. In June 2016, the BPU approved
NJNG's petition to extend its current program, which was set to expire on July 31, 2017, to December 31, 2018. In October 2016,
the BPU approved NJNG's filing to maintain its existing recovery rate. On October 20, 2017, the BPU approved NJNG's filing to
decrease its EE recovery rate, which will result in an annual decrease of $3.9 million, effective November 1, 2017.
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 include a report of program expenditures incurred each
program year:
• 2015 SBC filings — In September 2015, the BPU approved the annual USF compliance filing decreasing the statewide
USF rate, resulting in an annual $3.9 million decrease to USF recoveries, effective October 2015. In June 2016, the BPU
approved NJNG's additional filing to recover remediation expenses incurred through June 30, 2015, increase the RAC
with an annual recovery of $9.4 million and to decrease the NJCEP factor, effective July 9, 2016.
• 2016 SBC filing — In September 2016, the BPU approved NJNG's annual USF compliance filing proposing to increase
the statewide USF rate, resulting in a $1.3 million annual increase in USF recoveries, effective October 2016.
• 2017 SBC filing — On September 22, 2017, the BPU approved NJNG's annual USF compliance filing to decrease the
statewide USF rate, which will result in a $2.6 million annual decrease, effective October 1, 2017. On November 17,
2017, NJNG filed it's annual SBC application requesting to recover remediation expenses incurred through June 30,
2017, a reduction in the RAC, which will decrease the annual recovery to $7 million and to increase the NJCEP factor,
effective April 1, 2018.
Page 93
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/NJ RISE
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 to improve the safety and reliability of the gas distribution system.
The recovery of SAFE I capital investments and the rate mechanism and five-year extension of SAFE II were approved
through NJNG’s base rate case, effective October 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.
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. In October 2015, the BPU approved a base rate increase to recover capital costs through July 2015, resulting
in a $390,000 annual recovery increase, effective November 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
2016. Requests for recovery of future NJ RISE capital costs will occur in conjunction with SAFE II, commencing with the rate
recovery filing that was submitted in March 2017, with a weighted cost of capital of 6.9 percent, including a return on equity of
9.75 percent.
On March 30, 2017, NJNG filed its annual petition with the BPU requesting a base rate increase for the recovery of NJ RISE
and SAFE II capital investment costs related to the period ending June 30, 2017, based on estimates, pursuant to the September
2016 base rate case. On July 20, 2017, NJNG filed an update to this petition with actuals, requesting a $4.1 million annual increase
in recoveries, which was approved by the BPU, effective October 1, 2017.
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.
NJNG has opened all three of its NGV stations to the public and its capital investments were approved for recovery through the
new base rates, effective October 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 $180 million and $200 million. In January 2016,
the BPU issued an order approving NJNG’s modified proposed SRL pipeline installation, operation and route selection. In March
2016, the BPU issued an order designating the SRL route and exempting the SRL from municipal land use ordinances, regulations,
permits and license requirements. In February 2017, the New Jersey Department of Environmental Protection issued a permit
authorizing construction of the SRL within the jurisdiction of the Coastal Area Facility Review Act as well as a Freshwater Wetlands
permit. On September 14, 2017, the NJ Pinelands Commission approved construction of NJNG’s SRL. All approvals and permits
have been appealed by third parties.
Page 94
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Regulatory Initiatives
In May 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. In 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 2016.
5. 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 the Company’s derivative instruments, see Note 6. Fair Value.
Energy Services
Energy Services chooses not to designate its financial commodity and physical forward commodity derivatives as accounting
hedges or to elect NPNS, and therefore changes in the fair value of these derivatives are recorded as a component of gas purchases
or operating revenues, as appropriate for Energy Services, on the Consolidated Statements of Operations as unrealized gains or
(losses). For Energy Services at settlement, realized gains and (losses) on all financial derivative instruments are recognized as a
component of 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.
Energy Services also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value
of Canadian currency relative to the U.S. dollar. Energy Services may utilize foreign currency derivatives to lock in the exchange
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, Energy
Services 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 Energy Services entering into transactions to borrow natural gas, commonly referred to as “park and loans,”
an embedded derivative is recognized relating to differences between the fair value of the amount borrowed and the fair value of
the amount that will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location
over the contract term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the
borrowed 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, Energy Services 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.
Page 95
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Natural Gas Distribution
Changes in fair value of NJNG’s financial commodity derivatives are recorded as a component of regulatory assets or
liabilities on the 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
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 the Company’s derivative assets and liabilities recognized on the Consolidated
Balance Sheets as of September 30:
Balance Sheet Location
(Thousands)
Derivatives not designated as hedging instruments:
NJNG:
Physical commodity contracts
Financial commodity contracts
Fair Value
2017
2016
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
$
151
—
—
—
—
14,588
7,127
15,302
2,033
40
4
$ 39,245
$
72
1,149
—
8,467
—
16,589
8,710
20,267
2,620
—
—
$ 57,874
$
235
805
75
—
—
5,994
3,987
22,929
1,165
1
—
$ 35,191
$
1,154
2,979
386
—
23,073
11,660
1,212
45,255
581
32
—
$ 86,332
Derivatives - current
Derivatives - current
Derivatives - noncurrent
Derivatives - current
Derivatives - noncurrent
Derivatives - current
Derivatives - noncurrent
Derivatives - current
Derivatives - noncurrent
Derivatives - current
Derivatives - noncurrent
Interest rate contracts
Interest rate contracts
Energy Services:
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total fair value of derivatives
Offsetting of Derivatives
The Company transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets
and liabilities with the same counterparty. However, the Company’s policy is to present its derivative assets and liabilities on a
gross basis at the contract level unit of account on the Consolidated Balance Sheets.
Page 96
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 the Company has the right to offset but elects
not to, financial collateral, as well as the net amounts the Company could present on the Consolidated Balance Sheets but elects
not to.
(Thousands)
As of September 30, 2017:
Derivative assets:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
NJNG
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total NJNG
Derivative liabilities:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
NJNG
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total NJNG
As of September 30, 2016:
Derivative assets:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
NJNG
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total NJNG
Derivative liabilities:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
NJNG
Amounts
Presented in
Balance Sheets (1)
Offsetting
Derivative
Instruments (2)
Financial Collateral
Received/Pledged (3) Net Amounts (4)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
21,715
17,335
44
39,094
151
—
—
151
25,299
22,887
—
48,186
72
1,149
8,467
9,688
9,981
24,094
1
34,076
235
880
—
1,115
12,872
45,836
32
58,740
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(2,173)
(14,121)
—
(16,294)
(20)
—
—
(20)
(2,173)
(14,121)
—
(16,294)
(20)
—
—
(20)
(2,837)
(17,945)
(1)
(20,783)
(31)
(880)
—
(911)
(2,837)
(17,945)
(1)
(20,783)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(200)
—
—
(200)
—
—
—
—
—
(8,766)
—
(8,766)
—
(1,149)
—
(1,149)
(755)
(6,149)
—
(6,904)
—
—
—
—
1,200
(27,891)
—
(26,691)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
19,342
3,214
44
22,600
131
—
—
131
23,126
—
—
23,126
52
—
8,467
8,519
6,389
—
—
6,389
204
—
—
204
11,235
—
31
11,266
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
1,123
1,154
—
3,365
23,073
23,073
Total NJNG
24,196
27,592
(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
—
(2,485)
—
(2,485)
(31)
(880)
—
(911)
$
$
$
$
$
$
$
$
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.
Page 97
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Energy Services utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical
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 gas that is being economically hedged, along with fair value changes in derivative instruments, creates volatility in the
results of Energy Services, although the Company’s intended economic results relating to the entire transaction are unaffected.
The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations as of
September 30:
(Thousands)
Derivatives not designated as hedging instruments:
Energy Services:
Location of gain (loss) recognized in
income on derivatives
Amount of gain (loss) recognized
in income on derivatives
2016
2017
2015
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)
$
$
8,912
(27,461)
26,563
41
8,055
$
$
33,034
(45,637)
45,579
(34)
32,942
$ 32,568
(34,438)
109,082
—
$ 107,212
Energy Services 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)
2017
2016
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)
2017
2016
2017
2016
Foreign currency contracts
$
— $
(27) $
— $
27 $
— $
—
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
2017
2016
2015
$ (12,303)
5,595
14,606
7,898
$
$ (15,756)
(7,984)
(18,845)
$ (42,585)
$
—
(33,428)
(4,228)
$ (37,656)
Page 98
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG and Energy Services had the following outstanding long (short) derivatives as of September 30:
NJNG
Energy Services
Volume (Bcf)
2017
2016
Futures
Physical
Futures
Financial Options
Physical
18.2
32.1
(16.4)
—
(13.1)
23.6
9.2
(79.1)
1.2
94.6
Not included in the previous table are Energy Services’ gross notional amount of foreign currency transactions of
approximately $4.5 million, NJNG’s treasury lock agreement, as previously discussed, and 283,000 SRECs at Energy Services
that are open as of September 30, 2017.
Broker Margin
Futures exchanges have contract specific performance bond requirements, also known as margin requirements that require
the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted
upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin
that fluctuates based on the daily marked-to-market relative to maintenance margin requirements. The Company maintains separate
broker margin accounts for NJNG and Energy Services. The balances as of September 30, by company, are as follows:
(Thousands)
NJNG
Energy Services
Balance Sheet Location
Broker margin - Current assets
Broker margin - Current assets
2017
2016
$
$
2,661 $
23,166 $
4,822
42,822
Due to CME rulebook changes that took effect in January 2017, variation margin is being treated as a settlement payment,
rather than collateral. As a result, the Company is now required to present variation margin net with the related derivative assets
and/or liabilities on the Consolidated Balance Sheets for any derivatives the Company clears through the CME. This change is
being applied on a prospective basis. In September 30, 2016, prior to the rule change, the Company reported the variation margin
as a separate unit of account within restricted broker margin on the Consolidated Balance Sheets. There was no impact to the
Company’s derivative gains or losses in the Consolidated Statements of Operations as a result of the CME rule amendment.
Wholesale Credit Risk
NJNG, Energy Services and Clean Energy Ventures are exposed to credit risk as a result of their sales/wholesale and retail
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., fails to deliver
or pay for natural gas, SRECs, electricity or RECs), the Company could sustain a loss.
The Company monitors and manages the credit risk of its wholesale operations through credit policies and procedures that
management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective
counterparties’ financial statements and/or credit ratings, daily monitoring of counterparties’ credit limits and exposure, daily
communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and
netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit.
Collateral may be requested due to the Company’s election not to extend credit or because exposure exceeds defined thresholds.
Most of the Company’s wholesale marketing contracts contain standard netting provisions. These contracts include those governed
by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same
counterparty are offset and the resulting net amount is paid to the party to which it is due.
Internally-rated exposure applies to counterparties that are not rated by 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.
Page 99
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of
September 30, 2017.The amounts presented below have not been reduced by any collateral received or netting and exclude accounts
receivable for NJNG retail natural gas sales and services and Clean Energy Ventures residential solar installations.
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Gross Credit
Exposure
$ 136,804
16,889
16,378
68,498
$ 238,569
Conversely, certain of NJNG’s and Energy Services’ derivative instruments are linked to agreements containing provisions
that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms
in individual counterparty agreements and can result in cash payments if NJNG’s credit rating were to fall below its current level.
NJNG’s credit rating, with respect to S&P, reflects the overall corporate credit profile of the Company. Specifically, most, but not
all, of these additional payments will be triggered if NJNG’s debt is downgraded by the major credit agencies, regardless of
investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral
payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements.
Other provisions include payment features that are not specifically linked to ratings, but are based on certain financial metrics.
Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon
the degree to which the Company’s credit rating and/or financial metrics deteriorate, and the extent to which liability amounts
exceed applicable threshold limits. The aggregate fair value of all derivative instruments with credit-risk-related contingent features
that were in a liability position on September 30, 2017 and 2016, is $8.7 million and $23.1 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, 2017 and 2016, the Company would have been required to post an additional $8.6 million
and $23.1 million, respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected
on the Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that
would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to
be posted, as previously discussed.
6. FAIR VALUE
Fair Value of Assets and Liabilities
The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial
paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of
those instruments. Non-current loan receivables are recorded based on what the Company expects to receive, which approximates
fair value. 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, excluding
capital leases, debt issuance costs and solar asset financing obligations, is as follows:
(Thousands)
NJNG
Carrying value (1) (2)
Fair market value
NJR
Carrying value (3)
Fair market value
2017
2016
$
$
$
$
672,045 $
673,051 $
707,845
731,615
425,000 $
434,625 $
375,000
399,462
(1)
(2)
(3)
Excludes capital leases of $39.7 million and $42.2 million as of September 30, 2017 and 2016, respectively.
Excludes debt issuance costs of $6.3 million and $7.7 million as of September 30, 2017 and 2016, respectively.
Excludes debt issuance costs of $770,000 and $853,000 as of September 30, 2017 and 2016, respectively.
Page 100
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable
municipal and corporate yields, as appropriate, for the maturity of the specific issue and the Company’s credit rating. As of
September 30, 2017 and 2016, the Company disclosed its debt within Level 2 of the fair value hierarchy.
Fair Value Hierarchy
The Company applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include
financial derivatives and physical commodity contracts qualifying as derivatives, 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 includes the following:
Level 1
Level 2
Unadjusted quoted prices for identical assets or liabilities in active markets. The Company’s Level 1 assets and liabilities
include exchange traded natural gas futures and options contracts, listed equities and money market funds. Exchange
traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that the
Company refers 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. The Company’s Level 2 assets and
liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales
or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value,
credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives
consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). NJNG’s treasury lock
is also considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation
model. Inputs are verifiable and do not require significant management judgment. For some physical commodity
contracts, the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable
inputs that are equivalent to market data received from an independent source. There are no significant judgments or
adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation
tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:
• widely accepted and public;
•
•
non-proprietary and sourced from an independent third party; and
observable and published.
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
Level 3
Inputs derived from a significant amount of unobservable market data. These include the Company’s best estimate of
fair value and are derived primarily through the use of internal valuation methodologies.
Financial derivative portfolios of NJNG and Energy Services consist mainly of futures, options and swaps. The Company
primarily uses the market approach and its policy is to use actively quoted market prices when available. The principal market for
its derivative transactions is the natural gas wholesale market, therefore, the primary sources for its price inputs are CME, NYMEX
and ICE. Energy Services uses Platts and Natural Gas Exchange for Canadian delivery points. However, Energy Services also
engages in transactions that result in transporting natural gas to delivery points for which there is no actively quoted market price.
In most instances, the transportation cost to the final delivery location is not significant to the overall valuation. If required, Energy
Services’ policy is to use the best information available to determine fair value based on internal pricing models, which would
include estimates extrapolated from broker quotes or other pricing services.
The Company 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.
Page 101
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
When the Company determines fair values, measurements are adjusted, as needed, for credit risk associated with its
counterparties, as well as its own credit risk. The Company determines these adjustments by using historical default probabilities
that correspond to the applicable S&P issuer ratings, while also taking into consideration collateral and netting arrangements that
serve to mitigate risk.
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(Thousands)
As of September 30, 2017:
Assets
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Available for sale equity securities
Money market funds
Other
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, 2016:
Assets
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Available for sale equity securities
Money market funds
Other
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
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
—
17,335
—
65,752
112
1,090
$ 84,289
$
—
24,036
—
—
$ 24,036
$
—
24,974
—
55,789
34,072
1,444
$ 116,279
$
—
49,201
—
—
$ 49,201
$ 21,866
—
44
—
—
—
$ 21,910
$ 25,371
—
—
8,467
$ 33,838
$ 10,216
—
1
—
—
—
$ 10,217
$ 14,026
—
32
23,073
$ 37,131
$ —
—
—
—
—
—
$ —
$ —
—
—
—
$ —
$ —
—
—
—
—
—
$ —
$ —
—
—
—
$ —
Total
$ 21,866
17,335
44
65,752
112
1,090
$ 106,199
$ 25,371
24,036
—
8,467
$ 57,874
$ 10,216
24,974
1
55,789
34,072
1,444
$ 126,496
$ 14,026
49,201
32
23,073
$ 86,332
Assets measured at fair value on a non-recurring basis are summarized as follows:
(Thousands)
As of September 30, 2017:
Assets
Acquired wholesale energy contracts (1)
Total assets at fair value
(1)
Included in intangible asset on the Consolidated Balance Sheets, see Note 3. Acquisition for more information regarding the acquired contracts.
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
—
—
$ 41,084
$ 41,084
$ —
$ —
$ 41,084
$ 41,084
Page 102
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
7. INVESTMENTS IN EQUITY INVESTEES
As of September 30, the Company’s investments in equity method investees includes the following:
(Thousands)
Steckman Ridge (1)
PennEast
Total
2017
120,262 $
52,323
172,585 $
$
$
2016
123,155
17,993
141,148
Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2017 and 2016, which accrue interest at a variable rate that resets
(1)
quarterly and are due October 1, 2023.
The Company, through its subsidiary NJR Pipeline Company, is an investor in PennEast, which is expected to construct and
operate a 120-mile pipeline that will extend from northeast Pennsylvania to western New Jersey and is estimated to be completed
and operational in 2019.
NJNG and Energy Services have entered into storage and park and loan agreements with Steckman Ridge. In addition,
NJNG has entered into a precedent capacity agreement with PennEast. See Note 16. Related Party Transactions for more information
on these intercompany transactions.
8. EARNINGS PER SHARE
The following table presents the calculation of the Company’s basic and diluted earnings per share for the fiscal years ended
September 30:
(Thousands, except per share amounts)
Net income, as reported
Basic earnings per share
Weighted average shares of common stock outstanding-basic
Basic earnings per common share
Diluted earnings per share
Weighted average shares of common stock outstanding-basic
Incremental shares (1)
Weighted average shares of common stock outstanding-diluted
Diluted earnings per common share (2)
2017
2016
$ 132,065 $ 131,672 $ 180,960
2015
86,321
$1.53
85,884
$1.53
85,186
$2.12
86,321
85,884
823
87,144
$1.52
847
86,731
$1.52
85,186
1,079
86,265
$2.10
(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 2017, 2016 and 2015.
9. 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.
Page 103
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Long-term Debt
The following table presents the long-term debt of the Company as of September 30:
(Thousands)
NJNG
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
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: Debt issuance costs
Less: Current maturities of long-term debt
Total NJNG long-term debt
NJR
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Term loan
6.05%
2.51%
3.25%
3.48%
3.20%
3.54%
Variable
Less: Debt issuance costs
Less: Current maturities of long-term debt
Total NJR long-term debt
Clean Energy Ventures
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 15, 2018
September 17, 2022
November 7, 2024
August 18, 2023
August 18, 2026
August 16, 2019
Solar asset financing obligation
Less: Current maturities of long-term debt
Total Clean Energy Ventures long-term debt
Various dates
Total long-term debt
$
2017
2016
— $
—
—
125,000
9,545
41,000
46,500
50,000
70,000
55,000
50,000
100,000
125,000
11,617
28,042
(6,262)
(135,800)
569,642
—
25,000
50,000
100,000
50,000
100,000
100,000
(770)
(25,000)
399,230
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
(7,659)
(11,452)
730,891
50,000
25,000
50,000
100,000
50,000
100,000
—
(853)
(50,000)
324,147
32,790
—
(4,582)
—
28,208
—
997,080 $ 1,055,038
$
Annual long-term debt redemption requirements, excluding capital leases, debt issuance costs and solar asset financing
obligations, as of September 30, are as follows:
(Thousands)
2018
2019
2020
2021
2022
Thereafter
NJNG
NJR
125,000 $
— $
— $
— $
— $
547,045 $
25,000
100,000
—
—
50,000
250,000
$
$
$
$
$
$
Page 104
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG
First Mortgage Bonds
NJNG and Trustee entered into the Mortgage Indenture, dated September 1, 2014, which secures all of the outstanding First
Mortgage Bonds issued by NJNG. The Mortgage Indenture provides a direct first mortgage lien upon substantially all of the
operating properties and franchises of NJNG (other than excepted property, such as cash on hand, choses-in-action, securities,
rent, natural gas meters and certain materials, supplies, appliances and vehicles), subject only to certain permitted encumbrances.
The Mortgage Indenture contains provisions subjecting after-acquired property (other than excepted property and subject to pre-
existing liens, if any, at the time of acquisition) to the lien thereof.
NJNG’s Mortgage Indenture no longer contains a restriction on NJNG's ability to pay dividends. New Jersey Administrative
Code 14:4-4.7 states that a public utility cannot issue dividends, without regulatory approval, if its equity to total capitalization
ratio falls below 30 percent. As of September 30, 2017, NJNG’s equity to total capitalization ratio is 55.6 percent and has the
ability to issue up to $960 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, 2017, the interest rate on the EDA Bonds was 1.42 percent.
In June 2016, NJNG entered into a Note Purchase Agreement, under which NJNG issued $125 million of its 3.63 percent
senior notes due June 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.
On January 17, 2017, the Company completed the purchase of three FMBs in lieu of redemption with an aggregate principal
amount totaling $35.8 million. The FMBs bore interest at rates ranging from 4.5 percent to 4.9 percent. The bonds purchased in
lieu of redemption are being held by the Company to provide an opportunity to evaluate remarketing alternatives.
As of September 30, 2017, NJNG's $125 million, 5.6 percent senior notes, which will mature in May 2018, were classified
as a current maturity of long-term debt.
Sale-Leasebacks
NJNG has entered into a sale-leaseback for its headquarters building, which has a 25.5-year term that expires in June 2021,
subject to an option by NJNG to renew the lease for additional five-year terms a maximum of four times. The present value of the
agreement’s minimum lease payments is reflected as both a capital lease asset and a capital lease obligation, which are included
in utility plant and long-term debt, respectively, on the Consolidated Balance Sheets.
NJNG received $9.6 million, $7.1 million and $7.2 million for fiscal 2017, 2016 and 2015, 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 2017, 2016 and 2015, NJNG
exercised early purchase options with respect to meter leases by making final principal payments of $2.4 million, $1.9 million
and $768,000, 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:
(Thousands)
2018
2019
2020
2021
2022
Thereafter
Subtotal
Less: Interest component
Total
Page 105
Lease Payments
12,436
$
9,675
8,849
5,862
2,518
4,914
44,200
(4,494)
39,700
$
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJR
In March 2016, NJR entered into a Note Purchase Agreement, under which the Company issued, in August 2016, $50 million
of the Company’s 3.2 percent senior notes due August 2023, and $100 million of the Company’s 3.54 percent senior notes due
August 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.
On August 18, 2017, NJR entered into a $100 million credit agreement due August 16, 2019. The term loan will accrue
interest at a variable rate determined monthly, which is LIBOR plus 70 basis points. The weighted average interest rate on the
term loan as of September 30, 2017, was 1.95 percent. NJR had no long-term, variable-rate debt outstanding as of September 30,
2016.
As of September 30, 2017, NJR's $25 million, 2.51 percent debt shelf notes, which will mature in September 2018, were
classified as a current maturity of long-term debt.
Clean Energy Ventures
During September 2017, Clean Energy Ventures entered into transactions to sell two commercial solar assets concurrent
with agreements to lease the assets back over a period of seven years. These sale-leasebacks are treated as financing obligations,
which are typically secured by the renewable energy facility asset and its future cash flows from SREC and energy sales. ITCs
and other tax benefits associated with these solar projects will be transferred to the buyer. Clean Energy Ventures will continue to
operate the solar assets, including related expenses, and retain the revenue generated from SRECs and energy sales. and has the
option to renew the lease or repurchase the assets sold at the end of the lease term. Clean Energy Ventures received proceeds of
$32.9 million in connection with these sale-leasebacks. Contractual commitments for the sale-leasebacks will be $2.7 million
annually for the next five years and $5.3 million in the aggregate for all years thereafter.
Short-term Debt
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)
NJNG
Bank revolving credit facilities: (3)
Commercial paper outstanding at end of period
Weighted average interest rate at end of period
Amount available at end of period (4)
2017
2016
$ 425,000
$ 255,000
$ 425,000
$ 121,700
2.14%
1.43%
$ 156,601
$ 288,910
$ 250,000
$ 11,000
1.13%
$ 238,269
$ 250,000
—
$
—%
$ 249,269
(1)
(2)
(3)
(4)
Committed credit facilities, which require commitment fees of .075 percent on the unused amounts.
Letters of credit outstanding total $13.4 million and $14.4 million as of September 30, 2017 and 2016, respectively, which reduces amount available by
the same amount.
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, 2017 and 2016, which reduces amount available by the same amount.
NJR
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 Energy Services’
short-term liquidity needs and to finance, on an initial basis, unregulated investments.
Page 106
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
As of September 30, 2017, NJR had six letters of credit outstanding totaling $13.4 million. Three letters of credit totaling
$10.4 million are issued on behalf of Energy Services and three letters of credit, which total $3 million, are issued on behalf of
Clean Energy Ventures. These letters of credit reduce the amount available under NJR’s committed credit facility by the same
amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties, and they will be renewed as
necessary.
Energy Services’ letters of credit are used for margin requirements for natural gas transactions, collateral and security deposit
for retail gas sales and expire on dates ranging from December 2017 to September 2018. Clean Energy Ventures’ 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 2018 to August 2018.
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
NJNG
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, 2017, NJNG has two letters of credit outstanding for $731,000. NJNG’s letters of credit are used as
collateral for remediation projects and expire in August 2018. 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.
10. STOCK-BASED COMPENSATION
Effective January 25, 2017, the shareholders of the Company approved the NJR 2017 Stock Award and Incentive Plan, which
replaced the NJR 2007 Stock Award and Incentive Plan. The 2007 plan had 914,169 shares granted but not issued as of September 30,
2016, which were transferred into the 2017 plan. The 2017 plan added an additional 3,135,000 shares available for issuance. Shares
have been issued in the form of performance shares, restricted stock, deferred retention stock and unrestricted common stock to
non-employee directors. As of September 30, 2017, 3,119,878 shares remain available for future issuance.
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 (1)
Total, net of tax
2017
2016
2015
$
$
2,614 $
1,732
1,461
3,188 $
2,473
2,161
1,885
1,899
5,273
5,807
(2,372)
3,435 $
7,234
(2,955)
4,279 $
9,645
(3,940)
5,705
(1)
Excludes additional tax benefit related to delivered shares of $1.3 million, $1.8 million and $881,000 as of September 30, 2017, 2016 and 2015, respectively.
Performance Shares
In fiscal 2017, the Company granted to various officers 44,576 performance shares, which are market condition awards that
vest on September 30, 2019, subject to the Company meeting certain performance conditions. In fiscal 2017, the Company also
granted to various officers 51,931 performance shares, of which 25,806 vest on September 30, 2019 and 26,125 vest annually
over a three year period beginning on September 30, 2017, both of which are subject to the Company meeting certain performance
conditions.
Page 107
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 in September 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
vested 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 vested in September 30, 2017 and 26,954 vest annually
over a three year period beginning in September 2015, both of which were subject to the Company meeting certain performance
conditions. The vesting of these awards are shown in the table below.
There is approximately $2.9 million of deferred compensation related to unvested performance shares that is expected to
be recognized over the weighted average period of 1.7 years.
The following table summarizes the performance share activity under the stock award and incentive plans for the past three
fiscal years:
Non-vested and outstanding at September 30, 2014
Granted
Vested (2)
Cancelled/forfeited (3)
Non-vested and outstanding at September 30, 2015
Granted
Vested (4)
Cancelled/forfeited (5)
Non-vested and outstanding at September 30, 2016
Granted
Vested (6)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2017
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
$18.30
$28.25
$17.10
$17.98
$23.40
$27.37
$21.40
$23.40
$27.47
$33.57
$28.88
$29.14
$30.12
—
—
$ 4,318
—
—
—
$ 5,657
—
—
—
$ 4,179
—
—
Shares (1)
247,536
102,790
(112,446)
(23,416)
214,464
115,480
(137,053)
(12,975)
179,916
96,507
(95,407)
(24,429)
156,587
(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 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.
As certified by the Company’s Leadership and Compensation Committee on November 14, 2017, the number of common shares earned related to TSR
performance was 108.44 percent or 39,595 shares, the number of common shares earned related to NFE performance was 119 percent or 36,498 shares
and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 28,223 shares. Each award earned excludes
accumulated dividends. The number represented on this line is the target number of 100 percent.
The Company measures compensation expense related to performance shares based on the fair value of these awards at their
date of grant. In accordance with ASC 718, Compensation - Stock Compensation, compensation expense for market condition
grants are recognized for awards granted, and are not adjusted based on actual achievement of the performance goals. The Company
estimated the fair value of these grants on the date of grant using a lattice model. Performance condition grants are initially fair
valued at the company’s stock price on grant date, and are subsequently adjusted for actual achievement of the performance goals.
Page 108
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Restricted Stock
In fiscal 2017, the Company granted 22,591 shares of restricted stock that vest annually over a three year period beginning
October 15, 2017. In fiscal 2017, the Company also granted 6,143 shares of restricted stock that vest annually over a three year
period beginning May 8, 2018. In fiscal 2016, the Company granted 41,909 shares of restricted stock that vest annually over a
three year period beginning in 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. There is approximately $511,409 of deferred
compensation related to unvested restricted stock shares that is expected to be recognized over the weighted average period of
two years.
The following table summarizes the restricted stock activity under the stock award and incentive plans for the past three
fiscal years:
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
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2017
Deferred Retention Stock
Weighted Average
Grant Date
Fair Value
$22.60
$29.41
$24.45
$26.79
$27.17
$30.03
$26.66
$29.21
$29.09
$35.79
$28.92
$31.56
$32.40
Shares
41,491
61,972
(18,170)
(3,801)
81,492
41,909
(48,089)
(2,241)
73,071
28,734
(38,752)
(11,899)
51,154
Total Fair Value
of Vested Shares
(in Thousands)
$
—
—
510
—
—
—
$ 1,469
—
—
$ 1,344
—
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 stock award and incentive plans for the past
three fiscal years:
Outstanding at September 30, 2014
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2015
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2016
Granted/Vested
Delivered
Outstanding at September 30, 2017
Weighted Average
Grant Date
Fair Value
$21.95
$29.32
$23.62
$24.69
$27.03
$30.37
$20.31
$28.14
$29.06
$35.64
$23.11
$29.54
Shares
276,782
462,790
(95,098)
(11,744)
632,730
159,831
(121,764)
(8,318)
662,479
63,977
(53,878)
672,578
Total Fair Value
of Vested Shares
(in Thousands)
—
—
$ 2,519
—
—
—
$ 3,751
—
—
—
$ 1,774
—
Page 109
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, 2014
Exercised
Outstanding at September 30, 2015
Shares
48,250
(48,250)
—
Weighted Average
Exercise Price
$15.00
$15.00
$0.00
NJR received proceeds of $724,000 from the stock options exercised during fiscal 2015. There were no remaining stock
options outstanding as of September 30, 2015, and therefore NJR received no proceeds from stock options exercised during fiscal
2017 and 2016. There were no stock options granted during fiscal 2017, 2016 and 2015.
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
(1)
$280,000 of expense remains as of September 30, 2017, to be recognized through December 31, 2017.
2017
27,972
$35.59
(1)
2016
27,481
$32.75
2015
26,122
$30.63
11. EMPLOYEE BENEFIT PLANS
Pension and Other Postemployment Benefit Plans
The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and
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 2017 and 2016, the Company had no minimum funding requirements.
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 made no discretionary contributions to the pension
plans in fiscal 2017. The Company does not expect to be required to make additional contributions to fund the pension plans over
the following two fiscal years based on current actuarial assumptions; however, funding requirements are uncertain and can depend
significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees
and covered dependents.
There are no Federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts
due to regulatory agreements with the BPU. The Company contributed $6 million and $3.2 million, in fiscal 2017 and 2016,
respectively, and estimates that it will contribute between $4 million to $7 million over each of the next five years. Additional
contributions may be required based on market conditions and changes to assumptions.
Page 110
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the
Consolidated Balance Sheets as of September 30:
(Thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions (2)
Actuarial (gain) 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
Pension (1)
OPEB
2017
2016
2017
2016
293,654 $
8,347
9,771
45
(5,995)
(7,987)
297,835 $
249,875 $
29,736
74
(7,942)
271,743 $
(26,092) $
255,987 $
7,591
11,342
47
26,369
(7,682)
293,654 $
160,393 $
4,380
5,545
120
8,985
(4,333)
175,090 $
62,035 $
199,123 $
7,953
28,316
6,049
30,071
(4,503)
(7,635)
249,875 $
71,534 $
(43,779) $ (103,556) $
138,367
4,521
6,256
104
15,590
(4,445)
160,393
57,269
5,872
3,235
(4,341)
62,035
(98,358)
(158) $
(25,934)
(26,092) $
(79) $
(602) $
(43,700)
(43,779) $ (103,556) $
(102,954)
(454)
(97,904)
(98,358)
$
$
$
$
$
$
$
Total
(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 actuarial gain on the Company’s pension plans is primarily due to an increase in the discount rate and the adoption of
the MP-2016 mortality table. The actuarial loss related to the OPEB plans is primarily due to an increase in expected retiree
healthcare claims, partially offset by an increase in the discount rate and the adoption of the MP-2016 mortality table.
The Company recognizes a liability for its underfunded benefit plans as required by the Compensation - Retirement Benefits
Topic of the ASC. The Company records the offset to regulatory assets for the portion of liability relating to NJNG and to accumulated
other comprehensive income for the portion of the liability related to its unregulated operations.
The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income
as of September 30:
Balance at September 30, 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
Amounts arising during the period:
Net actuarial (gain) loss
Amounts amortized to net periodic costs:
Net actuarial (loss)
Prior service (cost) credit
Balance at September 30, 2017
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
86,960 $
50,737
$
25,640 $
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
(9,429)
5,211
(6,990)
587
(6,799)
(108)
78,605 $
(4,209)
311
60,460
(2,028)
(3)
$
19,415 $
(160)
54
4,967
$
$
Page 111
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The amounts in regulatory assets and accumulated other comprehensive income not yet recognized as components of net
periodic benefit cost as of September 30 are:
Regulatory Assets
Accumulated Other Comprehensive Income
(Loss)
Pension
OPEB
Pension
OPEB
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
2017
77,930 $
675
78,605 $
2016
94,158 $
783
94,941 $
2017
61,563 $
(1,103)
60,460 $
2016
60,561 $
(1,414)
59,147 $
$
$
2017
19,414 $
2016
28,432 $
1
4
19,415 $
28,436 $
2017
2016
5,113 $
(146)
4,967 $
4,686
(200)
4,486
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 2018 are as follows:
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
$
6,177 $
105
6,282 $
4,464
(311)
4,153
$
$
1,360 $
1
1,361 $
196
(53)
143
The accumulated benefit obligation for the pension plans, including the PEP, exceeded the fair value of plan assets. The
projected benefit and accumulated benefit obligations and the fair value of plan assets as of September 30, are as follows:
(Thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Pension
2017
2016
$ 297,835 $ 293,654
$ 258,514 $ 252,077
$ 271,743 $ 249,875
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
Net periodic benefit cost recognized as expense $
$
2017
8,347 $
9,771
(19,313)
8,827
111
7,743 $
Pension
2016
2015
2017
OPEB
2016
7,591 $
11,342
(20,118)
7,281
111
6,207 $
7,485 $
10,199
(17,090)
6,985
111
7,690 $
4,380 $
5,545
(4,767)
4,370
(365)
9,163 $
4,521 $
6,256
(4,845)
3,274
(365)
8,841 $
2015
4,253
5,739
(4,977)
2,943
(364)
7,594
Page 112
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Assumptions
The weighted average assumptions used to determine the Company’s benefit costs during the fiscal years below and
obligations as of September 30, are as follows:
2017
Pension
2016
2015
2017
OPEB
2016
Benefit costs:
Discount rate
Expected asset return
Compensation increase 3.25/3.50% (1) 3.25/3.50% (1)
4.50%
8.75%
3.96/3.94%
7.75%
4.55%
8.75%
3.25%
4.08/4.01% (1) 4.60/4.55% (1)
7.75%
3.25/3.50% (1)
8.75%
3.50%
2015
4.55%
8.75%
3.50%
Obligations:
Discount rate
Compensation increase 3.25/3.50% (1) 3.25/3.50% (1) 3.25/3.50% (1)
4.03% 3.96/3.94% (1)
4.50%
4.12/4.08% (1) 4.08/4.01% (1) 4.60/4.55% (1)
3.25/3.50% (1)
3.50%
3.50%
(1)
Percentages for represented and nonrepresented plans, respectively.
When measuring its projected benefit obligations, the Company uses an aggregate discount rate at which its obligation could
be effectively settled. The Company determines a single weighted average discount rate based on a yield curve comprised of rates
of return on a population of high quality debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the
timing and amount of its expected future benefit payments. 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, the Company applies the duration specific spot rates from the full yield curve, as of the
measurement date, to each year’s future benefit payments. The Company 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, the Company accounted 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
2017
8.3%
4.5%
2025
2016
2015
8.5%
4.5%
2025
6.7%
4.8%
2022
$ 32,019
2,468
$
$ 28,803
2,331
$
$ 26,025
2,026
$
$ (25,466)
$ (1,909)
$ (22,862)
$ (1,801)
$ (20,427)
$ (1,593)
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
Page 113
2018
Target
Allocation
40%
20
40
100%
Assets at
September 30,
2017
39%
21
40
100%
2016
38%
20
42
100%
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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)
2018
2019
2020
2021
2022
2023 - 2027
Pension
OPEB
$
$
$
$
$
$
8,928 $
9,712 $
10,549 $
11,502 $
12,469 $
79,081 $
4,230
4,807
5,435
6,061
6,755
43,267
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
2018
2019
2020
2021
2022
2023 - 2027
Estimated Subsidy Payment
(Thousands)
$262
$283
$311
$342
$373
$2,574
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
2017
2016
2017
2016
$
— $
— $
11
$
9
88,321
16,329
56,446
13,516
—
—
—
26,540
70,591
$ 271,743
78,306
16,250
50,702
12,906
—
—
—
25,976
65,735
$ 249,875
23,986
4,409
15,000
3,551
8,082
4,744
4,673
7,078
—
71,534
$
19,532
4,114
12,997
3,294
7,177
4,155
4,082
6,675
—
62,035
$
The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2017 and 2016, and there have been no changes
in valuation methodologies as of September 30, 2017. 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.
Page 114
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 $2.9 million in fiscal 2017,
$2.8 million in fiscal 2016 and $2.6 million in fiscal 2015. The amount contributed for the employer special contribution of the
Savings Plan was $781,000 in fiscal 2017, $571,000 in fiscal 2016 and $461,000 in fiscal 2015.
12. 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, the Company 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. The Company also recognizes AROs related to Clean Energy Ventures’ solar and wind assets when there
are decommissioning provisions in Clean Energy Ventures’ lease agreements that require removal of the asset.
Accretion amounts associated with NJNG’s ARO is recognized as part of its depreciation expense and the corresponding
regulatory asset and liability will be shown gross on the Consolidated Balance Sheets. During fiscal 2016, accretion amounts were
not reflected as an expense, but rather were deferred as a regulatory asset and netted against NJNG’s regulatory liabilities, for
presentation purposes, on the Consolidated Balance Sheets. Accretion amounts associated with Clean Energy Ventures’ ARO are
recognized as a component of operations and maintenance expense on the Consolidated Statements of Operations.
The following is an analysis of the change in the Company’s 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
2017
2016
NJNG
NJRCEV
NJNG
NJRCEV
$
$
23,521 $
1,304
729
(245)
(484)
24,825 $
4,858
245
1,492
—
—
6,595
$
$
16,773 $
1,048
783
5,320
(403)
23,521 $
2,372
158
2,328
—
—
4,858
During fiscal 2016, NJNG revised its retirement assumptions to reflect an 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.
Accretion for the next five years is estimated to be as follows:
(Thousands)
Fiscal Year Ended September 30,
2018
2019
2020
2021
2022
Total
Page 115
Estimated Accretion
$ 1,644
1,718
1,795
1,877
1,960
$ 8,994
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
13. INCOME TAXES
A reconciliation of the U.S. federal statutory rate of 35 percent to the effective rate from operations for the fiscal years ended
September 30, 2017, 2016 and 2015 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
AFUDC equity
Other
Income tax provision
Effective income tax rate
The income tax (benefit) provision from operations consists of the following:
(Thousands)
Current:
Federal
State
Deferred:
Federal
State
Investment/production tax credits
Income tax provision
2017
$ 52,643
2016
$ 54,321
2015
$ 84,239
8,222
(6,886)
(34,526)
4,256
(2,624)
(2,742)
$ 18,343
6,044
(5,738)
(32,491)
4,453
(1,531)
(1,528)
$ 23,530
8,233
(5,149)
(30,096)
4,861
(1,339)
(1,025)
$ 59,724
12.2%
15.2%
24.8%
2017
2016
2015
$ (16,023) $ (23,597) $ 20,492
5,473
(2,209)
2,470
54,965
11,457
(34,526)
56,480
7,375
(30,096)
$ 18,343 $ 23,530 $ 59,724
70,386
11,441
(32,491)
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
Overrecovered gas costs
Other
Total deferred tax assets
Deferred tax liabilities
2017
2016
$
$
111,642
3,877
6,260
11,519
28,487
23,597
—
13,845
199,227
$
$
76,517
3,601
8,128
1,179
27,541
18,113
3,831
11,668
150,578
Property related items
Remediation costs
Equity investments
Postemployment benefits
Conservation incentive plan
Underrecovered gas costs
Other
(532,027)
(7,928)
(37,740)
(7,902)
(14,953)
—
(14,610)
(615,160)
(464,582)
Includes $2.3 million and $2.5 million for NJNG for fiscal 2017 and 2016, respectively, which is being amortized over the life of the related assets, and
$109.3 million and $74 million for Clean Energy Ventures for fiscal 2017 and 2016, respectively, which is ITC carryforward.
(620,850)
(11,625)
(38,370)
(6,855)
(7,195)
(4,035)
(16,643)
(705,573)
(506,346)
Total deferred tax liabilities
Total net deferred tax liabilities
(1)
$
$
$
$
$
$
Page 116
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S.
Federal jurisdiction and in the states of Colorado, Connecticut, Delaware, Iowa, Kansas, Louisiana, Maryland, Montana, New
Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas, Utah, Virginia and the City of New York. The Company
neither files in, nor believes it has a filing requirement in, any foreign jurisdictions other than Canada. Due to certain available
tax treaty benefits, the Company incurs no tax liability in Canada.
The Company’s federal income tax returns through fiscal 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, 2016. All periods subsequent to those ended September 30, 2013, are statutorily open to examination in all applicable
states with the exception of New York. In New York, all periods subsequent to September 30, 2014, are statutorily open to
examination.
The Company evaluates its tax positions to determine the appropriate accounting and recognition of potential future
obligations associated with unrecognized tax benefits. As of September 30, 2017 and 2016, based on its analysis, the Company
determined there was no need to recognize any liabilities associated with uncertain tax positions.
As of September 30, 2017 and 2016, the Company has consolidated federal income tax net operating losses of approximately
$125.3 million and $78.7 million, respectively, which generally can be carried back two years and forward 20 years. The Company
plans to exercise its ability to carryback its federal net operating losses. Additionally, as of September 30, 2017 and 2016, the
Company has state income tax net operating losses of approximately $471.7 million and $310.6 million, respectively. These state
net operating losses have varying carry forward periods dictated by the state in which they were incurred; these state carry forward
periods range from seven to 20 years. The Company has recorded deferred federal and state tax assets of approximately $52.1
million and federal income tax receivables of approximately$15.4 million on the Consolidated Balance Sheets, reflecting the tax
benefit associated with the loss carrybacks.
The Company recorded a valuation allowance associated with state net operating loss carryforwards of $1 million related
to NJRCEV in the state of Montana, as of September 30, 2017, and $262,000 related to CR&R in the state of New Jersey, as of
September 30, 2016, which was deemed more likely than not to be realized prior to expiration and therefore was released during
fiscal 2017.
In addition, as of September 30, 2017, the Company has an ITC/PTC carryforward of approximately $109.3 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.
The deferred tax assets will expire as follows:
(Thousands)
Fiscal years 2018 - 2022
Fiscal years 2023 - 2027
Fiscal years 2028 - 2032
Fiscal years 2033 - 2037
Total
$
313
1,051
796
159,237
$ 161,397
In December 2015, the Consolidated Appropriations Act 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 Consolidated Appropriations Act 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.
Page 117
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
14. 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 $98.6 million at current contract rates
and volumes, which are recoverable through BGSS.
For the purpose of securing storage and pipeline capacity, our Energy Services segment enters into storage and pipeline
capacity contracts, which require the payment of certain demand charges by Energy Services to maintain the ability to access such
natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to 10 years. Demand charges
are established by interstate storage and pipeline operators and are regulated by FERC. These demand charges represent
commitments to pay storage providers or pipeline companies for the right to store and/or transport natural gas utilizing their
respective assets.
Commitments as of September 30, 2017, for natural gas purchases and future demand fees for the next five fiscal year periods,
are as follows:
(Thousands)
Energy Services:
Natural gas purchases
Storage demand fees
Pipeline demand fees
2018
2019
2020
2021
2022
Thereafter
$ 296,491 $ 114,817 $
22,270 $
11,488 $
— $
32,870
55,916
22,638
32,412
13,350
23,804
9,041
21,621
5,833
19,653
Sub-total Energy Services
$ 385,277 $ 169,867 $
59,424 $
42,150 $
25,486 $
NJNG:
Natural gas purchases
Storage demand fees
Pipeline demand fees
Sub-total NJNG
Total
$
51,050 $
41,156 $
2,514 $
— $
— $
30,042
68,544
26,628
15,331
102,091
100,909
8,231
91,231
7,804
89,859
97,663 $
$ 149,636 $ 169,875 $ 118,754 $
$ 534,913 $ 339,742 $ 178,178 $ 141,612 $ 123,149 $
99,462 $
As of September 30, 2017, the Company’s future minimum lease payments under various operating leases will not be more
than $2.6 million annually for the next five years and $38.3 million in the aggregate for all years thereafter.
Guarantees
As of September 30, 2017, there were NJR guarantees covering approximately $331.4 million of Energy Services’ natural
gas purchases and demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
Legal Proceedings
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of 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 RAC
approved by the BPU. NJNG currently recovers approximately$9.4 million annually through its SBC RAC. On November 17, 2017,
NJNG filed it's annual SBC application requesting a reduction in the RAC, which will decrease the annual recovery to $7 million,
effective April 1, 2018. As of September 30, 2017, $28.5 million of previously incurred remediation costs, net of recoveries from
customers and insurance proceeds, are included in regulatory assets on the Consolidated Balance Sheets.
Page 118
—
2,746
19,311
22,057
—
3,903
642,481
646,384
668,441
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG periodically, and at least annually, performs an environmental review of the MGP sites, including a review of potential
liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures
to remediate and monitor the five MGP sites for which it is responsible, including potential liabilities for Natural Resource Damages
that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range
from approximately $117.6 million to $205.2 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, 2017, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $149 million on the
Consolidated Balance Sheets, based on the most likely amount. This was reduced from $172 million in fiscal 2016, due to the
completion of remediation work at some of sites and a reduction to the remediation scope at another site. The actual costs to be
incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and
governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries.
NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that
the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such
determination.
Litigation
The Company is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial,
regulatory and arbitration proceedings relating to matters that arise in connection with the conduct of its business. In view of the
inherent difficulty of predicting the outcome of litigation matters, particularly when such matters are in their early stages or where
the claimants seek indeterminate damages, the Company cannot state with confidence what the eventual outcome of the pending
litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties
related to each pending matter will be, if any. In accordance with applicable accounting guidance, NJR establishes reserves for
litigation for those matters that present loss contingencies as to which it is both probable that a loss will be incurred and the amount
of such loss can be reasonably estimated. Based upon currently available information, NJR believes that the results of litigation that
is currently pending, taken together, will not have a materially adverse effect on the Company’s financial condition, results of
operations or cash flows. The actual results of resolving the pending litigation matters may be substantially higher than the amounts
reserved.
The foregoing statements about NJR’s litigation are based upon the Company’s judgments, assumptions and estimates and are
necessarily subjective and uncertain. The Company has a number of threatened and pending litigation matters at various stages.
Certain of the Company’s significant litigation is described below.
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, 2017, 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.
15. REPORTING SEGMENT AND OTHER OPERATIONS DATA
The Company organizes its businesses based on a combination of factors, including its products and its regulatory
environment. As a result, the Company manages its businesses through the following reporting segments and other operations:
the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations;
the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists
of unregulated wholesale and retail energy operations; the Midstream segment consists of the Company’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, other investments and general corporate activities.
Page 119
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Information related to the Company’s various reporting segments and other operations is detailed below:
(Thousands)
Fiscal Years Ended September 30,
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
2017
2016
2015
$
695,637 $
594,346 $
781,970
64,394
53,540
32,513
1,462,365
1,187,754
1,872,781
316
9,499
61,526
2,222,712
1,845,139
2,748,790
46,221
45,265
46,723
3,370
(3,686)
1,980
(63,506)
$ 2,268,617 $ 1,880,905 $ 2,733,987
3,232
(12,731)
$
$
$
$
49,347 $
31,834
47,828 $
23,971
43,085
17,297
63
6
88
6
81,250
71,893
798
(207)
81,841 $
981
(126)
72,748 $
555 $
—
6
2,195
2,756
590
(1,312)
2,034 $
115 $
—
98
1,524
1,737
397
(2,006)
128 $
90
6
60,478
952
(31)
61,399
336
26
438
977
1,777
217
(1,414)
580
(1)
(2)
Includes sales to Canada, which accounted for .8, 2 and 3.7 percent of total operating revenues during fiscal 2017, 2016 and 2015, respectively.
Included in other income, net on the Consolidated Statements of Operations.
Page 120
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
2017
2016
2015
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Income tax (benefit) provision
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 121
19,930 $
18,534
25,818 $
16,263
2,747
960
45,788
10,304
1,095
287
31,616
410
(1,312)
44,886 $
252
(824)
31,044 $
43,485 $
(31,161)
(4,015)
5,820
14,129
3,857
357
18,343 $
34,951 $
(26,592)
7,030
6,130
21,519
1,387
624
23,530 $
7,635
1,209
717
28,095
49
(423)
27,721
39,544
(26,968)
39,043
6,849
58,468
1,551
(295)
59,724
17,797 $
(3,984)
13,813 $
13,936 $
(4,421)
9,515 $
17,487
(4,078)
13,409
86,930 $
24,873
18,554
12,857
76,104 $
28,393
21,934
9,406
76,287
20,101
42,122
9,780
143,214
135,837
6,811
(633)
149,392 $
2,882
(634)
138,085 $
148,290
3,420
(207)
151,503
176,249 $
149,400
325,649
2,434
328,083 $
205,133 $
168,875
149,063
354,196
1,896
151,002
319,877
209
356,092 $
320,086
27,070
27,070 $
11,176
11,176 $
5,780
5,780
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 reporting
segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated
net income is as follows:
(Thousands)
Consolidated net financial earnings
Less:
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
Consolidated net income
2017
149,392 $
2016
138,085 $
2015
151,503
$
(11,241)
4,062
38,470
(13,964)
132,065 $
46,883
(17,018)
(36,816)
13,364
131,672 $
(38,681)
14,391
(8,225)
3,058
180,960
$
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. The Company also calculates a quarterly tax adjustment based on an estimated annual
effective tax rate for NFE purposes.
The Company’s assets for the various reporting 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
(1)
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
16. RELATED PARTY TRANSACTIONS
2017
2016
2015
$ 2,519,578 $ 2,517,401 $ 2,305,293
504,885
260,021
182,007
3,252,206
88,880
(56,729)
$ 3,928,507 $ 3,718,570 $ 3,284,357
771,340
398,277
232,806
3,922,001
114,801
(108,295)
665,696
327,626
186,259
3,696,982
109,487
(87,899)
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.
Energy Services 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, 2017, Energy Services has entered into storage and park and loan
transactions with Steckman Ridge for varying terms, all of which expire by October 31, 2020.
Page 122
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Demand fees, net of eliminations, associated with Steckman Ridge during the fiscal years ended September 30, are as follows:
(Thousands)
NJNG
Energy Services
Total
2017
2016
2015
$
$
5,590 $
2,750
8,340 $
5,562 $
2,789
8,351 $
5,700
1,957
7,657
The following table summarizes demand fees payable to Steckman Ridge as of September 30:
(Thousands)
NJNG
Energy Services
Total
2017
2016
$
$
775 $
377
1,152 $
775
375
1,150
NJNG and Energy Services have entered into various asset management agreements, the effects of which are eliminated in
consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to Energy Services.
NJNG retains the right to purchase market priced gas or fixed price storage gas from Energy Services. As of September 30, 2017,
NJNG and Energy Services had four asset management agreements with expiration dates ranging from October 31, 2017 through
October 31, 2020.
NJNG has entered into a 15-year transportation precedent agreement for committed capacity of 180,000 Dths per day with
PennEast, to commence when in service.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of fiscal 2017 and 2016 follows. Due to the seasonal nature of the Company’s
businesses, quarterly amounts vary significantly during the fiscal year. In the opinion of management, the information furnished
reflects all adjustments necessary for a fair presentation of the results of the interim periods.
(Thousands, except per share data)
2017
Operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
2016
Operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 541,028 $ 733,546 $ 457,523 $ 536,520
(32,051)
$
(36,523)
$
41,475 $ 139,653 $
34,929 $ 114,702 $
17,967 $
18,957 $
$0.41
$0.40
$1.33
$1.32
$0.22
$0.22
$(0.42)
$(0.42)
$ 444,258 $ 574,193 $ 393,213 $ 469,241
42,480
$
25,400
$
(28,329) $
(17,363) $
93,933 $
73,354 $
59,451 $
50,281 $
$0.59
$0.58
$0.85
$0.84
$(0.20)
$(0.20)
$0.30
$0.29
(1)
The sum of quarterly amounts may not equal the annual amounts due to rounding.
18. SUBSEQUENT EVENTS
Acquisition
On October 27, 2017, Adelphia, an indirect wholly owned subsidiary of NJR, entered into a Purchase and Sale Agreement
with Talen pursuant to which Adelphia will acquire all of Talen’s membership interests in IEC for a base purchase price of $166
million. which includes a $10 million initial payment. As additional consideration, Adelphia will pay Talen specified amounts of
up to $23 million contingent upon the achievement of certain regulatory approvals and binding natural gas capacity commitments.
Page 123
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
IEC owns an existing 84-mile pipeline in southeastern Pennsylvania. The transaction is expected to close following receipt
of necessary permits and regulatory actions including those from the FERC and the Pennsylvania Public Utility Commission.
Upon the closing of the transactions contemplated by the purchase and sale agreement, Adelphia will acquire IEC and, with it,
IEC’s existing pipeline, related assets and rights of way. Adelphia has also agreed to provide firm natural gas transportation service
for ten years following the closing to two power generators owned by affiliates of Talen that are currently served by IEC.
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, 2017, that has materially affected, or is reasonably likely to materially affect,
internal control over financial reporting, except for changes implemented related to non-recurring transaction controls for business
combinations and controls related to customer billing for NJRRS. These changes were implemented to enhance our internal control
over financial reporting and not in response to any finding of a significant deficiency or a material weakness.
ITEM 9B. OTHER INFORMATION
None
Page 124
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 2018 Annual
Meeting of Shareowners, which will be filed with the SEC pursuant to Regulation 14A within 120 days after September 30, 2017.
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 New York Stock Exchange 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 125
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 129.
Page 126
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, 2017
Page
128
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 127
New Jersey Resources Corporation
Part IV
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2017, 2016 and 2015
(Thousands)
CLASSIFICATION
2017
Allowance for doubtful accounts
2016
Allowance for doubtful accounts
2015
Allowance for doubtful accounts
BEGINNING
BALANCE
ADDITIONS
CHARGED TO
EXPENSE
OTHER (1)
ENDING
BALANCE
$
$
$
4,865
5,189
5,357
2,023
1,616
2,859
(1,707) $
5,181
(1,940) $
4,865
(3,027) $
5,189
(1) Uncollectible accounts written off, less recoveries and adjustments.
Page 128
EXHIBIT INDEX
New Jersey Resources Corporation
Part IV
Exhibit
Number
2.1*
3.1
3.2
4.1
4.2
Exhibit Description
Purchase and Sale Agreement, dated as of October 27, 2017, by and between Talen Generation, LLC, and Adelphia
Gateway, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, as filed on November
2, 2017)
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 New Jersey Natural Gas Company 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
$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)
Page 129
New Jersey Resources Corporation
Part IV
Exhibit
Number
4.7(a)
4.8
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 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)
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)
$100,000,000 Credit Agreement, dated as of August 18, 2017, between New Jersey Resources Corporation and U.S.
Bank National Association, as Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-
K as filed on August 18, 2017)
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
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)
Page 130
New Jersey Resources Corporation
Part IV
Exhibit
Number
10.5*
Exhibit Description
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)
10.5(a)*
Schedule of Employee Continuation Agreements (incorporated by reference to Exhibit 10.6(a) to the Annual Report
on Form 10-K for the year ended September 30, 2010, as filed on November 24, 2010)
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
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 17, 2017)
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)
2007 Stock Award and Incentive Plan Form of Performance Share Units Agreement (TSR) (incorporated by reference
to Exhibit 10.4 to the Quarterly Report on Form 10-Q, as filed on February 8, 2017)
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 Share Units Agreement (NFE) (incorporated by reference
to Exhibit 10.2 to the Quarterly Report on Form 10-Q, as filed on February 8, 2017)
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 Performance-Based Restricted Stock Units Agreement (incorporated
by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q, as filed on February 8, 2017)
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)
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)
2007 Stock Award and Incentive Plan Form of Deferred Stock Retention Award Agreement (incorporated by
reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q, as filed on February 8, 2017)
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)
2007 Stock Award and Incentive Plan Form of Restricted Stock Units Agreement (incorporated by reference to
Exhibit 10.6 to the Quarterly Report on Form 10-Q, as filed on February 8, 2017)
The Company’s 2017 Stock Award and Incentive Plan (incorporated by reference to Appendix A to the Proxy
Statement for the 2017 Annual Meeting as filed on December 15, 2016)
10.21+* New Jersey Resources Corporation Savings Equalization Plan (as amended and restated as of January 1, 2017)
10.22* 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)
10.23* 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)
10.24* 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)
10.25*
10.26*
Form of Amended and Restated Employment Continuation Agreement between the Company and NJR Energy
Services Company named executive officer (incorporated by reference to Exhibit 10.2 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 named executive
officer (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, as filed on December 16,
2015)
Page 131
New Jersey Resources Corporation
Part IV
Exhibit
Number
Exhibit Description
10.27+* Resignation Agreement and General Release, dated as of August 18, 2017, between New Jersey Resources
Corporation and Mariellen Dugan
10.28
10.29
21.1+
23.1+
31.1+
31.2+
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)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act
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, 2017, 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 132
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 21, 2017
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 21, 2017
/s/ Laurence M. Downes
Laurence M. Downes
Chairman, President and
Chief Executive Officer
Director
November 21, 2017
/s/ Maureen A. Borkowski
Maureen A. Borkowski
Director
November 21, 2017
November 21, 2017
November 21, 2017
/s/ Lawrence R. Codey
Lawrence R. Codey
Director
/s/ Donald L. Correll
Donald L. Correll
Director
/s/ Robert B. Evans
Robert B. Evans
Director
November 21, 2017
November 21, 2017
November 21, 2017
November 21, 2017
November 21, 2017
/s/ Patrick J. Migliaccio
Patrick J. Migliaccio
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Thomas C. O'Connor
Thomas C. O'Connor
Director
/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 21, 2017
/s/ M. William Howard, Jr.
M. William Howard, Jr.
Director
November 21, 2017
/s/ George R. Zoffinger
George R. Zoffinger
Director
November 21, 2017
/s/ Jane M. Kenny
Jane M. Kenny
Director
Page 133
Shareowner Information
Annual Meeting
The Annual Shareowners Meeting will be held at 9:30 a.m. on
• Invest automatically with optional withdrawals from your bank
January 24, 2018 at The Mansion at Mountain Lakes, New Jersey.
account.
Please refer to your proxy statement for directions.
• Benefit from maintenance of shares of common stock in book-
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.
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
Investor and Media Information
or payroll deduction amount, if any.
Members of the financial community are invited to contact 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, please 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 checks from WFSS,
General written inquiries and address changes may be sent to:
unless they have elected to reinvest their dividends through
Wells Fargo Shareowner Services
P.O. Box 64874, St. Paul, MN 55164-0874
or
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
Wells Fargo Shareowner Services
The following documents may be obtained when available,
1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN
without charge, upon written request to: Investor Relations, New
55120-4100
Jersey Resources, 1415 Wyckoff Road, P.O. Box 1468, Wall, NJ 07719:
Shareowners can view their account information online at
• Annual Report and Form 10-K
shareowneronline.com.
New Jersey Resources Direct Stock Purchase and Dividend
Reinvestment Plan
The New Jersey Resources Direct Stock Purchase and Dividend
Reinvestment Plan, NJR Direct, provides a convenient and
economical method for new eligible investors to make an
initial investment in shares of common stock and for existing
shareowners to invest in additional shares of common stock
or reinvest all or some of their common stock cash dividends.
• Form 10-Q
• Form 8-K
• Quarterly Earnings News Release
• Audit Committee Charter
• Corporate Governance Guidelines
• Leadership Development and Compensation Committee
Charter
• Nominating/Corporate Governance Committee Charter
• NJR Code of Conduct
This is neither an offer to sell nor a solicitation of an offer to buy
These documents, as well as other filings made with the SEC,
securities. The Plan is administered by WFSS.
are also available through njresources.com.
As a participant in NJR Direct, you can:
Information in this Annual Report should not be considered a
• Conveniently purchase our common stock without incurring
brokerage commissions or transaction/processing fees.
• Build your investment over time, starting with as little as $100, up
to a maximum of $100,000 per calendar year.
• Increase your holdings in NJR by reinvesting all or some of your
solicitation of the sale or purchase of securities.
cash dividends in our common stock.
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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