2018 ANNUAL REPORT
RELIABLE
AFFORDABLE
CLEAN
N
E
W
J
E
R
S
E
Y
R
E
S
O
U
R
C
E
S
2
0
1
8
A
N
N
U
A
L
R
E
P
O
R
T
www.njresources.com
We are committed to enhancing our customers’ quality
of life by meeting their expectations for reliability and value
in an environmentally responsible way — every day.
Safe, Reliable and Competitively Priced Service
Customer Satisfaction
Growth
Quality
Valuing Employees
Corporate Citizenship
Superior Return
TABLE OF CONTENTS
Financial Performance
Letter from the Chairman
Corporate Profile
Directors and Officers
Presenting Our 2018 Form 10-K
Form 10-K
Shareowner Information
2
3
10
12
14
15
IBC
AS A DIVERSIFIED ENERGY COMPANY, OUR
PORTFOLIO OF BUSINESSES ARE STRATEGICALLY
ALIGNED AS WE PURSUE A RELIABLE,
AFFORDABLE, CLEANER ENERGY FUTURE.
— Laurence M. Downes
1
FINANCIAL PERFORMANCE
Dividends Declared Per Share
Payout Ratio (On a net financial earnings (NFE)‡ basis)
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
$250
$200
$150
$100
$50
$0.92
$0.98
$0.86
$1.11
$1.04
61%
60%
51%
41%
41%
75%
50%
25%
0%
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Performance Graph*
Value of $10,000 Invested§ (9/30/13)
NJR
$25,000
$20,000
Peer Group†
$15,000
$11,877
$16,427
$14,579
$24,291
$21,635
S&P 500
S&P 500
Utilities
$10,000
$5,000
$0
2013
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
* The performance graph shows a comparison of the five-year
cumulative return, including reinvestment of dividends, assuming $100
invested on September 30, 2013, New Jersey Resources (NJR) stock,
the Peer Group, the S&P 500 Index and the S&P 500 Utilities Index.
† The 12 companies in the 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
(WGL). WGL is no longer a publicly-traded entity.
‡ 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 2018 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 2018
Form 10-K.
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 release include, but
are not limited to, certain statements regarding NJR’s NFE guidance for
fiscal 2019, forecasted contribution of business segments to fiscal 2019
NFE, future NJNG customer and utility gross margin growth, future NJR
capital expenditures, infrastructure investments and solar sale leaseback
transactions, Clean Energy Ventures’ ITC-eligible projects and demand
for residential solar, the impact of the Tax Act, earnings and dividend
growth, as well as the ability to close and successfully implement the
Adelphia Gateway acquisition, the sale of our wind farms and construct
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, 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, pipeline transportation systems and NJR’s infrastructure
projects, including SRL and NJ RISE as well as PennEast and Adelphia
Gateway, 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 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 due
to delays or failures to complete planned solar 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, natural 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 post-employment 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 20, 2018, which is available on the SEC’s Web site 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,
Fiscal 2018 was another outstanding year for our
• Our clean energy subsidiary, NJR Clean Energy
company. The more than 1,000 women and men of
Ventures (CEV), contributed significant results driven
New Jersey Resources (NJR) once again delivered
by tax reform with NFE of $75.8 million, compared
strong performance for our shareowners across
with $24.9 million in fiscal 2017.
our portfolio of energy businesses.
• NJR Midstream, our natural gas storage and pipeline
• Net financial earnings (NFE)‡ were $240.5 million,
reflects the benefits of tax reform, compared with
or $2.74 per share, compared with $149.4 million,
$12.9 million in fiscal 2017.
business, contributed NFE of $24.4 million, which
or $1.73 per share, last fiscal year.
• Our closing stock price was $46.10 per share,
an increase of 9.4 percent.
• Our board of directors approved a 7.3 percent
dividend increase to an annual rate of $1.17 per
share. This was our 25th increase since 1995.
• NJR Energy Services (NJRES), our unregulated
wholesale energy services business, was a key driver
of our performance with NFE of $60.4 million,
compared with $18.6 million last fiscal year, driven
by strong demand and market volatility from
extreme cold weather.
• New Jersey Natural Gas (NJNG), our principal
subsidiary, delivered NFE of $84 million, compared
with $86.9 million last fiscal year.
We play a leadership
role in ensuring the
success of New Jersey’s
energy transition, and
the impact it will have on
our state and quality of
life long into the future.
3
As a diversified energy services company, our
in the East among large utilities according to the
core competencies — a strong financial profile,
J.D. Power 2018 Gas Utility Residential Customer
disciplined capital allocation, regulated infrastructure
Satisfaction Studysm and the 2017 Gas Utility
investments and complementary unregulated
Business Customer Satisfaction Studysm. In total,
investments — position us for sustainable future
we’ve received 13 J.D. Power awards over the last 16
growth. Our portfolio also allows us to strategically
years. And for the fifth consecutive year, we were
align with public policy as we pursue a reliable,
named a Most Trusted Brand and an Environmental
affordable and cleaner energy future.
Champion by Cogent Reports.
Under the leadership of Governor Phil Murphy,
In fiscal 2018, NJNG added 9,596 new customers.
New Jersey has embraced a clean energy future
These new additions, along with the 613 existing
that establishes aggressive renewable energy
customers who converted to natural gas heating
standards, calls for the development of offshore
and other services, are expected to contribute
wind, expands solar in our state and requires
$5.5 million annually to utility gross margin.††
utilities to implement energy-efficiency programs.
These are ambitious goals that offer significant
Our extensive pipeline network of nearly 7,500 miles
opportunities for companies like ours. For more
of distribution and transmission main now serves
than a decade, we have successfully advanced
539,000 customers throughout Monmouth, Ocean,
clean energy and conservation programs, and
Morris, Middlesex and Burlington counties.
we will continue to lead the way during this
transformational energy transition in our state.
This year, NJNG invested $45.7 million in its Safety
Acceleration and Facility Enhancement (SAFE)
Natural gas will continue to play a vital role in our
program and replaced 60 miles of unprotected
energy future. Low natural gas prices have reduced
steel main and associated services. Over the next
customers’ energy costs while allowing investment
three years, NJNG expects to replace the remaining
in clean energy to accelerate. In fact, it is estimated
146 miles of unprotected steel planned under
that over the past decade, lower natural gas
this program. When complete, we will be the only
prices have saved New Jersey customers more than
natural gas utility in the state to have eliminated all
$5.5 billion. At the same time, solar and energy-
cast iron and bare steel from our system.
efficiency incentives have totaled approximately
$4 billion, which has led to substantial growth in
To date, NJNG has invested over $50 million on six
our state’s clean energy investments. With prices
approved capital projects through our New Jersey
expected to remain low, natural gas should continue
Reinvestment in System Enhancement (NJ RISE)
to support an affordable energy transition.
RELIABLE
As we look to the energy future and the opportunities
before us, the fundamentals of our business will
not change. Ensuring reliable, affordable, clean
energy service will continue to be our main mission.
It is what our customers expect and what we are
dedicated to providing every day.
We are proud, once again, to rank highest in customer
satisfaction with residential natural gas service
4
9,596
new customers added in fiscal
2018 and expected to contribute
$5.5 million annually to utility
gross margin.
program. We completed the installation of three of
the four new distribution mains under the Barnegat
Bay designed to provide secondary feeds to serve
the Seaside Peninsula, and installed over 13,000
excess flow valves in storm-prone areas of our
service territory. Progress on our largest project, the
Long Beach Island Reinforcement, continues with
the recent approval of our environmental permits.
We expect to complete all remaining work on our
NJ RISE projects by the end of 2019.
We continue to make progress on our Southern
Reliability Link (SRL) project, with construction
commencing at the end of 2018. When complete,
the SRL will serve as a critical second source
of supply, strengthening our entire system and
supporting the safe, reliable delivery of natural gas
to municipalities throughout Ocean, Monmouth
and Burlington counties. We expect the SRL, which
will benefit over one million people in our service
territory, to be placed into operation in 2019.
As part of our commitment to reliability, NJR
Home Services, our unregulated retail and
appliance service business, is dedicated to meeting
customers’ heating, hot water and air conditioning
needs. This year, our team completed nearly 95,000
service jobs, helping to enhance home comfort.
We also are expanding our presence in the
midstream market with projects designed to provide
customers with low-cost natural gas from the
Marcellus Shale region, enhance reliability and
provide our shareowners with a competitive return
on their investment.
Adelphia Gateway will repurpose an existing
84-mile pipeline to provide natural gas to the
greater Philadelphia area. Once complete, it will
be able to transport approximately 300 million
dekatherms of natural gas annually to underserved
markets in the region. PennEast also continues
to move forward, having received its Certificate
of Public Convenience and Necessity from the
Federal Energy Regulatory Commission.
IDENTIFYING NEW
OPPORTUNITIES
The most effective way
to save our customers
money, while maintaining
the comfort of their
homes and protecting
the environment, is
by promoting energy
efficiency.
5
$5.5
billion in savings for New
Jersey customers due to
lower natural gas prices
over the past decade.
New natural gas infrastructure projects like Adelphia
Gateway and PennEast are important to our energy
AFFORDABLE
Ensuring safety and reliability is a critical part of
future. Bringing low-cost natural gas to market will
what we do, as is providing affordable service. The
reduce energy prices for residents and businesses
most effective way to save our customers money,
and support New Jersey’s transition to cleaner
while maintaining the comfort of their homes and
energy sources.
protecting the environment, is by promoting energy
efficiency. That is why improving energy efficiency
The interstate pipeline network continues to become
continues to be a top priority.
more constrained as the demand for clean, low-cost
energy continues to grow. Without sufficient peak-
NJNG’s The SAVEGREEN Project® (SAVEGREEN)
day supply, power generators switch to dirtier fuels,
provides our customers with incentives and
like coal and oil, to keep the power running. During
financing for energy-efficiency upgrades and
2018’s extreme winter weather, our own regional
whole-house and building solutions to help lower
power grid was forced to source nearly half its power
energy costs and reduce their carbon footprint.
supply from coal and oil due to constrained natural
As a leader in energy efficiency, we invested over
gas supply. New natural gas capacity will be critical
$12 million in fiscal 2018 to help our customers
to meet customers’ energy needs.
save energy.
6
Since the inception of SAVEGREEN in 2009, NJNG
Additionally, our Conservation Incentive Program
has completed 43,000 energy audits and helped
enables us to actively encourage conservation
nearly 53,000 customers save money on their
while protecting utility gross margin. Since 2006,
energy bills. Our total investment of $162 million
customers have saved $388 million through
to date has driven an estimated $400 million in
reduced natural gas usage.
economic development throughout our region by
working with nearly 2,700 local contractors.
If we are to fully realize a clean energy future,
clean-burning, low-cost energy and innovative
Building on this success, NJNG received approval
energy-efficiency programs like SAVEGREEN
from the New Jersey Board of Public Utilities
will be vital ingredients to achieving our state’s
(BPU) to invest $135 million over three years
energy-efficiency and clean energy goals.
to significantly expand our energy-efficiency
offerings and help more customers manage their
energy usage, save money and reduce emissions.
CLEAN
As our industry continues to evolve, we are
NJNG will earn a return on its investments in
delivering the energy our customers rely on
SAVEGREEN at its currently allowed weighted
in a more efficient and environmentally
average cost of capital.
sustainable way.
7
Thanks to our infrastructure investments, we have
the most environmentally sound natural gas system
in the state. Over the last five years we’ve invested
an average of $140 million annually, and nearly
$1.3 billion since 2008, to ensure the integrity of
our system. As a result, in fiscal 2018, we reduced
methane emissions by over 14,000 million cubic
feet and carbon dioxide emissions by 835 metric
tons, and we have the fewest leaks-per-mile of any
natural gas utility in New Jersey.
Building on our commitment to sustainability,
NJNG joined the U.S. Environmental Protection
Agency’s voluntary Methane Challenge Program to
further reduce emissions, and became the first
utility in the country to purchase a portion of its
natural gas supply through the TrustWell™
Responsible Gas Program.
It is clear there will be continued growth in the
clean energy marketplace. We will play a leadership
role in ensuring the success of New Jersey’s energy
transition, which will have a lasting impact on
our state and quality of life long into the future.
Since 2009, CEV has invested $716 million to
provide customers in New Jersey with clean,
affordable electricity through our residential and
commercial solar programs. The Sunlight
Advantage®, our residential solar lease program,
now operates in all 21 of New Jersey’s counties,
providing customers with an average annual
savings of approximately 40 percent, compared
with their current electric utility rates. This year, we
added over 900 residential solar lease customers,
bringing the total number of Sunlight Advantage
customers to more than 7,300.
In fiscal 2018, we also completed three new
commercial solar projects in New Jersey, bringing
our total to 35, with a combined capacity of 165
megawatts (MW). Since inception, we’ve installed
a total of 231 MW of residential and commercial
solar in the state. That’s enough clean energy to
power 24,000 homes and reduce greenhouse gas
LEADING
INNOVATION
We are delivering
the energy our
customers rely on
in a more efficient
and environmentally
sustainable way.
8
emissions by over 237,600 tons each year. These
projects generate nearly 290,000 Solar Renewable
Energy Certificates** annually, which are sold to
load-serving entities to satisfy the state’s renewable
energy requirement for electric generation.
CEV completed the sale of its 9.7 MW wind farm
in Two Dot, Montana to NorthWestern Energy.
This was the first step of our strategic plan to sell
our existing wind assets and use the proceeds to
support long-term growth, including new renewable
energy investments in New Jersey.
237,600
tons of greenhouse gas emissions
reduced since 2009 through
installment of residential and
commercial solar.
the driving force behind all of our accomplishments
We expect to invest approximately $2 billion over
and I am grateful for all that they do.
the next three years to expand our investment in
solar, reduce total energy demand with innovative
I would also like to acknowledge our regulators
energy-efficiency programs and support New
at the BPU and the Division of Rate Counsel. Our
Jersey’s transition to clean energy with the reliability
shared focus on resiliency, energy efficiency and
of affordable natural gas. We are prepared to do
clean energy reflects a strong commitment to
what we have always done — execute our plan and
provide customers with safe, reliable, affordable
deliver on our goal to exceed the expectations of
service and advance New Jersey’s environmental
our customers and shareowners.
and energy policies.
HELPING OTHERS
Nothing says more about our company and its
Our Annual Shareowners Meeting will be held at
9:30 a.m. on January 23, 2019, at Eagle Oaks Golf
culture than our commitment to the communities
and Country Club in Farmingdale, New Jersey.
we serve. Each year our employees, retirees
I hope you will be able to join us.
and their families volunteer their time and talents
to support the important work of nonprofit and
Your feedback is important to me. Please feel
community organizations throughout our service
free to write, call or send me an e-mail at
territory. This year, we contributed over 5,300
lmdownes@njresources.com and share your
volunteer hours and helped more than 2,000
thoughts on our performance, as well as any
organizations make a difference in the lives of others.
suggestions for improvement.
We are fortunate to have an engaged board of
As always, I appreciate the confidence you place
directors willing to share their expertise with us.
in us. Just as we do every year, we will continue to
I would like to express my personal appreciation
give our best to deliver performance of which we
to them for their leadership and support. I firmly
can all be proud. That is our promise to you.
believe the diverse perspectives and experience of
our board make us a better, stronger company.
Sincerely,
Our achievements in fiscal 2018 are a testament to
the women and men of NJR — from our management
team to members of the International Brotherhood
Laurence M. Downes
of Electrical Workers (IBEW) Local 1820. They are
Chairman and CEO
9
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 comprised of five primary businesses:
NEW JERSEY NATURAL GAS, NJR’s principal subsidiary, operates and maintains nearly 7,500 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 nearly 350 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.
NJR MIDSTREAM serves customers from local distributors and producers to electric generators and
wholesale marketers through its 50 percent equity ownership in the Steckman Ridge natural gas storage
facility, 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®.
For more information about NJR, visit njresources.com, follow us on Twitter @NJNaturalGas, “like” us on
facebook.com/NewJerseyNaturalGas and download our free NJR investor relations app for iPad, iPhone
and Android.
10
11
11
DIRECTORS AND OFFICERS OF NEW JERSEY RESOURCES
NEW JERSEY RESOURCES
Directors
Maureen A. Borkowski, 61 (B,D)
Chairman and President (retired)
Ameren Transmission Company
(2017)
M. William Howard Jr., 72 (B,C)
Pastor (retired)
Bethany Baptist Church
(2005)
Donald L. Correll, 68 (A,B,C)
Chief Executive Officer and
Co-founder
Water Capital Partners LLC
(2008)
Laurence M. Downes, 61 (B)
Chairman of the Board and
Chief Executive Officer
New Jersey Resources
(1995)
Robert B. Evans, 70 (A,B)
President and
Chief Executive Officer (retired)
Duke Energy Americas
(2009)
Jane M. Kenny, 67 (B,C,D)
Co-owner and Managing Partner
The Whitman Strategy Group, LLC
(2006)
Thomas C. O’Connor, 62 (A)
Chairman, President and
Chief Executive Officer (retired)
DCP Midstream, LLC
(2017)
J. Terry Strange, 74 (A,B)
Vice Chairman and Managing Partner
U.S. Audit Practice (retired)
KPMG LLP
(2003)
Sharon C. Taylor, 64 (B,C,D)
Senior Vice President
Human Resources (retired)
Prudential Financial
(2012)
David A. Trice, 70 (C,D)
President and
Chief Executive Officer (retired)
Newfield Exploration Company
(2004)
Stephen D. Westhoven, 50
President and
Chief Operating Officer
New Jersey Resources
(2018)
George R. Zoffinger, 70 (A,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
12
NEW JERSEY RESOURCES AND SUBSIDIARIES
Officers
Laurence M. Downes, 61 (1,2,3,4,5,7)
Chief Executive Officer
(1985)
Laura Conover, 50 (1)
Chief Communications Officer
and Chief of Staff
(2016)
Patrick J. Migliaccio, 44 (1,3,4,5,6,7)
Senior Vice President
and Chief Financial Officer
(2009)
Stephen D. Westhoven, 50 (1,2,3,4,5)
President and
Chief Operating Officer
(1990)
Amy Cradic, 47 (1)
Vice President — Government
Affairs and Policy
(2018)
Glenn C. Lockwood, 57 (1)
Executive Vice President
(1988)
Rhonda M. Figueroa, 59 (1,6,7)
Corporate Diversity Officer
(1981)
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
Keith S. Hartman, 57 (6)
President
NJR Home Services
(2015)
David Johnson, 50 (4)
Vice President
NJR Energy Services
(2002)
Mark G. Kahrer, 56 (2)
Vice President — Regulatory Affairs
(2017)
Linda B. Kellner, 59 (1)
Director of Government Affairs
(1995)
James W. Kent, 49 (1,2,3,4,5,7)
Treasurer
(2013)
Craig A. Lynch, 57 (2)
Senior Vice President —
Energy Delivery
(1984)
Thomas J. Massaro Jr., 52 (2)
Senior Vice President —
Marketing, Customer Service
and Energy Efficiency
(1989)
Amanda E. Mullan, 52 (1,7)
Senior Vice President and Chief
Human Resources Officer
(2015)
Richard Reich, 44 (1,2,3,4,5,7)
Corporate Secretary and
Assistant General Counsel
(2006)
Ginger P. Richman, 54 (4)
Vice President
NJR Energy Services
(2003)
Jaqueline K. Shea, 54 (1,7)
Vice President and
Chief Information Officer
(2016)
Timothy F. Shea, 53 (4)
Vice President
NJR Energy Services
(1998)
George C. Smith Jr., 61 (7)
Vice President —
Internal Audit
(1984)
Mark F. Valori, 55 (3)
Vice President
NJR Clean Energy Ventures
(2010)
Nancy A. Washington, 54 (1,2,3,4,5,7)
Senior Vice President and
General Counsel
(2017)
13
PRESENTING OUR 2018 FORM 10-K
Our 2018 Form 10-K includes financial statements
PART I: A DESCRIPTION OF NJR BUSINESSES
for NJR. It also includes detailed information about
INCLUDES:
each of our subsidiaries and the competitive
• Detailed descriptions of NJR subsidiaries
environments of our businesses, properties we
• Regulatory outlook for NJNG
own and other matters.
• Risk factors related to our business
All publicly held companies in the United States
• Legal proceedings
are required to file a Form 10-K report with the U.S.
• Information about our executive officers
• Description of properties owned and operated by NJR
Securities and Exchange Commission (SEC) every
year. Our Form 10-K is required by the rules and
regulations of the SEC to contain certain company
information in addition to the financial information
included in our previous annual reports to
shareowners. We are supplying our 2018 Form 10-K
(without exhibits) consistent with our commitment
to provide transparency and full disclosure to our
shareowners.
The 2018 Form 10-K is amended, supplemented
and updated by any amendment we may file,
and by all of the quarterly reports on Form 10-Q
PART II: MANAGEMENT’S DISCUSSION OF
RESULTS AND FINANCIAL STATEMENTS
ITEMS 5 AND 6 INCLUDE:
• Quarterly dividend and stock price information
• Selected financial data for NJR
• Operational statistics for NJNG
ITEMS 7 AND 7A INCLUDE:
• Management’s Discussion and Analysis of Financial
Condition and Results of Operation
• Quantitative and qualitative disclosures about
market risk
and current reports on Form 8-K we file or furnish
ITEMS 8 AND 9 INCLUDE:
with the SEC during the year. We urge you to
• Management’s reports on internal control over
read all such reports. Copies may be obtained as
financial reporting and disclosure controls and
described under “Request for Documents” on the
procedures
inside back cover of this Annual Report.
• Reports of independent registered public
FORM 10-K OVERVIEW
• Financial statements and footnotes for NJR
This Annual Report is not a part of, and should not
• Supplementary financial information (unaudited)
accounting firm
be considered to be included in, our 2018 Form
10-K. Use the following listing, which includes
highlights of the 2018 Form 10-K, to help you find
information easily. A comprehensive Table of
Contents with the page number for each item can
be found on page “i” of the 2018 Form 10-K.
PART III: INFORMATION ABOUT BOARD MEMBERS,
EXECUTIVE OFFICERS AND AUDITORS INCLUDES:
• Information about members of the board of
directors, executive compensation and accounting
fees is incorporated by reference to NJR’s proxy
statement
PART IV: EXHIBITS AND SIGNATURES INCLUDE:
• Index of exhibits
• Signatures of members of the board of directors
and certain officers
14
FORM 10-K
15
16
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, 2018
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)
(I.R.S. Employer
Identification Number)
1415 Wyckoff Road, Wall, New Jersey 07719
(Address of principal executive offices)
(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.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Yes
No
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S K(§ 229.405 of this chapter) 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
Act.
Exchange
Large accelerated filer:
Non-accelerated filer:
Accelerated filer:
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).
Yes
No
The aggregate market value of the registrant’s common stock held by non-affiliates was $3,451,945,383 based on the closing price of $40.10 per share on March 31,
2018, as reported on the New York Stock Exchange.
The number of shares outstanding of $2.50 par value common stock as of November 16, 2018 was 88,505,199.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareowners (Proxy Statement) to be held on January 23, 2019, are incorporated
by reference into Part I and Part III of this report.
New Jersey Resources Corporation
TABLE OF CONTENTS
Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information Concerning Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III*
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4. Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5. Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6. Investments in Equity Investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7. Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9. Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11. Asset Retirement Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13. Commitments and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14. Reporting Segment and Other Operations Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17. Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18. Selected Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . .
Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
* Portions of Item 10 and Items 11-14 are Incorporated by Reference from the Proxy Statement.
Page
1
3
4
4
5
7
10
11
12
13
13
13
13
14
23
23
24
25
25
26
27
29
65
69
69
70
72
77
77
77
93
95
101
104
104
104
109
112
117
118
121
123
126
126
126
127
127
127
127
128
128
128
128
128
129
130
132
136
i
New Jersey Resources Corporation
GLOSSARY OF KEY TERMS
Adelphia
AFUDC
ARO
ASC
ASU
Bcf
BGSS
BPU
CIP
CME
CR&R
Degree-day
DM
DM Common Units
DRP
Dths
EDA
EDA Bonds
EDECA
EE
FASB
FCM
FERC
Financial Margin
FMB
GAAP
HCCTR
Home Services and Other
ICE
IEC
Iroquois
IRS
ISDA
ITC
LIBOR
LNG
Loan Agreement
MGP
MLP
MMBtu
Moody’s
Mortgage Indenture
MW
MWh
NAESB
NFE
NJ RISE
NJCEP
NJDEP
NJNG
NJNG Credit Facility
NJR Credit Facility
NJR or The Company
Adelphia Gateway, LLC
Allowance for Funds Used During Construction
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 Energy Midstream Partners, L.P., a master limited partnership
Common units representing limited partnership interests in DM
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
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
Manufactured Gas Plant
Master Limited Partnership
Million British Thermal Units
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
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
The $425 million unsecured committed credit facility expiring in September 2020
New Jersey Resources Corporation
Page 1
New Jersey Resources Corporation
GLOSSARY OF KEY TERMS (cont.)
NJRCEV
NJRES
NJRHS
NJRRS
Non-GAAP
NPNS
NYMEX
O&M
OPEB
PBO
PennEast
PEP
PIM
PPA
Prudential Facility
PTC
RAC
REC
S&P
SAFE I
SAFE II
Sarbanes-Oxley
SAVEGREEN
Savings Plan
SBC
SEC
SREC
SRL
Steckman Ridge
Superstorm Sandy
Talen
Tetco
The Exchange Act
The Tax Act
Trustee
TSR
U.S.
Union
USF
NJR Clean Energy Ventures Corporation
NJR Energy Services Company
NJR Home Services Company
NJR Retail Services Company
Not in accordance with Generally Accepted Accounting Principles of the United States
Normal Purchase/Normal Sale
New York Mercantile Exchange
Operation and Maintenance
Other Postemployment Benefit Plans
Projected Benefit Obligation
PennEast Pipeline Company, LLC
Pension Equalization Plan
Pipeline Integrity Management
Power Purchase Agreement
NJR’s unsecured, uncommitted private placement shelf note agreement with Prudential
Investment Management, Inc.
Production Tax Credit
Remediation Adjustment Clause
Renewable Energy Certificate
Standard & Poor’s Financial Services, LLC
Safety Acceleration and Facility Enhancement Program, Phase I
Safety Acceleration and Facility Enhancement Program, Phase II
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
An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution
on the Budget for Fiscal Year 2018, previously known as The Tax Cuts and Jobs Act of 2017
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 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 2019 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 incentives and federal tax credits, the availability
of viable projects, our eligibility for ITCs, 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, pipeline transportation systems and NJNG and
Midstream infrastructure projects, including NJ RISE, SRL, PennEast and Adelphia, in a timely manner;
risks associated with acquisitions and the related integration of acquired assets with our current operations, including our planned Adelphia
acquisition;
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 our risk management efforts;
our ability to comply with current and future regulatory requirements;
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 due to delays or failures to complete planned solar 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;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to our Company;
risks related to cyberattacks or failure of information technology systems;
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;
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;
weather and economic conditions;
changes to tax laws and regulations;
any potential need to record a valuation allowance for our deferred tax assets;
our ability to comply with debt covenants;
demographic changes in our service territory and their effect on our 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 primary subsidiaries include:
New Jersey Natural Gas Company provides regulated retail natural gas service to approximately 538,700 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. NJRES comprises our Energy Services
segment and is referred to herein as Energy Services. NJR Retail Services Company provided unregulated retail natural
gas supply and transportation services to commercial and industrial customers in Delaware, Maryland, Pennsylvania
and New Jersey from July 2017 through February 2018. NJRRS was sold to an unrelated third party on February 28,
2018, and was included as part of our Energy Services segment for fiscal 2018 and 2017.
NJR Midstream Holdings Corporation, which comprises the Midstream segment, invests in energy-related ventures
through its subsidiaries. Investments include NJR Steckman Ridge Storage Company, which holds our 50 percent
combined ownership interest in Steckman Ridge, located in Pennsylvania; NJNR Pipeline, which holds our DM Common
Units; and NJR Pipeline Company, which includes Adelphia Gateway, LLC and our 20 percent ownership interest in
PennEast. See Note 6. Investments in Equity Investees for more information.
NJR Home Services Company provides heating, ventilation and cooling service, sales and installation of appliances
to approximately 110,000 service contract customers, as well as solar installation projects, and is the primary contributor
to Home Services and Other operations.
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 business 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 composition by reporting segment and other business operations at September 30, are as follows:
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 loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
NFE (1)
Basic earnings per share
Add:
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
2018
2017
$ 233,436 $ 132,065 $ 131,672
2016
26,770
(4,512)
(22,570)
7,362
(11,241)
4,062
38,470
(13,964)
46,883
(17,018)
(36,816)
13,364
$ 240,486 $ 149,392 $ 138,085
$
1.53
2.66 $
1.53 $
0.31
(0.05)
(0.26)
0.08
2.74 $
(0.13)
0.05
0.45
(0.17)
1.73 $
0.55
(0.20)
(0.43)
0.16
1.61
Tax effect
Basic NFE per share
NFE during fiscal 2018 was $59.6 million, or $0.68 per share, higher due to the revaluation of deferred taxes resulting from the reduction in the federal corporate tax
rate related to the Tax Act.
$
NFE by reporting segment and other business operations for the years ended September 30, are as follows:
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
538,700 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 years ended September 30, operating revenues and throughput by customer class are as follows:
2018
2017
2016
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 107.4, 128.9 and 160.1 Bcf for the capacity release program and related amounts of $5.7 million, $6.5 million and $8.1 million, which are
recorded as a reduction of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30, 2018, 2017 and 2016,
respectively.
395,315
98,777
73,206
567,298
7,970
575,268
120,369
695,637
441,486
95,351
65,256
602,093
7,522
609,615
122,250
731,865
345,597
80,994
69,696
496,287
8,867
505,154
89,192
594,346
36.9
7.3
14.1
58.3
61.5
119.8
56.6
176.4
45.5
8.9
15.5
69.9
46.2
116.1
42.8
158.9
40.7
8.7
14.4
63.8
55.0
118.8
49.5
168.3
Bcf
$
$
$
$
$
Operating
Revenue
NJNG added 9,596 and 9,126 new customers and added natural gas heat and other services to another 613 and 662 existing
customers in fiscal 2018 and 2017, respectively. NJNG expects its new customer annual growth rate to continue to be approximately
1.8 percent with projected additions in the range of approximately 28,000 to 30,000 new customers over the next three years. This
anticipated customer growth represents approximately $5.5 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 2018, 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.
Concurrent with its annual BGSS filing, NJNG files for an annual review of its CIP, during which time it can request rate
changes, as appropriate. For additional information regarding the CIP, including rate actions and impact to margin, see Note 3.
Regulation in the accompanying Consolidated Financial Statements and Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Natural Gas Distribution Segment.
Gas Supply
Firm Natural Gas Supplies
In fiscal 2018, NJNG purchased natural gas from approximately 79 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 for the upcoming winter season.
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 and the contract expiration dates are as follows:
Pipeline
Texas Eastern Transmission, L.P.
Transcontinental Gas Pipe Line Corp.
Columbia Gas Transmission Corp.
Tennessee Gas Pipeline Co.
Algonquin Gas Transmission
Total
(1) Numbers are shown net of any capacity release contracted amounts.
Dths(1)
300,738
202,531
50,000
25,166
12,000
590,435
Expiration
Various dates between 2019 and 2023
Various dates between 2019 and 2032
Various dates between 2024 and 2030
Various dates between 2023 and 2024
2020
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
2020
2028
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.
Stagecoach Pipeline & Storage Company LLC
Total
Dths
208,214
38,000
25,337
271,551
Expiration
Various dates between 2021 and 2024
2020
2023
NJNG utilizes its transportation contracts to transport gas to NJNG’s citygates from the Dominion Transmission Corporation,
Steckman Ridge and Stagecoach Pipeline & Storage Company LLC storage fields. NJNG has sufficient firm transportation, storage
and supply capacity to fully meet its firm sales contract obligations.
Page 8
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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 Tetco 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 Stagecoach Pipeline & Storage Company LLC storage capacity
to Energy Services for the period of April 1, 2018 to March 31, 2019. 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 160,000 Dths/day of its Tetco capacity to Energy Services for the period of
April 1, 2016 to October 31, 2021. Under these agreements, NJNG can call upon a supply of up to 160,000 Dths/day delivered to
its Texas Eastern citygate as needed. See Note 15. Related Party Transactions in the accompanying Consolidated Financial
Statements for additional information regarding these transactions.
Peaking Supply
To manage its winter peak day demand, NJNG maintains two LNG facilities with a combined deliverability of approximately
170,000 Dths/day, which represents approximately 18 percent of its estimated peak day sendout. NJNG’s liquefaction facility
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 also allows 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 with proper notice. 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
3. 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 and its BGSS clause.
Future Natural Gas Supplies
NJNG expects to meet the natural gas requirements for existing and projected firm customers. 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 3. Regulation in the accompanying Consolidated Financial Statements for
additional information regarding NJNG’s rate proceedings.
Federal
FERC regulates rates charged by interstate pipeline companies for the transportation and storage of natural gas. This affects
NJNG’s agreements with several interstate pipeline companies for the purchase of such services. Costs associated with these
services are currently recoverable through the BGSS.
Page 9
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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, 2018, NJNG had 26,490 residential and
9,636 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 Iowa, Kansas, Wyoming and Pennsylvania.
As of September 30, 2018, Clean Energy Ventures has constructed a total of 231.3 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. 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 sixth 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.
Our 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, a regulation that requires the increased production
of energy from renewable energy sources. Solar projects are also currently eligible for federal ITCs in the year that they are placed
into service.
As of September 30, 2018, Clean Energy Ventures has a total of 116.9 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.
In March 2018, Clean Energy Ventures committed to a plan to sell its remaining wind assets and it is probable that the sale
will be completed within the next 12 months. Accordingly, wind assets and related liabilities are classified as held for sale on the
Consolidated Balance Sheets.
On June 1, 2018, Clean Energy Ventures completed the sale of its membership interest in its 9.7 MW wind farm in Two Dot,
Montana to NorthWestern Energy for a total purchase price of $18.5 million. The transaction generated a pre-tax gain of
approximately $951,000, which is recognized as a reduction to O&M on the Consolidated Statements of Operations.
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.
Page 10
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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
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 our affiliated natural gas utility, 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.
From July 2017 through February 2018, NJRRS provided retail natural gas supply and transportation services to commercial
and industrial customers in Delaware, Maryland, Pennsylvania and New Jersey. NJRRS was sold to an unrelated third party on
February 28, 2018. See Note 17. Dispositions for more details.
In fiscal 2018, 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
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.
Page 11
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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 2018 and 2017, Energy Services managed and sold 662.4 Bcf and
521.6 Bcf of natural gas, respectively. In addition, as of September 30, 2018 and 2017, Energy Services had 34.1 Bcf or $90.2
million of gas in storage and 53.9 Bcf or $122.9 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 49.1 Bcf of firm storage
and 1.5 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. Our Risk Management Committee 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 our 50 percent equity investment in Steckman Ridge. Steckman
Ridge is a Delaware limited partnership, jointly owned and controlled by our subsidiaries 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 includes our 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. Adelphia, our wholly owned subsidiary of NJR Pipeline Company, was established in anticipation of acquiring
the membership interests in IEC. Upon closing, Adelphia will include an existing 84-mile pipeline in southeastern
Pennsylvania and related assets and rights of way; and
• NJR Midstream Holdings Corporation, which, through its subsidiary NJNR Pipeline Company, holds approximately 1.84
million DM Common Units.
Page 12
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
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
110,000 service contract customers, as well as installation of solar equipment;
• NJR Plumbing Services, Inc., which provides plumbing repair and installation services;
• CR&R, which holds commercial real estate; 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 has
estimated that the total future expenditures to remediate and monitor the MGP sites for which it is responsible will range from
approximately $117.7 million to $204.1 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 2018. 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, 2018,
NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $130.8 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.
EMPLOYEE RELATIONS
As of September 30, 2018, the Company and our subsidiaries employed 1,068 employees compared with 1,052 employees
as of September 30, 2017. Of the total number of employees, NJNG had 446 and 444 and NJRHS had 97 and 104 Union or
Represented employees as of September 30, 2018 and 2017, 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. Collective bargaining negotiations with the Union for
represented NJNG employees commenced in October 2018 and are expected to commence in February 2019 for represented
NJRHS employees. We consider our relationship with employees, including those covered by collective bargaining agreements,
to be in good standing.
Page 13
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://
investor.njresources.com/corporate-governance/sec-filings 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://investor.njresources.com/corporate-
governance):
• 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 2019 Annual
Meeting of Shareowners. We expect to file that Proxy Statement with the SEC on or about December 13, 2018. 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 shareholder who requests it by contacting the Corporate
Secretary at New Jersey Resources Corporation, 1415 Wyckoff Road, Wall, New Jersey 07719.
ITEM 1A. RISK FACTORS
When considering any investment in 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 solar energy projects are subject to substantial risks and uncertainties.
Our investments in commercial and residential solar energy projects are dependent, in part, upon current regulatory incentives
and federal tax credits in order for the projects to be economically viable. Our return on investment for these solar projects is based
substantially on our eligibility for ITCs and the future market value of 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 programs and tax laws may expire or be
adversely modified. Furthermore, a sustained decrease in the value of SRECs could negatively impact the return on our investment
and could result in our portfolio of solar assets becoming impaired. The market for such projects is also limited, which creates
increased competition and higher investment costs that may result in fewer investment opportunities that meet our return
requirements.
Page 14
New Jersey Resources Corporation
Part I
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 or inaccurate 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, planned Adelphia acquisition and
solar energy 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 Adelphia acquisition could adversely affect our business, results of operations,
financial condition and cash flows.
In October 2017, we announced our planned Adelphia acquisition, involving the future operation and maintenance of a
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 our planned Adelphia
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.
Any acquisitions that we may undertake involve risks and uncertainties. We may not realize the anticipated synergies, cost
savings and growth opportunities as a results of these transactions.
The integration of acquisitions requires significant time and resources. Investments of resources are required to support any
acquisition, which could result in significant ongoing operating expenses and may experience challenges when combining separate
business cultures, information technology systems and employees, and those challenges may divert senior management’s time
and attention. If we fail to successfully integrate assets and liabilities through the entities which we acquire, we may not fully
realize all of the growth opportunities, benefits expected from the transaction, cost savings and other synergies and, as a result,
the fair value of assets acquired could be impaired. We assess long-lived assets, including intangible assets associated with
acquisitions for impairment whenever events or circumstances indicate that an asset’s carrying amount may not be recoverable.
To the extent the value of long-lived assets become impaired, the impairment charges 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.
Page 15
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
Major changes in the supply and price of natural gas may affect financial results.
While NJNG expects to meet its customers’ demand for natural gas for the foreseeable future, factors impacting suppliers
and other third parties, including the inability to develop additional interstate pipeline infrastructure, lack of supply sources,
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. In addition, any significant disruption
in the availability of supplies of natural gas could result in increased supply costs, higher prices for customers and potential supply
disruptions to customers.
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.
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 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. FERC will also have regulatory authority over
Adelphia’s operations. 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.
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 existing tariff or a future base rate case, as well as our 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.
Page 16
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
Our regulated operations are subject to certain operating risks incidental to handling, storing, transporting and providing
customers with natural gas.
Our regulated operations are subject to all operating hazards and risks incidental to handling, storing, transporting and
providing customers with natural gas, including our natural gas vehicle refueling stations and LNG facilities. These risks include
catastrophic failure of the interstate pipeline system, 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. We 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, development of additional interstate pipeline infrastructure,
availability of supply sources, competition for the acquisition of natural gas, priority allocations, impact of severe weather
disruptions to natural gas supplies and 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
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 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 or being delayed in qualifying for ITCs due to
delays or failures to complete planned solar energy 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.
Page 17
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
We are involved in legal or administrative proceedings before various courts and governmental bodies that could adversely
affect our results of operations, cash flows and financial condition.
In the ordinary conduct of business, we are involved in legal or administrative proceedings before various courts and
governmental bodies with respect to general claims, rates, permitting, 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 are not covered by insurance or indemnity rights, could adversely affect our results of
operations, cash flows and financial condition.
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 and future 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 Company 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.
Cyberattacks or failure of information technology systems could adversely affect our business operations, financial condition
and results of operations.
We continue to place ever-greater reliance on technological tools that support our business operations and corporate functions,
including tools that help us manage our natural gas distribution and energy trading 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, energy trading 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.
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.
Page 18
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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
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.
Page 19
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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.
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 our 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, we 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 contractually-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.
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 margin, severe weather conditions may have an impact on
the ability of suppliers and pipelines to deliver the natural gas to NJNG, which can negatively affect our earnings. The CIP does
not mitigate the impact of severe weather conditions on our cash flows.
Future results at 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.
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. On December 22, 2017, the
President signed into law the Tax Act. The newly enacted legislation included a broad range of tax reform initiatives, including a
reduction to the federal statutory corporate tax rate from 35 percent to 21 percent, modification of bonus depreciation and changes
to the deductibility of certain business-related expenses. Any future change in tax laws, including the Tax Act, or interpretation
of such laws, could adversely affect our results of operations, net income, financial condition and cash flows. In addition, we
cannot predict how our federal and state regulators will apply such tax change in our future rates.
Page 20
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
A valuation allowance may be required for our deferred tax assets.
As a result of the Tax Act’s decrease to the federal statutory corporate tax rate, we revalued our deferred tax assets and
liabilities at the enactment date to reflect the rates expected to be in effect when the deferred tax assets and liabilities are realized
or settled. Since these adjustments are based on assumptions we made with respect to our book versus tax differences and the
timing of when those differences will reverse, the revaluation of our net deferred tax liabilities is subject to change as information
and assumptions are updated. Our deferred tax assets are comprised primarily of investment tax credits and state net operating
losses. Any further revaluation of our deferred tax assets that may be required in the future could have a material adverse impact
on our financial condition and results of operations.
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
and our sale-leaseback agreements 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 estimates regarding customer growth are based in part upon
information from third parties, the estimates have not been verified by an independent source and are subject to the aforementioned
risks and uncertainties, which could cause actual results to materially deviate from the estimates.
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, catastrophic failure of the interstate pipeline system
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.
A slow or inadequate response to events that could cause business interruption 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, catastrophic failure of the interstate pipeline system 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
Page 21
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
may require us to expend significant financial resources to, among other things, conduct site remediation and perform environmental
monitoring. If we fail to comply with applicable environmental laws and regulations, even if we are unable to do so due to factors
beyond our control, we may be subject to civil liabilities or criminal penalties and may be required to incur significant expenditures
to come into compliance. Additionally, any alleged violations of environmental laws and regulations may require us to expend
significant resources in our defense against alleged violations.
Furthermore, the U.S. Congress has for some time been considering various forms of climate change legislation. There is a
possibility that, when and if enacted, the final form of such legislation could impact our costs and put upward pressure on 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, NJNG and NJRHS
have collective bargaining agreements with the Union that expire in December 2018 and April 2019, respectively. Union
negotiations for represented NJNG employees commenced in October 2018 and are expected to commence in February 2019 for
represented NJRHS employees. 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 7,252 miles of distribution main, 7,525 miles of service main, 227 miles of transmission main
and 557,000 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, 2018. In addition, under the
terms of the Mortgage Indenture, NJNG could have issued up to $1 billion of additional first mortgage bonds as of September 30,
2018.
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 231.3 MW of capacity
throughout New Jersey 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 116.9 MW of wind capacity and owns wind projects in 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, 2018, Energy Services leases office space in Wall Township, New Jersey, Houston, Texas, Charlotte,
North Carolina and Allentown, Pennsylvania.
Midstream Segment
As of September 30, 2018, 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,
2018, 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, 2018, CR&R’s real estate portfolio consisted of 35 acres of undeveloped land in Atlantic County, New
Jersey with a net book value of $1.4 million.
NJRHS leases service centers in Dover, New Jersey and Wall Township, 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 2019 and 2020 capital expenditures, as applicable to our 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 recovered approximately $9.4 million annually through its SBC RAC. On July 25, 2018, the BPU
approved NJNG’s annual SBC application requesting a reduction in the RAC, which decreased the annual recovery to $7 million,
effective September 1, 2018. On September 21, 2018, NJNG filed its annual SBC application requesting to recover remediation
expenses incurred through June 30, 2018, and an increase in the RAC, which will result in an annual increase of approximately
$1.4 million, effective April 1, 2019. As of September 30, 2018, $33 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 MGP sites located in Atlantic Highlands,
Berkeley, Long Branch, Manchester and Toms River, 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 $117.7 million to $204.1
million. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in
place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish
a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than
the other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, as of September 30, 2018, NJNG recorded an
MGP remediation liability and a corresponding regulatory asset of $130.8 million on the Consolidated Balance Sheets, based on
the most likely amount. This was reduced from $149 million in fiscal 2017, 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 insurance recoveries, if any.
NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that
the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such
determination.
General
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 business, certain of which
litigation matters are described in Note 13. 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 (Continued)
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
61
Officer
since Office held during last five years
1986
Chairman of the Board (September 1996 - present)
Chief Executive Officer (July 1995 - present)
President (July 1995 - September 2018)
Patrick J. Migliaccio
44
2013
Stephen D. Westhoven
50
2004
Glenn C. Lockwood
Amanda E. Mullan
57
52
1990
2015
Jacqueline K. Shea
54
2016
Nancy A. Washington
54
2017
Senior Vice President and Chief Financial Officer (January 2016 - present)
Vice President, Finance and Accounting (November 2014 - December 2015)
Treasurer (August 2013 - May 2015)
President and Chief Operating Officer (October 2018 - present)
Executive Vice President and Chief Operating Officer (November 2017 - September 2018)
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 (January 2011 - present)
Chief Financial Officer (September 1995 - December 2015)
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, 2018,
NJR had 52,673 holders of record of its common stock.
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 us to purchase our outstanding shares on the
open market or in negotiated transactions, based on market and other conditions. We are 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, 2018:
Period
7/01/18 - 7/31/18
8/01/18 - 8/31/18
9/01/18 - 9/30/18
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 loss (gain) 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 loss (gain) on derivative instruments and
related transactions
Tax effect
Effects of economic hedging related to natural gas
inventory
Tax effect
Net financial earnings per share-basic (3)
Diluted earnings per share
Add:
Unrealized loss (gain) on derivative instruments and
related transactions
Tax effect
Effects of economic hedging related to natural gas
inventory
Tax effect
Net financial earnings per share-diluted (3)
2018
2017
2016
2015
2014
233,436 $
$ 2,915,109 $ 2,268,617 $ 1,880,905 $ 2,733,987 $ 3,738,145
$ 2,275,342 $ 1,703,767 $ 1,352,686 $ 2,085,645 $ 3,139,525
$
141,970
$ 4,143,664 $ 3,928,507 $ 3,718,570 $ 3,284,357 $ 3,125,388
$ 1,418,978 $ 1,236,643 $ 1,166,591 $ 1,106,956 $
966,166
$ 1,180,619 $
598,209
843,595 $
997,080 $ 1,055,038 $
132,065 $
131,672 $
180,960 $
$2.66
$2.64
$1.11
$1.53
$1.52
$1.038
$1.53
$1.52
$0.975
$2.12
$2.10
$0.915
$1.69
$1.67
$0.855
$
233,436 $
132,065 $
131,672 $
180,960 $
141,970
26,770
(4,512)
(11,241)
4,062
46,883
(17,018)
(38,681)
14,391
28,534
(10,492)
(22,570)
7,362
240,486 $
38,470
(13,964)
149,392 $
(36,816)
13,364
138,085 $
(8,225)
3,058
151,503 $
26,639
(9,794)
176,857
$
$2.66
$1.53
$1.53
$2.12
$1.69
0.31
(0.05)
(0.26)
0.08
$2.74
(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
$2.64
$1.52
$1.52
$2.10
$1.67
0.30
(0.05)
(0.25)
0.08
$2.72
(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
(1)
Includes long-term capital leases of $26.4 million, $28.9 million, $30.7 million, $35.7 million and $40.4 million, respectively.
Includes long-term solar asset financing obligation of $89.8 million and $28.2 million in fiscal 2018 and 2017, respectively.
(2)
(3) NFE is a non-GAAP financial measure that eliminates the timing differences surrounding the recognition of certain derivative gains or losses, to effectively
match the earnings effects of economic hedges associated with the physical sale or purchase of gas and, therefore, eliminate the impact of volatility to GAAP
earnings associated with the related derivative instruments. For further discussion of this financial measure, see the Energy Services segment in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Page 27
New Jersey Resources Corporation
Part II
ITEM 6. SELECTED FINANCIAL DATA (Continued)
NJNG OPERATING STATISTICS
Fiscal Years Ended September 30,
Operating revenues ($ 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
2018
2017
2016
2015
2014
$ 441,486
95,351
65,256
602,093
7,522
609,615
122,250
$ 731,865
$ 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
45.5
8.9
15.5
69.9
46.2
116.1
150.2
266.3
474,495
28,037
36,126
538,658
31
28
538,717
6.35
959
10,992
4,537
99.5%
686
40.7
8.7
14.4
63.8
55
118.8
178.4
297.2
460,013
26,947
42,790
529,750
33
27
529,810
7.96
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
885
11,183
4,129
90.0%
680
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
(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
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
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 regulatory assets when it is probable that certain operating costs will be
recoverable from customers in future periods and records regulatory 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, which
indicate that 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.
Impairment of Long-lived assets
Property, plant and equipment and intangible assets are reviewed periodically when changes in facts and circumstances
indicate that the carrying amount of an asset may not be fully recoverable in accordance with the appropriate accounting guidance.
When an impairment indicator is present, the Company determines if the carrying value of the asset is recoverable by comparing
it to the expected undiscounted future cash flows. If carrying value of the asset is greater than the expected undiscounted future
cash flows an impairment charge is recorded in an amount equal to the excess of the carrying value of the asset over its fair value.
Equity method investments are reviewed periodically when changes in facts and circumstances indicate that the current fair
value may be less than the asset’s carrying amount and record an impairment charge in an amount equal to the excess of the
carrying value of the asset over its fair value if the decline is other than temporary.
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, 2018, fair value of its derivative assets and liabilities reported
on the Consolidated Balance Sheets that is based on such pricing is considered 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 2018, 2017 and 2016.
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, 2018 and 2017.
Income Taxes and Credits
The determination of our provision for income taxes requires the use of estimates and the interpretation and application of
tax laws. Judgment is required in assessing the deductibility and recoverability of certain 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. 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 12. 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.
Occasionally, the federal and state taxing authorities determine that it is necessary to make certain changes to the income
tax laws. These changes may include but are not limited to changes in the tax rates and/or the treatment of certain items of income
or expense. Accounting guidance requires that the Company reflect the effect of tax laws or tax rates at the date of enactment.
Additionally, the Company is required to re-measure its deferred tax assets and liabilities as of the date of enactment. For non-
regulated entities, the effect of changes in tax rates and/or tax laws are required to be included in income from continuing operations
for the period that includes the enactment date. For regulated entities, if as the result of an action by a regulator it is probable that
the future increase or decrease in taxes payable for items such as changes in tax law or rates will be recovered from or returned
to customers through future rates, an asset or liability shall be recognized for that probable increase or decrease in future revenue.
Additionally, accounting guidance also requires that regulatory liabilities/assets be considered a temporary difference for which
a deferred tax asset/liability shall be recognized. As a result, NJNG grossed up its regulatory liability to reflect the required
accounting for the tax effects of the revaluation.
Concurrent with the enactment of the current tax reform legislation, the SEC issued Staff Accounting Bulletin No. 118,
which lays out an approach that a registrant may follow to comply with the enactment period accounting requirements. Accordingly,
registrants can have up to 12 months from the enactment date to complete the accounting for some or all of the income tax effects
triggered by the enactment of the new law. Registrants need to determine and use “reasonable estimates” for some or all of the
expected effects beginning with the one-year measurement period. The accounting must be finalized no later than 12 months from
the enactment date. If reasonable estimates cannot be determined, the accounting should continue to be based on the old law until
reasonable estimates can be determined in a subsequent period. As of September 30, 2018, our accounting for the income tax
effects of the Tax Act is considered complete.
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, 2018 and 2017, 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.
Changes to the federal statutes related to ITCs, 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. 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 on the Consolidated Balance Sheets, which is based on the most likely amount.
The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial
action, changing technologies and governmental regulations and the ultimate ability of other responsible parties to pay, as well as
the potential impact of any litigation and any insurance recoveries. Previously incurred remediation costs, net of recoveries from
customers and insurance proceeds received are included in regulatory assets on the Consolidated Balance Sheets.
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. See the Legal Proceedings section in Note 13. Commitments and Contingent Liabilities for more details.
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.
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 34 percent, 17 percent and 41 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.
Page 31
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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)
$(37,153)
$ 46,432
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (4,095)
$
4,756
$ (2,619)
2,619
$
Estimated
Increase/(Decrease) on PBO
(Thousands)
$(28,595)
$ 36,736
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ (2,728)
3,406
$
(713)
714
$
$
Estimated
Increase/(Decrease) on PBO
(Thousands)
Estimated
Increase/(Decrease) to Expense
(Thousands)
$ 36,260
$(28,743)
$
3,838
$ (2,991)
On October 1, 2016, we changed our approach used to measure the service and interest cost components of our net periodic
benefit costs. Previously, we estimated service cost and interest cost based on a single weighted-average discount rate from the
yield curve used to measure our projected benefit obligation. 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 10. Employee Benefit Plans in the accompanying Consolidated Financial
Statements for further discussion of our change in method.
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 and
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.
Page 32
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Reporting Segments
We have four primary reporting segments as presented in the chart below:
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.
The Tax Act
On December 22, 2017, the Tax Act was signed into law, which resulted in a reduction in the federal corporate tax rate. Since
our fiscal year end is September 30, it is required by the Internal Revenue Code to calculate a statutory rate based upon the federal
tax rates in effect before and after the effective date of the change in the taxable year that includes the effective date. Accordingly,
we applied a federal statutory tax rate of 24.5 percent during fiscal 2018 and the enacted rate of 21 percent beginning in fiscal
2019.
As a result of the Tax Act, we revalued our deferred tax assets and liabilities at the enactment date to reflect the rates expected
to be in effect when the deferred tax assets and liabilities are realized or settled. As of September 30, 2018, NJNG had a regulatory
liability that included excess deferred income taxes of $205.4 million, which requires amortization over the remaining life of the
utility plant consistent with IRS normalization principles. During fiscal 2018, we recognized an income tax benefit of approximately
$17 million for NJNG and approximately $59.6 million for the remaining entities on the Consolidated Statements of Operations.
See Note 12. Income Taxes for a more detailed discussion on the Tax Act.
Page 33
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
A summary of our consolidated results in net income and assets by reporting segment and operations for the fiscal years
ended September 30, is as follows:
(Thousands)
2018
2017
2016
Net Income
Assets
Net Income
Assets
Net Income
Assets
Natural Gas Distribution
$
86,930 $ 2,519,578 $
76,104 $ 2,517,401
Clean Energy Ventures
Energy Services
Midstream
Home Services and Other
Intercompany (1)
Total
84,048 $ 2,663,054 $
75,849
865,018
53,139
24,367
(3,555)
(412)
396,852
242,069
114,732
(138,061)
24,873
476
12,857
6,811
118
771,340
398,277
232,806
114,801
(108,295)
$
233,436 $ 4,143,664 $
132,065 $ 3,928,507 $
28,393
14,265
9,406
665,696
327,626
186,259
2,882
109,487
(87,899)
131,672 $ 3,718,570
622
(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 $101.4 million during fiscal 2018, compared with fiscal 2017, was primarily driven by increased
operating income at Energy Services related to colder weather, resulting in increased storage withdrawals due to higher demand
coupled with higher volatility resulting in an increase in natural gas price spreads. Net income also increased due to impacts from
the Tax Act, including a net income tax benefit of $59.6 million and a decrease in tax expense due to the lower tax rate, which
was partially offset by increased O&M expense.
The increase in net income of $393,000 during fiscal 2017, compared with fiscal 2016, was primarily driven by increased
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, increased equity in earnings
of affiliates at Midstream and increased revenues and PTCs at Clean Energy Ventures. 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.
Assets
The increase in assets during fiscal 2018, compared with fiscal 2017, was due primarily to additional utility plant at our
Natural Gas Distribution segment and an advance payment of $10 million for the IEC acquisition, partially offset by a decrease
in regulatory assets at our Natural Gas Distribution segment, as well as a decrease in the market value of the DM Common Units
at Midstream.
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.
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 and calculates the related tax effect based on
the statutory rate. 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
or futures 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
for the fiscal years ended September 30:
(Thousands, except per share data)
Net income
Add:
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory (1)
Tax effect
Net financial earnings
Basic earnings per share
Add:
Unrealized loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory (1)
Tax effect
Basic net financial earnings per share
2018
2017
$ 233,436 $ 132,065 $ 131,672
2016
(11,241)
4,062
26,770
(4,512)
(22,570)
7,362
46,883
(17,018)
(36,816)
13,364
$ 240,486 $ 149,392 $ 138,085
38,470
(13,964)
$
2.66 $
1.53 $
1.53
0.31
(0.05)
(0.26)
0.08
2.74 $
(0.13)
0.05
0.45
(0.17)
1.73 $
0.55
(0.20)
(0.43)
0.16
1.61
$
(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)
Total
2018
$
84,048
75,849
60,378
35% $
32
25
10
2017
86,930
24,873
18,554
12,857
17
12
9
24,367
(3,829)
(2)
(327) —
6,811
4
(633) —
2016
58% $
76,104
55%
28,393
21,934
9,406
20
16
7
2,882
2
(634) —
$ 240,486 100% $ 149,392
100% $ 138,085
100%
(1) Consists of transactions between subsidiaries that are eliminated in consolidation.
The increase in NFE during fiscal 2018, compared with fiscal 2017, was driven primarily by higher financial margin generated
at Energy Services due primarily to colder weather, resulting in increased storage withdrawals due to higher demand coupled with
higher volatility, allowing Energy Services to capture additional margin from natural gas price spreads. The increase in NFE also
included a net income tax benefit of $59.6 million associated with the Tax Act, as previously discussed.
The increase in NFE during fiscal 2017, compared with fiscal 2016, was driven primarily by 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.
Page 35
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 538,700 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.
In addition, NJNG’s business is seasonal by nature, as weather conditions directly influence the volume of natural gas
delivered to customers on an annual basis. Specifically, customer demand substantially increases during the winter months when
natural gas is used for heating purposes. As a result, NJNG receives most of its natural gas distribution revenues during the first
and second fiscal quarters and is subject to variations in earnings and working capital during the year.
As a regulated company, NJNG is required to recognize the impact of regulatory decisions on its financial statements. See
Note 3. Regulation in the accompanying Consolidated Financial Statements for a more detailed discussion on regulatory actions,
including filings related to programs and associated expenditures, as well as rate requests related to recovery of capital investments
and operating costs.
NJNG’s operations are managed with the goal of providing safe and reliable service, growing its customer base, diversifying
its 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 1.8 percent annually through fiscal 2021;
• 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 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, Natural Gas
Vehicle Refueling Stations and LNG capital investments and recovery of other costs previously deferred in regulatory assets.
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 NJNG’s
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 future base rate cases.
The BPU approved 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 in the most storm-prone areas of NJNG’s service territory. Recovery of NJ RISE investments is included in
NJNG’s base rates.
In July 2017, the BPU approved NJNG’s annual petition requesting a $4.1 million increase in recoveries 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, effective October 2017.
Page 37
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
On September 17, 2018, the BPU approved NJNG’s annual petition requesting a base rate increase of $6.8 million for the
recovery of SAFE II and NJ RISE 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 12-months ended June 30, 2018, effective October 1, 2018.
Natural Gas Vehicle Refueling Stations
NJNG has three natural gas vehicle refueling stations open to the public. Costs for these stations were approximately $10
million and are being recovered through NJNG’s base rates, effective October 2016.
Liquefaction/LNG
NJNG’s Liquefaction facility allows NJNG to convert natural gas into LNG to fill its existing LNG storage tanks. Costs for
this facility along with other plant upgrades were approximately $36.5 million and are being recovered through NJNG’s base rates
effective October 2016.
Southern Reliability Link
The SRL is an approximately 30-mile, 30-inch transmission main designed to support improved system reliability and
integrity in the southern portion of NJNG’s service territory, estimated to cost between $180 million and $215 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. In September 2017, the NJ Pinelands Commission approved construction of the SRL as being compliant with
the Commission’s Comprehensive Management Plan. All approvals issued by state agencies are under appeal and certain road-
opening permits and easements are in the process of being secured. Construction is expected to begin in fiscal 2019, with an
estimated in-service date in 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
2018
2017
2016
474,495
460,013
448,273
28,037
26,490
9,636
26,947
32,653
10,137
26,218
36,292
10,316
538,658
529,750
521,099
59
60
64
538,717
529,810
521,163
During fiscal 2018, NJNG added 9,596 new customers, which represents a new customer growth rate of approximately 1.8
percent. During that same time period, NJNG converted 613 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 9,126 and 8,170 new customers and converted 662
and 644 existing customers to natural gas heat and other services during the fiscal years ended September 30, 2017 and 2016,
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 28,000 to 30,000 new customers during the three-year period of
fiscal 2019 to 2021. 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 68 percent of the growth will come from new
construction markets and 32 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 $5.5 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.
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.
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. In June 2016, the BPU approved NJNG’s extension of SAVEGREEN through December 31,
2018. On September 17, 2018, the BPU approved the continuation of existing SAVEGREEN programs and the addition of new
programs with investments of $135 million through December 2021.
On October 20, 2017, the BPU approved NJNG’s filing to decrease its EE recovery rate, which resulted in an annual decrease
of $3.9 million, effective November 1, 2017. On May 25, 2018, NJNG filed a petition with the BPU to decrease its EE recovery
rate. On October 16, 2018, NJNG updated this information through September 30, 2018, which will result in an annual decrease
of $8.8 million, anticipated to be effective January 1, 2019.
Since inception, $162 million in grants, rebates and loans have been provided to customers, with a total annual recovery of
approximately $16.1 million. 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 a variable margin review
test. Additionally, recovery of the CIP utility gross margin 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 3. Regulation - BGSS and
CIP in the accompanying Consolidated Financial Statements, for a discussion of CIP rate actions.
NJNG’s total utility firm gross margin includes the following adjustments related to the CIP mechanism:
(Thousands)
Weather (1)
Usage
Total
(1)
2018
2017
2016
$
$
205 $
(1,629)
(1,424) $
19,261 $
(2,309)
16,952 $
27,547
10,420
37,967
Compared with the CIP 20-year average, weather was 0.5 percent, 10 percent and 17.5 percent warmer-than-normal during fiscal 2018, 2017 and 2016,
respectively.
Commodity prices
Our Natural Gas Distribution segment is affected by the price of natural gas, which can have a significant impact on our
cash flows, short-term financing costs, the price of natural gas charged to our customers through the BGSS clause, our ability to
collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other
fuel sources.
Page 39
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) Midpoint daily gas price sourced from Platts, a division of McGraw Hill Financial.
The maximum price per MMBtu was $94.93, $8.71 and $4.74 and the minimum price was $0.53, $0.36 and $0.67 for the
fiscal years ended September 30, 2018, 2017 and 2016, 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 March 26, 2018, the BPU approved maintaining NJNG's BGSS rate for residential and small commercial customers and
an increase to its balancing charge rate, which resulted in a $3.7 million increase to the annual revenues credited to BGSS, effective
October 2017. The balancing charge rate includes the cost of balancing natural gas deliveries with customer usage for sales and
transportation customers and balancing charge revenues are credited to BGSS. During fiscal 2017, NJNG issued bill credits of
$42 million as a result of a decline in the wholesale price of natural gas. There were no bill credits issued during fiscal 2018, related
to BGSS prices.
Page 40
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
On September 17, 2018, the BPU provisionally approved NJNG’s annual petition to maintain its BGSS rate for residential
and small commercial customers and increase its balancing charge rate, resulting in a $10.3 million increase to the annual revenues
credited to BGSS, as well changes to the CIP rates, which will result in a $30.9 million annual recovery decrease, effective October 1,
2018. Refer to Note 3. Regulation - BGSS and CIP in the accompanying Consolidated Financial Statements for a further discussion
of NJNG’s periodic BGSS rate adjustments and bill credits.
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing
programs that include off-system sales, capacity release and storage incentive programs. 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 $12.5 million, $13.7 million and $15 million during the
fiscal years ended September 30, 2018, 2017 and 2016, 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 its 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 June 2015, NJNG entered into a transaction to fix a benchmark
treasury rate of 3.26 percent associated with a $125 million debt issuance that was finalized in May 2018. The debt issuance
coincided with the maturity of NJNG's $125 million, 5.6 percent notes that came due on May 15, 2018. This treasury lock was
settled on March 13, 2018, which coincided with the pricing of the new debt being issued. Settlement of the interest rate contract
resulted in a $2.6 million loss, which is recorded as a component of regulatory assets on the Consolidated Balance Sheets and will
be amortized to earnings over the 30-year term of the $125 million note issued on May 11, 2018.
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. On September 17, 2018, the BPU approved NJNG’s annual USF
compliance filing to increase the statewide USF rate, which will result in a $1 million annual increase, effective October 1, 2018.
Refer to Note 3. 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 $130.8 million as of September 30, 2018, a
decrease of $18.2 million, compared with the prior fiscal period.
Page 41
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
Interest Rate Risk
Due to the capital-intensive nature of NJNG’s operations and the seasonal nature of its working capital requirements,
significant changes in interest rates can impact NJNG’s results. A more detailed discussion can be found in the Liquidity and
Capital Resources and Cash Flow sections of Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Other regulatory filings and a more detailed discussion of the filings in this section can be found in Note 3. Regulation in
the accompanying Consolidated Financial Statements.
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 (benefit) provision
Net income
2018
2017
$ 731,865 $ 695,637 $ 594,346
2016
333,208
161,723
38,969
53,208
44,184
631,292
100,573
6,864
25,299
(1,910)
84,048 $
$
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
(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 $57.2 million, $10.8 million and $10.8 million during fiscal 2018, 2017 and 2016, 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 5.2 percent during fiscal 2018 and increased 17 percent during fiscal 2017. Gas purchases
increased 23.6 percent during fiscal 2018 and increased 24.8 percent during fiscal 2017. The factors contributing to the increases
(decreases) in operating revenues and gas purchases during fiscal 2018 and 2017, are as follows:
2018 v. 2017
2017 v. 2016
$
Operating
revenue
(Thousands)
Firm sales
Bill credits (1)
Average BGSS rates (2)
Off-system sales
Tax Act impact
CIP adjustments
Rate impact (3)
Other (4)
Total increase
(1) Operating revenues include changes in sales tax of $2.7 million and $1.3 million during fiscal 2018 and 2017, respectively.
(2) Operating revenues include changes in sales tax of $266,000 and $1.4 million during fiscal 2018 and 2017, respectively.
(3)
(4) Other includes changes for NJ RISE/SAFE II and rider rates, including those related to EE, NJCEP and other programs.
49,414 $
41,971
1,147
677
(35,910)
(18,375)
—
(2,696)
36,228 $
Includes rate adjustments for the base rate case, CIP and demand charges.
Gas
purchases
19,779
39,260
1,413
221
—
—
—
3,055
63,728
$
Operating
revenue
$
44,397 $
19,588
(17,874)
29,156
—
(21,015)
37,436
9,603
$ 101,291 $
Gas
purchases
21,634
18,265
(16,544)
29,117
—
—
—
1,159
53,631
Fiscal 2018 compared with fiscal 2017
The changes in operating revenues and gas purchases during fiscal 2018 were due primarily to:
•
increased firm sales due primarily to customer growth and higher usage related to weather being 9.9 percent colder than
fiscal 2017;
• bill credits issued to residential and small commercial customers during fiscal 2017 that did not occur in fiscal 2018;
partially offset by
•
the Tax Act impact, which is comprised of customer credits related to the initial revaluation of excess deferred income
taxes and the overcollection of taxes from customers during the second quarter of fiscal 2018, including related interest
and sales tax, as well as the effects from the reduction in base rates related to the Tax Act implemented during the third
quarter;
• a decrease in CIP due primarily to normal weather during fiscal 2018, compared with warmer-than-normal weather during
fiscal 2017; and
• higher off-system sales due primarily to an increase of 19.7 percent in the average price of natural gas sold, partially
offset by a reduction in volumes of 15.9 percent.
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 natural 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 in the prior 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.
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
2018
731,865 $
2017
2016
695,637 $
594,346
333,208
39,426
38,969
320,262 $
269,480
215,849
37,917
40,243
29,832
39,300
347,997 $
309,365
$
$
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
2018
2017
2016
Margin
Bcf
Margin
Bcf
Margin
Bcf
$ 203,195
46,636
51,880
301,711
45.5
8.9
15.5
69.9
$ 218,093
51,510
58,172
327,775
40.7
8.7
14.4
63.8
$ 187,762
46,878
54,841
289,481
36.9
7.3
14.1
58.3
12,482
150.2
13,724
178.4
14,978
216.7
6,069
46.2
6,498
55
4,906
61.5
Total utility gross margin/throughput
$ 320,262
266.3
$ 347,997
297.2
$ 309,365
336.5
Page 44
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Utility Firm Gross Margin
A description of the factors contributing to the (decreases) increases in utility firm gross margin during fiscal 2018 and 2017,
are as follows:
(Thousands)
Tax Act impact
SAVEGREEN
NJ RISE/SAFE II
Customer growth
Rate impact
Total (decrease) increase
BGSS Incentive Programs
2018 v. 2017
$ (33,657)
(977)
4,334
4,236
—
$ (26,064)
2017 v. 2016
$
—
(345)
—
3,619
35,019
$ 38,293
A description of the factors contributing to the (decreases) increases in utility gross margin generated by NJNG’s BGSS
incentive programs during fiscal 2018 and 2017, are as follows:
(Thousands)
Storage
Capacity release
Off-system sales
Total decrease
Fiscal 2018 compared with fiscal 2017
2018 v. 2017
2017 v. 2016
$
(954)
(745)
457
$ (1,242)
$
378
(1,672)
39
$ (1,255)
The decrease in utility gross margin was due primarily to the Tax Act impact, as previously discussed, a decrease in value
in the storage incentive program and a decrease in capacity release due to less volume and lower values, partially offset by increased
margins for off-system sales.
Fiscal 2017 compared with fiscal 2016
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.
Operation and Maintenance Expense
A summary and description of the factors contributing to the increases (decreases) in O&M expense during fiscal 2018 and
2017, are as follows:
(Thousands)
Shared corporate costs
Compensation and benefits
Consulting
Other
Total increase
2018 v. 2017
$
5,991
5,767
5,184
2,272
19,214
$
2017 v. 2016
$ 3,061
5,412
512
2,949
$ 11,934
Fiscal 2018 compared with fiscal 2017
The increase in O&M expense during fiscal 2018 was due primarily to:
•
•
•
increased shared corporate costs due primarily to increased headcount and incentives, along with additional expenses
related to a voluntary early retirement program;
increased compensation and benefits as a result of voluntary early retirement program costs; and
increased consulting expenses due primarily to technology improvements.
Page 45
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Fiscal 2017 compared with fiscal 2016
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 in other 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.
Depreciation Expense
Depreciation expense increased $3.9 million in fiscal 2018, compared with fiscal 2017, as a result of additional utility plant
being placed into service. 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.
Operating Income
Operating income decreased $51.1 million, or 33.7 percent, in fiscal 2018, compared with fiscal 2017, due primarily to the
decrease in total utility gross margin of $27.7 million, as well as the increase in O&M and depreciation, as previously discussed.
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.
Income Tax Provision
Income tax provision decreased $45.4 million during fiscal 2018, compared with fiscal 2017, due primarily to the impacts
of the change in the federal corporate tax rate resulting from the Tax Act. 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.
Net Income
Net income decreased $2.9 million to $84 million in fiscal 2018, compared with fiscal 2017, due primarily to decreased
utility gross margin and increased O&M and depreciation, partially offset by the decrease in the income tax provision as previously
discussed.
Net income increased $10.8 million to $86.9 million in fiscal 2017, compared with fiscal 2016, due primarily to an increase
in operating income as discussed above, partially offset by an increase in the income tax provision as discussed above and interest
expense associated with debt issued in June 2016.
Clean Energy Ventures Segment
Overview
Our Clean Energy Ventures segment actively pursues opportunities in the renewable energy markets. Clean Energy Ventures
has entered into various agreements to install solar net-metered systems for residential and commercial customers, as well as large
commercial grid-connected projects. In addition, Clean Energy Ventures has entered into various long-term agreements, including
PPAs, to supply energy from wind and solar projects.
Page 46
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Solar
Solar projects placed in service and related expenditures for the fiscal years ended September 30, are as follows:
($ in Thousands)
Placed in service
Grid-connected (1)
Net-metered:
2018
Projects MW Costs
2017
Projects MW Costs
2016
Projects MW Costs
3
33.7 $ 70,216
2
20.0 $ 62,700
5
21.8 $ 51,240
Commercial (1)
Residential
Total placed in service
(1)
74
— —
8.5
910
27,342
42.2 $ 97,632
913
Includes projects subject to sale-leaseback arrangements.
3
1,300
1,305
19,714
7.1
12.4
37,901
39.5 $ 120,315
3
— —
10.4
34,318
32.2 $ 85,561
1,123
1,128
Since its inception, Clean Energy Ventures has constructed a total of 231.3 MW of solar capacity and has an additional 19.6
MW under construction. 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.
Clean Energy Ventures may enter into transactions to sell certain of its commercial solar assets concurrent with agreements
to lease the assets back over a period of six to 15 years. The Company will continue to operate the solar assets and are responsible
for related expenses and entitled to retain the revenue generated from SRECs and energy sales. The ITCs and other tax benefits
associated with these solar projects have been 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 recognizes the
equivalent value of the ITC in other income on the Consolidated Statements of Operations over the respective five-year ITC
recapture periods, starting with the second year of the lease. As of September 30, 2018, Clean Energy Ventures has entered into
five sale-leaseback transactions, three during fiscal 2018 with costs of $70.2 million and two during fiscal 2017 with costs of $31.1
million. Clean Energy Ventures did not enter into sale-leasebacks during fiscal 2016.
Excluding the project costs related to the commercial solar projects that were included in the sale-leaseback transactions,
the Company had $27.4 million, $89.2 million and $85.6 million of solar-related capital expenditures were ITC-eligible during
fiscal 2018, 2017 and 2016, respectively, which were recognized in income tax (benefit) provision on the Consolidated Statements
of Operations when the assets were placed in service.
As part of its solar investment portfolio, Clean Energy Ventures operates a residential solar program, The Sunlight
Advantage®, which 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.
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,
2018
2017
2016
48,357
245,147
(188,312)
105,192
24,135
197,521
(173,299)
48,357
33,203
160,009
(169,077)
24,135
SRECs generated increased 24.1 percent and 23.4 percent for the fiscal years ended September 30, 2018 and 2017,
respectively, compared with the previous fiscal years. The average SREC sales price was $217 in fiscal 2018, $233 in fiscal 2017
and $214 in fiscal 2016.
Page 47
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 as of September 30, 2018:
Energy Year (1)
2019
2020
2021
Percent of SRECs Hedged
91%
86%
58%
(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 by our solar assets. All related costs are included as a
component of O&M expenses on the Consolidated Statements of Operations, including such expenses as facility maintenance and
various fees.
Onshore Wind
Clean Energy Ventures has invested in small to mid-size onshore wind projects that fit its investment profile and has a total
of 116.9 MW of wind capacity as of September 30, 2018. 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. Once a wind installation has commenced operations, each MWh of electricity produced creates an
REC that represents the renewable energy attribute of the wind-electricity generated that can be sold to third parties. There are no
direct costs associated with the production of RECs by our wind assets and all related costs are included as a component of O&M
expenses on the Consolidated Statements of Operations.
On June 1, 2018, Clean Energy Ventures completed the sale of its membership interest in its 9.7 MW wind farm in Two Dot,
Montana to NorthWestern Energy for a total purchase price of $18.5 million. The transaction generated a pre-tax gain of
approximately $951,000, which is recognized as a reduction to O&M on the Consolidated Statements of Operations.
In March 2018, Clean Energy Ventures committed to a plan to sell its remaining wind assets, and it is probable that these
sales will be completed within the next 12 months. Accordingly, we classified our wind assets and related liabilities as held for
sale, as of March 31, 2018, on Consolidated Balance Sheets.
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
Other income, net
Interest expense, net
Income tax benefit
Net income
2018
2017
2016
$
71,375 $
64,394 $
53,540
26,298
31,877
1,137
59,312
12,063
2,174
23,448
31,834
1,209
56,491
7,903
2,072
18,897
23,971
900
43,768
9,772
2,333
18,320
(79,932)
75,849 $
16,263
(31,161)
24,873 $
10,304
(26,592)
28,393
$
Page 48
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Revenues
Operating revenues increased $7 million in fiscal 2018, compared with fiscal 2017, due primarily to increased electricity
sales from solar assets. Operating revenues increased $10.9 million in fiscal 2017, compared with fiscal 2016, due primarily to
higher SREC sales and increased electricity sales from wind assets.
Operation and Maintenance Expense
O&M expense increased $2.9 million in fiscal 2018, compared with fiscal 2017, due primarily to increased consulting
expenses and additional maintenance costs related to additional solar assets, partially offset by a pre-tax gain of $951,000 associated
with the sale of the Two Dot wind farm. O&M expense increased $4.6 million in fiscal 2017, compared with 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 remained relatively flat in fiscal 2018, compared with fiscal 2017, due primarily to increases in solar
capital additions that were offset by depreciation expense on wind assets no longer being recorded resulting from their
reclassification as held for sale in March 2018. Depreciation expense increased $7.9 million in fiscal 2017, compared with fiscal
2016, as a result of increases in wind and solar projects placed in service.
Income Tax Benefit
Income tax benefit increased $48.8 million during fiscal 2018, compared with fiscal 2017, due primarily to an income tax
benefit of $61.4 million associated with the Tax Act, which was caused by a revaluation of the deferred tax liability related to the
book versus tax differences in depreciation calculated on property-related items, partially offset by the decrease in ITCs recognized
as a result of solar sale-leaseback financing activity.
Income tax benefit during fiscal 2018, 2017 and 2016 includes $10.5 million, $24.6 million and $25.7 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 2018, 2017 and 2016 includes $10.8 million, $9.9 million and $6.7 million, respectively, of PTCs associated
with wind projects. Clean Energy Ventures recognized $19 million, $29.2 million and $27 million related to tax credits, net of
deferred taxes, during fiscal 2018, 2017 and 2016, respectively.
Net Income
Net income in fiscal 2018 increased $51 million, compared with fiscal 2017, due primarily to the increased income tax
benefit resulting from the impact of the Tax Act partially offset by a decreased income tax benefit related to ITCs, as previously
discussed. Net income during 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 increases in operating revenues and tax benefits recognized due primarily to an
increase in PTCs, as previously discussed.
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 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.
Page 49
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 it to capture margin by improving the respective time
or geographic spreads on a forward basis.
In July 2017, Energy Services 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.
On February 28, 2018, NJR sold all of the issued and outstanding shares of capital stock of NJRRS, which was a component
of our Energy Services segment. We received $9.5 million in cash and a natural gas swap contract with a gain at inception of $14.6
million. The sale generated a pre-tax gain of $3.7 million, which was recognized as a reduction to O&M on the Consolidated
Statements of Operations.
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.
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 income (loss)
Other income
Interest expense, net
Income tax provision (benefit)
Net income
2018
2017
$ 2,112,804 $ 1,462,681 $ 1,197,253
2016
1,995,335
1,441,310
1,153,911
32,821
76
2,732
2,030,964
81,840
240
3,945
24,996
53,139 $
$
20,313
63
1,788
1,463,474
(793)
1
2,747
(4,015)
20,025
88
937
1,174,961
22,292
98
1,095
7,030
476 $
14,265
(1)
(2)
(3)
Includes related party transactions of approximately $48.3 million, $316,000 and $9.5 million during fiscal 2018, 2017 and 2016, 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 $4.5 million, $4.6 million and $14.6 million during fiscal 2018, 2017 and 2016, respectively, a portion
of which are eliminated in consolidation.
Page 50
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, Energy Services’ portfolio of financial derivative instruments are composed of:
(in Bcf)
Net short futures contracts
Net long options
Operating Revenues and Gas Purchases
2018
24.3
—
2017
16.4
—
2016
79.1
1.2
During fiscal 2018, operating revenues increased $650.1 million and gas purchases increased $554 million, due primarily to
increased volume and price spreads resulting from market volatility caused by changes in weather and related demand. Gas
purchases also include an increase due to the changes in the economic hedging of natural gas inventory of $61 million, partially
offset by a decrease of $25.7 million in unrealized gains on derivative instruments.
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 increase 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.
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 increased $12.5 million or 61.6 percent during fiscal 2018, compared with fiscal 2017, due primarily to
increased incentive compensation and shared corporate costs, partially offset by the pre-tax gain of $3.7 million, associated with
the sale of NJRRS. O&M expense remained relatively unchanged during fiscal 2017, compared with fiscal 2016.
Income Tax Provision
Income tax benefit increased $29 million during fiscal 2018, compared with fiscal 2017, due primarily to increased operating
income and income tax expense of $6.1 million related to the revaluation of deferred tax assets due to the Tax Act, partially offset
by the lower effective tax rate as a result of the new tax legislation. Income taxes decreased $11 million during fiscal 2017, compared
with fiscal 2016, due primarily to decreased operating income.
Net Income
Net income increased $52.7 million during fiscal 2018, compared with fiscal 2017, due primarily to the increase in operating
income, partially offset by an increase in O&M and income tax expense, as previously discussed. Net income decreased $13.8
million during fiscal 2017, compared with fiscal 2016, 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. Energy Services economically hedges its natural gas inventory with financial derivative instruments and calculates the
related tax effect based on the statutory rate. 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.
Page 51
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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:
2018
2017
$ 2,112,804 $ 1,462,681 $ 1,197,253
1,153,911
1,441,310
1,995,335
2016
Unrealized (gain) loss on derivative instruments and related transactions (1)
Effects of economic hedging related to natural gas inventory (2)
Financial margin
26,728
(22,570)
121,627 $
(10,063)
38,470
49,778 $
48,855
(36,816)
55,381
$
(1)
(2)
Includes unrealized (gains) losses related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation
of approximately $85,000, $(751,000) and $(1.3) million for the fiscal years ended September 30, 2018, 2017 and 2016, respectively.
Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.
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 income (loss)
Add:
Operation and maintenance
Depreciation and amortization
Other taxes
Subtotal
Add:
Unrealized loss (gain) on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Financial margin
2018
81,840 $
$
2017
(793) $
2016
22,292
32,821
76
2,732
117,469
20,313
63
1,788
21,371
20,025
88
937
43,342
26,728
(22,570)
$ 121,627 $
(10,063)
38,470
49,778 $
48,855
(36,816)
55,381
Financial margin increased $71.8 million during fiscal 2018, compared with fiscal 2017, due primarily to increased volume
and price spreads resulting from market volatility caused by changes in weather and related demand. 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 winter and a milder spring.
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 loss (gain) on derivative instruments and related transactions
Tax effect (1)
Effects of economic hedging related to natural gas inventory
Tax effect
2018
2017
2016
$ 53,139 $
476 $ 14,265
26,728
(4,281)
(22,570)
7,362
48,855
(17,734)
(36,816)
13,364
$ 60,378 $ 18,554 $ 21,934
(10,063)
3,635
38,470
(13,964)
Net financial earnings
(1)
Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately
$(337,000), $427,000 and $716,000 for the fiscal years ended September 30, 2018, 2017 and 2016, respectively.
Page 52
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NFE increased $41.8 million during fiscal 2018, compared with fiscal 2017, due primarily to higher financial margin, partially
offset by increased O&M expense, as previously discussed, and an income tax expense of $6.1 million associated with the Tax
Act, as previously discussed. NFE decreased $3.4 million during fiscal 2017, compared with fiscal 2016, due primarily to a decrease
in financial margin and higher interest expense related to increased borrowing, partially offset by a reduction in income tax expense
related to the decrease in NFE.
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.
PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018. PennEast
has advised that it currently expects the pipeline to be completed and operational in 2019. However, the project could be delayed
beyond 2019, due to factors beyond PennEast’s ability to control or estimate precisely, including potential delays in obtaining (or
the inability to obtain) governmental and regulatory approvals and land-use rights and unforeseen construction delays. As of
September 30, 2018, our net investments in Steckman Ridge and PennEast were $117 million and $73.9 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, 2018, the market value of the DM Common Units was $32.9
million. See Note 2. Summary of Significant Accounting Policies - Available for Sale Securities in the accompanying Consolidated
Financial Statements for a more detailed discussion.
Operating Results
The financial results of our Midstream segment for the fiscal years ended September 30, are summarized as follows:
(Thousands)
Equity in earnings of affiliates
Operation and maintenance
Other income
Interest expense, net
Income tax provision
Net income
2018
2017
2016
$
$
$
$
$
$
16,165 $
4,441 $
5,775 $
1,667 $
(8,548) $
24,367 $
17,797 $
2,302 $
4,162 $
960 $
5,820 $
12,857 $
13,936
1,197
3,130
287
6,130
9,406
Equity in earnings of affiliates are driven primarily by storage revenues generated by Steckman Ridge and AFUDC earned
at PennEast.
Equity in earnings of affiliates is as follows for the fiscal years ended September 30:
(Thousands)
Steckman Ridge
PennEast
Total equity in earnings of affiliates
2018
2017
2016
$
$
11,283 $
4,882
16,165 $
13,351 $
4,446
17,797 $
14,050
(114)
13,936
Equity in earnings of affiliates decreased $1.6 million during fiscal 2018, compared with fiscal 2017, due primarily to
decreases in revenue and increases in debt service costs at Steckman Ridge. Equity in earnings of affiliates increased $3.9 million
during fiscal 2017, compared with fiscal 2016, due primarily to increased AFUDC earned at PennEast resulting from the cumulative
effect adjustment recorded in fiscal 2017.
Page 53
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
O&M expense increased $2.1 million during fiscal 2018, compared with fiscal 2017, due primarily to increased shared
corporate costs. 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.
Other income increased $1.6 million during fiscal 2018, compared with fiscal 2017, and increased $1 million during fiscal
2017, compared with fiscal 2016, due primarily to increased interest income from Steckman Ridge and dividend income from our
investment in DM Common Units.
Interest expense, net increased $707,000 during fiscal 2018, compared with fiscal 2017, and $673,000 during fiscal 2017,
compared with fiscal 2016, due primarily to increased intercompany borrowing related to our PennEast investment.
Income taxes decreased $14.4 million during fiscal 2018, compared with fiscal 2017, due primarily to an income tax benefit
of $13.9 million associated with the Tax Act. 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.
Net income in fiscal 2018 increased $11.5 million, compared with fiscal 2017, due primarily to the income tax benefit and
the decrease in effective tax rate related to the Tax Act, as previously discussed, partially offset by lower equity in earnings of
affiliates, as previously discussed. Net income increased $3.5 million in fiscal 2017, compared with fiscal 2016, due primarily to
the increase in equity in earnings of affiliates, as discussed above.
Home Services and Other Operations
Overview
The financial results of Home Services and Other consist primarily of the operating results of NJRHS. NJRHS provides
service, sales and installation of appliances to approximately 110,000 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 and rental income at CR&R.
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 (loss) income
2018
2017
2016
$
$
$
$
$
$
50,057 $
43,731 $
4,042 $
6,892 $
11,944 $
(3,555) $
49,591 $
40,245 $
3,938 $
6,467 $
3,857 $
6,811 $
48,497
40,106
3,777
869
1,387
2,882
Operating revenue remained relatively flat during fiscal 2018, compared with fiscal 2017. 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.
O&M expense increased $3.5 million during fiscal 2018, compared with fiscal 2017, due primarily to a pre-tax gain of $1.9
million, associated with the sale of a 56,400 square foot office building that was recorded during fiscal 2017, as well as an increase
in consulting expense due primarily to additional technology improvements. O&M expense remained relatively flat during fiscal
2017 compared with fiscal 2016.
Other income, net remained relatively unchanged during fiscal 2018, compared with fiscal 2017, due primarily to pre-tax
gains associated with the sale of available for sale securities of $5.3 million and $5.4 million during fiscal 2018 and 2017, respectively.
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.
Page 54
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Income taxes increased $8.1 million during fiscal 2018, compared with fiscal 2017, due primarily to tax expense of $9.7
million associated with the Tax Act. Income taxes increased $2.5 million during fiscal 2017, compared with fiscal 2016, due
primarily to the increase in other income, as previously discussed.
Net income decreased $10.4 million during fiscal 2018, compared with fiscal 2017, due primarily to increased income tax
provision, as previously discussed. Net income during fiscal 2017 increased $3.9 million, 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.
Non-GAAP Financial Measures
NFE is based on removing timing differences associated with NJR's variable-for-fixed interest rate swap. 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. A reconciliation of Home Services and Other's net income for the fiscal years ended
September 30, to the GAAP financial measure most directly comparable to NFE, is as follows:
(Thousands)
Net income (loss)
Add:
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect
Net financial earnings (loss)
Liquidity and Capital Resources
2018
2017
2016
$
(3,555) $
6,811 $
2,882
(381)
107
(3,829) $
$
—
—
6,811 $
—
—
2,882
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
2018
49%
41
10
2017
46%
38
16
100%
100%
We satisfy our external common equity requirements, if any, through issuances of our common stock, including the proceeds
from stock issuances under our DRP. The DRP allows us, at our option, to use treasury shares or newly issued shares to raise
capital. On September 28, 2018, we registered approximately 3.2 million shares of additional common stock for issuance under
the DRP. NJR raised approximately $41.7 million of equity by issuing approximately 1,014,000 new shares through the waiver
discount feature of the DRP during fiscal 2018. NJR did not issue new shares through the waiver discount feature of the DRP
during fiscal 2017.
NJR also raised approximately $17.1 million and $17.5 million of equity through the DRP by issuing approximately 413,000
and 472,000 shares of treasury stock during fiscal 2018 and 2017, 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,
2018, 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 shares of common stock shares repurchased during fiscal 2017.
Page 55
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
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, Midstream 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, 2018, 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.
As of September 30, 2018, NJR and NJNG, respectively, had revolving credit facilities totaling $425 million and $250
million, and letters of credit outstanding totaling $14.9 million and $731,000, which reduced the amounts available under the
facilities along with short-term borrowings to $322 million and $185 million. Short-term borrowings were as follows:
($ 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, 2018
$
$
$
$
$
$
87,950
3.07%
63,089
3.02%
87,950
64,000
2.18%
63,698
2.07%
82,000
$
$
$
$
$
$
87,950
3.07%
197,154
2.64%
330,900
64,000
2.18%
31,924
1.37%
82,000
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.
Page 56
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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. 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 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. As of September 30, 2018, the consolidated total
indebtedness to total capitalization ratio, as defined in the NJR Credit Facility, was 51 percent.
On June 25, 2018, the $425 million NJR Credit Facility was amended to permit liens and the disposition of assets relating
to sale-leaseback or other similar tax equity financing arrangements of meter assets or of solar or wind facilities. These transactions
are permissible so long as NJR is in compliance with certain covenants both before and after such incurrence, and if no event of
default may be caused by such sale-leaseback or similar arrangement.
As of September 30, 2018, NJR had $88 million outstanding under the NJR Credit Facility. Neither NJNG nor its assets
are obligated or pledged to support the NJR Credit Facility.
During fiscal 2018, NJR’s average interest rate under the NJR Credit Facility was 2.64 percent, resulting in interest expense
of $4.9 million. Based on average borrowings under the facilities of $197.2 million during the period, a 100 basis point change
in the underlying average interest rate would have caused a change in interest expense of approximately $2.1 million during fiscal
2018.
As of September 30, 2018, NJR has six letters of credit outstanding totaling $14.9 million. Three letters of credit totaling
$11.9 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.
Energy Services’ letters of credit are used for margin requirements for natural gas transactions and expire on dates ranging
from December 2018 to September 2019. 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 2019 to August 2019.
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.
As of September 30, 2018, NJNG’s consolidated total indebtedness to total capitalization ratio was 43 percent. As of September 30,
2018, 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 $185 million. During fiscal 2018, NJNG’s weighted average
interest rate on outstanding commercial paper was 1.37 percent, resulting in interest expense of $557,300. Based on average
borrowings under the facility of $31.9 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 $325,400 during fiscal 2018.
As of September 30, 2018, 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 in August 2019.
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
Page 57
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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;
• 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
NJR has $50 million of 3.25 percent senior notes due September 2022, issued under a private placement debt shelf facility.
In November 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.
In March 2016, NJR entered into a note purchase agreement under which we issued, on August 18, 2016, $50 million of
3.2 percent senior notes due August 18, 2023, and $100 million of 3.54 percent senior notes due August 18, 2026. The notes are
guaranteed by certain of our unregulated subsidiaries. The notes are unsecured. The proceeds of the notes were used for general
corporate purposes, including working capital and capital expenditures.
In August 2017, NJR entered into a $100 million credit agreement due August 16, 2019. The term loan accrues interest at
a variable rate determined monthly, which is LIBOR plus 70 basis points. On January 26, 2018, NJR entered into a variable-for-
fixed interest rate swap for its variable rate term loan, which fixed the variable rate at 2.84 percent. As of September 30, 2018,
the $100 million term loan, net of deferred financing costs, was classified as a current maturity of long-term debt.
On June 8, 2018, NJR entered into a note purchase agreement, under which we issued $100 million of 3.96 percent senior
notes due June 8, 2028. The notes are not secured by assets, but are instead guaranteed by certain unregulated subsidiaries of
NJR. The proceeds of the notes will be used for general corporate purposes, including, but not limited to, funding capital
expenditures.
Page 58
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
On July 17, 2018, the $100 million variable rate term loan was amended to permit the disposition of assets relating to sale-
leaseback or other similar tax equity financing arrangements of meter assets or of solar or wind facilities. These transactions are
permissible so long as NJR is in compliance with certain covenants both before and after such incurrence, and if no event of
default may be caused by such sale-leaseback or similar arrangement.
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, 2018, NJNG’s long-term debt consisted of $575 million in fixed-rate debt issuances, with maturities
ranging from 2024 to 2048, and $97 million in secured variable rate debt, with maturities ranging from 2027 to 2041, which are
both secured by the Mortgage Indenture, and $26.4 million in capital leases with various maturities ranging from 2019 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.
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 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, we 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 us to provide an opportunity to evaluate remarketing alternatives.
On May 11, 2018, NJNG entered into a note purchase agreement, under which NJNG issued $125 million of 4.01 percent
senior notes due May 11, 2048. The interest rate includes the quoted March 9, 2018 30-year treasury rate, plus a market-based
credit spread. The notes are secured by an equal principal amount of NJNG's FMB (series VV) 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.
In June 2015, NJNG entered into a treasury lock transaction to fix a benchmark treasury rate of 3.26 percent associated
with a $125 million debt issuance that was finalized in May 2018. This debt issuance coincided with the maturity of NJNG's
$125 million, 5.6 percent notes that came due on May 15, 2018. This treasury lock was settled on March 13, 2018, which coincided
with the pricing of the new debt being issued. Settlement of the treasury lock resulted in a $2.6 million loss, which is recorded
as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized to earnings over the 30-year term
of the $125 million, 4.01 percent notes that were issued on May 11, 2018.
Page 59
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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, 2018, was 2.03 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;
• 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.
Page 60
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 $7.8 million, $9.6 million and $7.1 million in fiscal 2018, 2017 and 2016, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2018, 2017 and 2016, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $2.2 million, $2.4 million and $1.9 million, 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
Clean Energy Ventures received proceeds of $71.5 million and $32.9 million in fiscal 2018 and 2017, respectively, in
connection with the sale-leaseback of commercial solar assets. Clean Energy Ventures has entered into transactions to sell certain
of its commercial solar assets concurrent with agreements to lease the assets back over six to 15-year terms. 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 per the terms of the arrangement.
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, 2018:
(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
Total
Up to
1 Year
1-3
3-5
After
Years
Years
5 Years
$ 1,783,345 $
139,772 $ 74,338 $ 172,472 $ 1,396,763
39,570
79,410
67,740
10,932
9,794
3,217
17,225
15,633
7,445
6,168
15,680
7,028
151,950
151,950
14,052
23,903
130,800
240,731
14,052
23,903
19,800
65,737
—
—
—
—
—
—
28,800
71,465
28,800
67,767
53,400
35,762
5,245
38,303
50,050
—
—
—
Demand fee commitments-NJNG
1,128,331
111,993
223,991
200,015
592,332
Natural gas supply purchase obligations-Energy Services
467,369
428,015
39,354
—
—
Demand fee commitments-Energy Services
Total contractual cash obligations
257,666
6,142
$ 4,384,867 $ 1,063,029 $ 589,654 $ 554,187 $ 2,177,997
111,403
83,864
56,257
(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 13. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
Page 61
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 2018 and 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 of the OPEB plans will range from $5 million to $8 million annually over each of the next five years. Additional
contributions may vary based on market conditions and various assumptions.
As of September 30, 2018, there were NJR guarantees covering approximately $418.1 million of natural gas purchases and
Energy Services demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
NJNG 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
2018, committed and spent capital expenditures totaled $241.3 million. In fiscal 2019 and 2020, NJNG’s total capital expenditures
are projected to be $475.2 million and $343.2 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, 2018, NJNG deferred $10.9 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, 2018, NJNG’s future MGP expenditures are estimated to be $130.8 million. For a more detailed
description of MGP see Note 13. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory
constraints, environmental regulations, unforeseen events and the ability to access capital.
Clean Energy Ventures’ 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 2018, capital expenditures related to the purchase and installation of the solar equipment were $120.1
million. In fiscal 2019, Clean Energy Ventures plans to spend an estimated $134.4 million on commercial and residential solar
projects. We estimate the value of solar-related projects placed in service in fiscal 2019 to be between $156 million and $166
million.
Capital expenditures related to clean energy projects are subject to change due to a variety of factors that may affect our
ability to commence operations at these projects on a timely basis or at all, including logistics associated with the start-up of
residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any
delays related to electric grid interconnection, economic trends, unforeseen events and the ability to access capital or allocation
of capital to other investments or business opportunities.
During fiscal 2018, Midstream had a total of $16.2 million of expenditures related to our investment in the PennEast pipeline
project. Expenditures in the PennEast pipeline are expected to total between $13 million and $15 million. Capital expenditures
related to our Midstream investment in the Adelphia project were $16.7 million, which includes the initial payment of $10 million
towards the purchase price. Including the purchase price of $166 million and assuming the transaction closes, we estimate
expenditures related to the Adelphia project to be between $306 million and $310 million.
Energy Services does not currently anticipate any significant capital expenditures in fiscal 2019 and 2020.
Page 62
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Off-Balance-Sheet Arrangements
Our off-balance-sheet arrangements consist of guarantees covering approximately $418.1 million of natural gas purchases,
SREC sales and demand fee commitments, and eight outstanding letters of credit totaling $15.6 million, as previously mentioned.
See Note 13. Commitments and Contingent Liabilities and Note 8. Debt for more information.
Cash Flows
Operating Activities
Cash flows from operating activities during fiscal 2018 totaled $398.3 million compared with $248 million during fiscal
2017. 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 used to optimize margins related to natural gas transactions;
• broker margin requirements;
•
•
impact of unusual weather patterns on our wholesale business;
timing of the collections of receivables and payments of current liabilities;
• volumes of natural gas purchased and sold; and
•
timing of SREC deliveries.
The increase of $150.2 million in operating cash flows during fiscal 2018, compared with fiscal 2017, was due primarily to
increased earnings at Energy Services and decreased working capital requirements as mentioned above.
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.
Investing Activities
Cash flows used in investing activities totaled $373.1 million during fiscal 2018, compared with $390.7 million during fiscal
2017. The decrease of $17.6 million is due primarily to our fiscal 2017 acquisition of Talen’s retail and wholesale energy contract
assets totaling $55.7 million that did not recur in fiscal 2018, cash proceeds of $27.9 million from the sale of Two Dot wind farm
and NJRRS and a decrease in solar capital expenditures and PennEast investment of $26 million and $10.9 million, respectively,
partially offset by an increase in expenditures of $78.3 million for our utility plant at NJNG, an advance payment of $10 million
for the IEC acquisition and cash proceeds in fiscal 2017 of $9.4 million from a sale of a building that did not recur in fiscal 2018.
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.
Page 63
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 $254.5 million and $176.2 million in fiscal 2018 and fiscal 2017, 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 2018 and fiscal 2017, capital expenditures on these projects totaled
$123.4 million and $149.4 million, respectively.
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 used in financing activities during fiscal 2018 totaled $26 million, compared with cash flows from financing
activities of $107.3 million during fiscal 2017. The increase of $133.3 million is due primarily to increased payments of short-
term borrowings at NJR and long-term borrowings at NJNG, partially offset by an additional $125 million in long-term borrowings
at NJNG, proceeds from the issuance of stock through our waiver discount plan and increased proceeds from solar sale-leasebacks.
Cash flows from financing activities during fiscal 2017 totaled $107.3 million, compared with $253.2 million during fiscal
2016. The increase of $145.9 million was 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.
NJNG received $7.8 million, $9.6 million and $7.1 million for fiscal 2018, 2017 and 2016, respectively, in connection with
the sale-leaseback of its natural gas meters. During fiscal 2018, 2017 and 2016, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $2.2 million, $2.4 million and $1.9 million, 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, 2018:
Corporate Rating
Commercial Paper
Senior Secured
Ratings Outlook
S&P
BBB+
A-2
A
Negative
Moody’s
N/A
P-1
Aa2
Negative
On January 19, 2018, Moody’s revised NJNG's rating outlook from stable to negative along with 23 other utility companies.
This change reflects Moody’s view that tax reform is credit-negative for regulated utilities due to reduced cash collected from
customers, while the loss of bonus depreciation reduces tax deferrals. The negative outlook also considers the uncertainty over
timing of any regulatory actions or changes to corporate finance polices made to offset the financial impact. This action does not
currently affect any of NJNG’s long-term borrowing rates. These ratings were reaffirmed by Moody’s on February 2, 2018.
On August 13, 2018, S&P lowered NJNG’s credit rating to BBB+ from A, senior secured debt rating to A from A+ and short-
term and Commercial Paper rating to A-2 from A-1, and also reaffirmed NJNG's rating outlook that was changed on May 23,
2018, from stable to negative. S&P's negative outlook reflects NJNG's rising capital spending program, impacts of corporate tax
reform and modestly higher use of debt leverage to fund NJR's growing midstream business. This action does not currently affect
any of NJNG’s long-term borrowing rates or financial covenants. The impact on NJNG’s short-term borrowing rates was immaterial.
NJNG’s S&P and Moody’s ratings are investment-grade ratings. NJR is not a rated entity.
Page 64
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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.
The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and
sales from September 30, 2017 to September 30, 2018:
(Thousands)
Natural Gas Distribution
Energy Services
Total
Balance
September 30,
2017
$ (1,149)
(5,552)
$ (6,701)
Increase
(Decrease) in Fair
Market Value
$
$
(25)
(22,571) (1)
(22,596)
Less
Amounts
Settled
$
(1,268)
(14,198)
$ (15,466)
Balance
September 30,
2018
$
94
(13,925)
$ (13,831)
(1) Includes the addition of $9.5 million related to the fair value of the derivative instrument acquired through the disposition of NJRRS.
There were no changes in methods of valuations during the year ended September 30, 2018.
The following is a summary of fair market value of financial derivatives as of September 30, 2018, 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
2019
2020
2021 - 2023 After 2023
$
4,425 $
1,880
(7,263)
$ (8,946) $ (5,383)
(13,371)
$
$
721
(223)
498
$ —
—
$ —
Total
Fair Value
$
7,026
(20,857)
$ (13,831)
Page 65
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The following is a summary of financial derivatives by type at September 30, 2018:
Natural Gas Distribution
Energy Services
Total
(1) Million British thermal unit
Volume
Bcf
27.9
(7.0)
(17.3)
Price per
MMBtu (1)
2.28 - 3.05
$1.48 - $5.93
2.72 - 3.46
Futures
Futures
Swaps
Amounts included
in Derivatives
(Thousands)
$
94
(20,949)
7,024
$ (13,831)
The following table reflects the changes in the fair market value of physical commodity contracts from September 30, 2017
to September 30, 2018:
(Thousands)
Natural Gas Distribution - Prices based on other
external data
Energy Services - Prices based on other external data
Total
Balance
September 30,
2017
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2018
$
79
(3,584)
$ (3,505)
4,587
277
4,864
4,773
14,570
19,343
$
(107)
(17,877)
$ (17,984)
The following table reflects the changes in the fair market value of interest rate contracts from September 30, 2017 to
September 30, 2018:
(Thousands)
Natural Gas Distribution - Prices based on other
external data
Home Services and Other - Prices based on other
external data
Total
Foreign Currency Market Risks
Balance
September 30,
2017
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2018
$ (8,467)
—
$ (8,467)
5,892
335
6,227
(2,575)
(46)
(2,621)
$
$
—
381
381
The following table reflects the changes in the fair market value of financial derivatives related to foreign currency hedges
from September 30, 2017 to September 30, 2018:
(Thousands)
Energy Services
Balance
September 30,
2017
$
44
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
(379)
(91)
Balance
September 30,
2018
$
(244)
There were no changes in methods of valuations during the fiscal year ended September 30, 2018.
The following is a summary of fair market value of financial derivatives related to foreign currency hedges as of September 30,
2018, by method of valuation and by maturity for each fiscal year period:
(Thousands)
Prices based on other external data
2019
2020
$
(126)
2021 - 2023 After 2023
—
(34)
(84)
Total
Fair Value
$
(244)
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
Page 66
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed swap positions by approximately $10.8
million. This analysis does not include potential changes to reported credit adjustments embedded in the $5.1 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
— $
5,081 $
10%
5%
(5,414) $ (10,829) $ (16,243) $ (21,657)
(5,748) $ (11,162) $ (16,576)
(333) $
20%
15%
0%
(5)%
(10)%
(15)%
(20)%
— $
5,414 $
10,829 $
16,243 $
21,657
5,081 $
10,495 $
15,910 $
21,324 $
26,738
Natural Gas Distribution 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.
The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade
counterparties, as of September 30, 2018. 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, 2018, 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, 2018, is as follows:
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Page 67
Gross Credit
Exposure
Net Credit
Exposure
$ 175,064
43,419
30,693
15,566
$ 264,742
$ 143,438
10,648
26,189
3,789
$ 184,064
Gross Credit
Exposure
Net Credit
Exposure
$
$
4,918
67
93
10,184
15,262
$
$
4,121
—
43
—
4,164
New Jersey Resources Corporation
Part II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Due to the inherent volatility in the market price for natural gas, electricity and SRECs, the market value of contractual
positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a
counterparty failed to perform the obligations under its contract (for example, failed to make payment for natural gas received),
we could sustain a loss. This loss would comprise the loss on natural gas delivered but not paid for and/or the cost of replacing
natural gas not delivered or received at a price that exceeds the original contract price. Any such loss could have a material impact
on our financial condition, results of operations or cash flows.
Effects of Interest Rate and Foreign Currency Rate Fluctuations
We are also exposed to changes in interest rates on our debt hedges, variable rate debt and changes in foreign currency rates
for our business conducted in Canada using Canadian dollars. We do not believe an immediate 10 percent increase or decrease in
interest rates or foreign currency rates would have a material effect on our operating results or cash flows.
As of September 30, 2018, 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, 2018, the EDA Bonds had a weighted average interest rate of 1.78 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 $922,000 during fiscal 2018.
As of September 30, 2018, 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 accrues interest at a variable rate determined monthly, which
is LIBOR plus 70 basis points. On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on the variable rate
term loan, which fixed the variable rate at 2.84 percent.
For more information regarding the interest rate risk related to our short-term debt, please see the Liquidity and Capital
Resources - Debt section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Effects of Inflation
Although inflation rates have been relatively low to moderate in recent years, including the three most recent fiscal years,
any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of our utility subsidiary.
We attempt to minimize the effects of inflation through cost control, productivity improvements and regulatory actions, when
appropriate.
Page 68
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of New Jersey Resources Corporation is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Securities and Exchange Act of 1934, as amended. The
Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s
Management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and includes policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company’s assets that could have a material effect on the financial statements.
Under the supervision and with the participation of the Company’s management, including its principal executive officer
and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over
financial reporting as of September 30, 2018. 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, 2018,
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, 2018, which appears herein.
November 20, 2018
Page 69
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of New Jersey Resources Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of New Jersey Resources Corporation and subsidiaries (the
“Company”) as of September 30, 2018 and 2017, 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, 2018, and the related notes
and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30,
2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended September 30,
2018, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of September 30, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated November 20, 2018, expressed an unqualified opinion on the Company's internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 20, 2018
We have served as the Company's auditor since 1951.
Page 70
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of New Jersey Resources Corporation:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of New Jersey Resources Corporation and subsidiaries (the
“Company”) as of September 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of September 30, 2018, based on criteria established
in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended September 30, 2018,
of the Company and our report dated November 20, 2018, expressed an unqualified opinion on those financial statements and
financial statement schedule.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 20, 2018
Page 71
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share data)
Fiscal years ended September 30,
OPERATING REVENUES
Utility
Nonutility
Total operating revenues
OPERATING EXPENSES
Gas purchases:
Utility
Nonutility
Related parties
Operation and maintenance
Regulatory rider expenses
Depreciation and amortization
Energy and other taxes
Total operating expenses
OPERATING INCOME
Other income, net
Interest expense, net of capitalized interest
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF
AFFILIATES
Income tax (benefit) provision
Equity in earnings of affiliates
NET INCOME
EARNINGS PER COMMON SHARE
Basic
Diluted
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic
Diluted
2018
2017
2016
$
731,865 $
695,637 $
2,183,244
2,915,109
1,572,980
2,268,617
594,346
1,286,559
1,880,905
276,005
1,990,832
8,505
266,919
38,969
85,701
52,102
2,719,033
196,076
16,853
46,286
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
166,643
(53,785)
13,008
233,436 $
136,595
18,343
13,813
132,065 $
145,687
23,530
9,515
131,672
$
$2.66
$2.64
87,689
88,315
$1.53
$1.52
86,321
87,144
$1.53
$1.52
85,884
86,731
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
Fiscal years ended September 30,
Net income
Other comprehensive income, net of tax:
Unrealized (loss) gain on available for sale securities, net of tax of 6,973, $(4,401) and
$1,499, respectively
Reclassifications of losses to net income on available for sale securities, net of tax of
$(858), $0 and $0, respectively
Adjustment to postemployment benefit obligation, net of tax of $(573), $(3,487) and
$2,466, respectively
Other comprehensive (loss) income
Comprehensive income
(1) Available for sale securities are included in other noncurrent assets on the Consolidated Balance Sheets.
See Notes to Consolidated Financial Statements
Page 72
2018
2017
$ 233,436 $ 132,065 $ 131,672
2016
(19,245)
6,846
(2,187)
11,647
—
—
1,520
(6,078)
(3,574)
(5,761)
$ 227,358 $ 143,964 $ 125,911
5,053
11,899
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Fiscal years ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash flows from operating activities
Unrealized loss (gain) on derivative instruments
Gain on sale of available for sale securities
Gain on sale of businesses
Depreciation and amortization
Amortization of acquired wholesale energy contracts
Allowance for equity used during construction
Allowance for doubtful accounts
Deferred income taxes
Deferred income tax benefit due to tax legislation
Manufactured gas plant remediation costs
Equity in earnings, net of distributions received from equity investees
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
Midstream 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
Cash paid related to acquisition
(Deposits to) withdrawal from restricted cash construction fund
Proceeds from sale of property, net of closing costs
Proceeds from sale of businesses, net of closing costs
Proceeds from sale of available for sale securities, net
Cash flows used in investing activities
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Payments of long-term debt
(Payments of) proceeds from short-term debt, net
Proceeds from sale-leaseback transaction - solar
Proceeds from sale-leaseback transaction - gas meters
Payments of common stock dividends
Proceeds from waiver discount issuance of common stock
Proceeds from issuance of common stock
Purchases of treasury stock
Tax withholding payments related to net settled stock compensation
Cash flows (used in) from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables
Inventories
Recovery of gas costs
Gas purchases payable
Gas purchases payable - related parties
Prepaid and accrued taxes
Accounts payable and other
Restricted broker margin accounts
Customers’ credit balances and deposits
Other current assets
Total
SUPPLEMENTAL DISCLOSURES
Cash paid (received) for:
Interest (net of amounts capitalized)
Income taxes
Accrued capital expenditures
Inception gain on natural gas swap contract recognized as non-cash proceeds from sale of business
See Notes to Consolidated Financial Statements
Page 73
2018
2017
2016
$
233,436
$
132,065
$
131,672
26,770
(5,332)
(4,663)
85,701
18,222
(5,531)
2,579
15,590
(75,736)
(16,171)
(1,725)
(298)
(6,359)
2,950
97,004
17,860
13,989
398,286
(206,880)
(123,421)
(6,644)
(47,643)
—
(16,151)
3,117
(10,000)
(9)
—
27,916
6,616
(373,099)
225,000
(165,486)
(114,050)
71,538
7,820
(95,835)
41,677
17,136
—
(13,755)
(25,955)
(768)
2,226
1,458
(7,524)
15,464
30,439
51,187
(1)
1,254
40,422
(30,974)
368
(3,631)
97,004
44,821
5,577
30,559
14,579
$
$
$
$
$
$
$
(11,241)
(7,287)
—
81,841
762
(3,867)
2,023
41,442
—
(10,934)
(462)
(484)
(6,077)
1,285
17,081
13,978
(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
(56,974)
3,022
(90)
20,663
2
10,366
13,086
22,570
(5,877)
10,313
17,081
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
$
$
11,303
(45,986)
(39,642)
(11,963)
(411)
2,385
(15,656)
(38,752)
12,044
3,353
$ (123,325)
44,362
(6,877)
21,769
—
$
$
$
$
31,996
(3,516)
48,881
—
$
$
$
$
$
$
$
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
Nonutility plant and equipment, at cost
Construction work in progress
Total property, plant and equipment
Accumulated depreciation and amortization, utility plant
Accumulated depreciation and amortization, nonutility plant and equipment
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 74
2018
2017
$ 2,368,914 $ 2,241,324
119,318
192,481
697,406
45,690
3,304,491
(530,753)
(122,689)
2,651,049
843,142
7,286
3,211,070
(489,122)
(112,207)
2,609,741
1,458
2,226
205,490
196,467
7,199
(5,704)
18,297
7,202
(5,181)
50,791
184,633
202,063
13,910
23,047
27,396
53,719
206,905
33,730
770,080
190,866
368,592
10,560
32,917
23,375
96,225
11,944
24,764
30,081
25,827
—
33,260
579,444
172,585
375,919
9,164
65,752
41,084
74,818
722,535
739,322
$ 4,143,664 $ 3,928,507
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, 2018 — 88,292,956; September 30, 2017 — 86,555,507
Premium on common stock
Accumulated other comprehensive loss, net of tax
Treasury stock, at cost and other;
Shares September 30, 2018 — 2,185,013; September 30, 2017 — 2,347,380
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
Liabilities held for sale
Customers’ credit balances and deposits
Total current liabilities
NONCURRENT LIABILITIES
Deferred income taxes
Deferred investment tax credits
Deferred gain
Derivatives, at fair value
Manufactured gas plant remediation
Postemployment employee benefit liability
Regulatory liabilities
Asset retirement obligation
Other noncurrent liabilities
Total noncurrent liabilities
Commitments and contingent liabilities (Note 13)
Total capitalization and liabilities
See Notes to Consolidated Financial Statements
Page 75
2018
2017
$
226,196 $
274,748
(12,610)
(76,473)
1,007,117
1,418,978
1,180,619
2,599,597
222,258
219,696
(3,256)
(70,039)
867,984
1,236,643
997,080
2,233,723
123,545
151,950
211,303
1,150
135,240
25,824
1,568
8,185
14,052
46,652
4,182
27,325
165,375
266,000
160,115
1,152
96,878
23,586
2,031
78
14,202
46,544
—
26,957
750,976
802,918
242,436
3,976
9,104
22,982
130,800
137,007
209,139
28,688
8,959
514,708
4,297
27,728
11,330
149,000
128,888
14,507
31,420
9,988
793,091
891,866
$ 4,143,664 $ 3,928,507
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, 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
Net income
Other comprehensive loss
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Waiver discount
Cash dividend declared ($1.11 per share)
(6,078)
561
413
1,403
15,169
755
1,014
2,535
39,142
16,339
(97,579)
233,436
233,436
(6,078)
16,572
17,094
41,677
(97,579)
(22,787)
Treasury stock and other
(251)
(14)
(22,773)
Reclassifications of certain income tax effects
to retained earnings (2)
Balance at September 30, 2018
88,293 $ 226,196 $ 274,748
$ (12,610)
$ (76,473) $1,007,117 $ 1,418,978
(3,276)
3,276
—
(1) Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.
(2) Due to the adoption of ASU No. 2018-02, an amendment to ASC 740, Income Taxes. See Note 2. Summary of Significant Accounting Policies - Recently
Adopted Updates to the Accounting Standards Codification section for more details.
See Notes to Consolidated Financial Statements
Page 76
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
1. NATURE OF THE BUSINESS
New Jersey Resources Corporation provides regulated gas distribution services and operates certain unregulated businesses
primarily through the following:
New Jersey Natural Gas Company provides natural gas utility service to approximately 538,700 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 Iowa, Kansas, Wyoming and Pennsylvania. On June 1, 2018, Clean Energy Ventures
completed the sale of its membership interest in a 9.7 MW wind farm in Two Dot, Montana. See Note 17. Dispositions for more
details regarding the sale.
NJR Energy Services Company comprises the Energy Services segment. Energy Services 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. From July 2017 through February 2018, NJR Retail Services Company provided
retail natural gas supply and transportation services to commercial and industrial customers in Delaware, Maryland, Pennsylvania
and New Jersey as part of the Energy Services segment. NJRRS was sold to an unrelated third party on February 28, 2018. See
Note 17. Dispositions for more details regarding the sale.
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 ownership interest in
Steckman Ridge, located in Pennsylvania; NJNR Pipeline, which holds our DM Common Units; and NJR Pipeline Company,
which includes Adelphia Gateway, LLC and the Company's 20 percent ownership interest in PennEast. See Note 6. Investments
in Equity Investees for more information.
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 the entity has the power to direct business
activities and, therefore, would be considered a controlling interest that the Company would have to consolidate. Based on those
evaluations, NJR has determined that it does not have any investments in variable interest entities as of September 30, 2018, 2017
and 2016.
Investments in entities over which the Company does not have a controlling financial interest are either accounted for under
the equity method or cost method of accounting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates that affect the
reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period. On
a quarterly basis or more frequently whenever events or changes in circumstances indicate a need, the Company evaluates its
estimates, including those related to the calculation of the fair value of derivative instruments, debt, investments, unbilled revenues,
allowance for doubtful accounts, provisions for depreciation and amortization, long-lived assets, regulatory assets and liabilities,
income taxes, pensions and other postemployment benefits, contingencies related to environmental matters and litigation. 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 77
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 and the number of years on which to base the cash flow projections, as well as other assumptions
and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent
in the acquired assets 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.
Revenues
Revenues from the sale of natural gas to NJNG customers are recognized in the period that gas is delivered and consumed
by customers, including an estimate for unbilled revenue.
NJNG records unbilled revenue for natural gas services. Natural gas sales to individual customers are based on meter readings,
which are performed on a systematic basis throughout the month. At the end of each month, the amount of natural gas delivered
to each customer after the last meter reading through the end of the respective accounting period is estimated, and 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 composed 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.
Page 78
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Demand Fees
For the purpose of securing storage and pipeline capacity in support of their respective businesses, the Energy Services and
Natural Gas Distribution segments enter into storage and pipeline capacity contracts, which require the payment of associated
demand fees and charges that allow them access to a high priority of service in order to maintain the ability to access storage or
pipeline capacity during a fixed time period, which generally ranges from one to 10 years. Many of these demand fees and charges
are based on established tariff rates as established and regulated by FERC. These charges represent commitments to pay storage
providers and pipeline companies for the priority right to transport and/or store natural gas utilizing their respective assets.
The following table summarizes the demand charges, which are net of capacity releases, and are included as a component
of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30:
(Millions)
Energy Services
Natural Gas Distribution
Total
2018
2017
2016
$
$
153.0 $
92.5
245.5 $
126.4 $
80.2
206.6 $
141.0
77.8
218.8
Energy Services expenses demand charges over the term of the service being provided.
The Natural Gas Distribution segment’s costs associated with demand charges are included in its weighted average cost of
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.
Operations and Maintenance Expenses
Operations and maintenance expenses include operations and maintenance salaries and benefits, materials and supplies,
usage of vehicles, tools and equipment, payments to contractors, utility plant maintenance, customer service, professional fees
and other outside services, insurance expense, accretion of cost of removal for future retirements of utility assets and other
administrative expenses and are expensed as incurred.
Stock-Based Compensation
Stock-based compensation represents costs related to stock-based awards granted to employees and NJR Board of Directors
members. NJR recognizes stock-based compensation based upon the estimated fair value of awards. The recognition period for
these costs begins at either the applicable service inception date or grant date and continues throughout the requisite service period.
The related compensation cost is recognized as O&M expense on the Consolidated Statements of Operations. See Note 9. Stock-
Based Compensation for further information.
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 2018, 2017 and 2016, sales tax collected was $41.7 million, $39.4 million and $31 million,
respectively. Effective January 1, 2017, the New Jersey sales tax rate decreased from 7 percent to 6.875 percent. Effective January
1, 2018, the New Jersey sales tax rate decreased again to 6.625 percent.
Income Taxes
The Company computes income taxes using the asset and liability method, whereby deferred income taxes are generally
determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse. See Note 12. Income Taxes. In addition, 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 the unregulated subsidiaries of NJR 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.
Page 79
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 and PennEast, using the equity method of accounting where
its respective ownership interests are 50 percent or less and/or it has significant influence over operating and management decisions,
but is not the primary beneficiary, as defined under ASC 810, Consolidation. The Company’s share of earnings is recognized as
equity in earnings of affiliates on the Consolidated Statements of Operations. See Note 6. Investments in Equity Investees for more
information.
Property Plant and Equipment
Regulated property, plant and equipment is stated at original cost. Costs include direct labor, materials and third-party
construction contractor costs, AFUDC and certain indirect costs related to equipment and employees engaged in construction.
Nonregulated property, plant and equipment is stated at original cost. Costs include direct labor, materials and third-party
construction contractor costs and certain indirect costs related to equipment and employees engaged in construction. Upon
retirement, the cost of depreciable property, plus removal costs less salvage, is charged to accumulated depreciation with no gain
or loss recorded.
Depreciation is computed on a straight-line basis over the useful life of the assets for unregulated entities, and using rates
based on the estimated average lives of the various classes of depreciable property for NJNG. The composite rate of depreciation
used for NJNG was 2.29 percent of average depreciable property in fiscal 2018, 2.25 percent in fiscal 2017 and 2.32 percent in
fiscal 2016. The Company recorded $85.7 million, $81.8 million and $72.7 million in depreciation expense during fiscal 2018,
2017 and 2016, 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 (1)
Midstream property (2)
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
17 to 25 years
30 years
5 to 35 years
2018
2017
$ 2,151,249 $ 1,952,697
294,586
78,245
587,345
244,764
—
53,433
3,211,070
(601,329)
$ 2,651,049 $ 2,609,741
295,692
79,470
720,562
—
6,747
50,771
3,304,491
(653,442)
(1)
(2)
Reclassified to assets held for sale. See Note 2. Summary of Significant Accounting Policies, for more information.
Includes activity related to the acquisition of IEC by Adelphia. For fiscal 2017, Midstream property was originally included in All other property.
In March 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 $1.9 million, which was recognized as a reduction to O&M on the
Consolidated Statements of Operations.
Capitalized and Deferred Interest
NJNG’s base rates include the ability to recover AFUDC on its construction work in progress. For all NJNG construction
projects, an incremental cost of equity is recoverable during periods when NJNG’s short-term debt balances are lower than its
construction work in progress. For more information on AFUDC treatment with respect to certain accelerated infrastructure
projects, see Note 3. Regulation - Infrastructure programs.
Capitalized amounts associated with the debt and equity components of NJNG’s AFUDC are recorded in utility plant on the
Consolidated Balance Sheets. Corresponding amounts for the debt component are recognized in interest expense and in other
income for the equity component on the Consolidated Statements of Operations.
Page 80
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Capitalized and deferred interest include the following for the fiscal years ended September 30:
($ in thousands)
AFUDC:
Debt
Equity
Total
Weighted average interest rate
2018
2017
2016
$
$
1,979
5,531
7,510
5.94%
$
$
$
$
1,311
3,867
5,178
6.90%
5,009
4,375
9,384
5.06%
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 3. Regulation. The SBC interest rate changes each September based
on the August 31 seven-year constant maturity treasury rate plus 60 basis points. The rate was 3.41 percent, 2.55 percent and 2.05
percent for the fiscal years ended September 30, 2018, 2017 and 2016, respectively. Accordingly, other income included $411,000,
$78,000 and $54,000 in the fiscal years ended September 30, 2018, 2017 and 2016, respectively.
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 $252,000 and $243,000 as of September 30, 2018 and 2017, respectively, related to escrow balances
for utility plant projects, which is recorded in other current and noncurrent assets on the Consolidated Balance Sheets.
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 customer accounts once it is determined they are uncollectible.
The following table summarizes customer accounts receivable by company as of September 30:
(Thousands)
Energy Services
Natural Gas Distribution (1)
Clean Energy Ventures
Home Services and Other Operations
Total
(1) Does not include unbilled revenues of $7.2 million as of September 30, 2018 and 2017.
2018
$ 157,936
39,151
3,330
5,073
$ 205,490
2017
77% $ 150,322
19
37,432
2
2,655
2
6,058
100% $ 196,467
77%
19
1
3
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. The Company has recorded $10.4 million and $8.9 million in other current
assets and $39.5 million and $40.4 million in other noncurrent assets as of September 30, 2018 and 2017, respectively, on the
Consolidated Balance Sheets, related to the loans. If NJNG determines a loan is impaired, the basis of the loan would be subject
to regulatory review for recovery. As of September 30, 2018 and 2017, the Company has not recorded an allowance for doubtful
accounts for SAVEGREEN loans.
Regulatory Assets & Liabilities
Under cost-based regulation, regulated utility enterprises generally are permitted to recover their operating expenses and
earn a reasonable rate of return on their utility investment.
Our Natural Gas Distribution segment maintains its accounts in accordance with the FERC Uniform System of Accounts
as prescribed by the BPU and in accordance with the ASC 980, Regulated Operations. As a result of the impact of the ratemaking
process and regulatory actions of the BPU, NJNG is required to recognize the economic effects of rate regulation. Accordingly,
NJNG capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes
certain obligations representing probable future expenditures as regulatory liabilities on the Consolidated Balance Sheets. See
Note 3. Regulation for a more detailed description of NJNG’s regulatory assets and liabilities.
Page 81
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Gas in Storage
Gas in storage is reflected at average cost on the Consolidated Balance Sheets and represents natural gas and LNG that will
be utilized in the ordinary course of business.
The following table summarizes gas in storage, at average cost by company, as of September 30:
($ in thousands)
Energy Services
Natural Gas Distribution
Total
Derivative Instruments
2018
Gas in Storage Bcf
90,166
94,467
$ 184,633
34.1
24.9
59.0
$
2017
Gas in Storage Bcf
$ 122,884
79,179
$ 202,063
53.9
21.8
75.7
The Company accounts for its financial instruments, such as futures, options, foreign exchange contracts and interest rate
contracts, as well as its physical commodity contracts related to the purchase and sale of natural gas at Energy Services, as
derivatives, and therefore recognizes them at fair value on the Consolidated Balance Sheets. The Company’s unregulated
subsidiaries record changes in the fair value of their financial commodity derivatives in 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. Ineffective portions of the cash flow hedges are recognized immediately in earnings.
The ASC 815, Derivatives and Hedging also provides for a NPNS scope exception for qualifying physical commodity
contracts 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 4. Derivative Instruments for additional details regarding natural gas trading and hedging activities.
Fair values of exchange-traded instruments, including futures and swaps, are based on unadjusted, quoted prices in active
markets. The Company’s non-exchange-traded financial instruments, foreign currency derivatives, over-the-counter physical
commodity contracts at Energy Services and interest rate contracts are valued using observable, quoted prices for similar or
identical assets when available. In establishing the fair value of contracts for which a quoted basis price is not available at the
measurement date, management utilizes available market data and pricing models to estimate fair values. Fair values are subject
to change in the near term and reflect management’s best estimate based on a variety of factors. Estimating fair values of instruments
that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected
to be received from, or paid to, a third party in settlement of the instruments. These amounts could be materially different from
amounts that might be realized in an actual sale transaction.
Assets Held for Sale
The Company classifies an asset as held for sale if there is a commitment to sell the asset, the asset is available for immediate
sale, the sale is probable and the sale will be completed within one year. In March 2018, Clean Energy Ventures committed to a
plan to sell its wind assets and expects that the sale will be completed within the next 12 months. Accordingly, the Company
classified its wind assets and related liabilities as held for sale on the Consolidated Balance Sheets, which resulted in depreciation
expense on wind assets no longer being recorded.
The wind assets classified as held for sale are measured at the lower of their carrying value or fair value less cost to sell. At
September 30, 2018, the Company performed a fair value assessment of its wind assets held for sale. The Company equally
weighted the valuation derived from an income approach and a market approach to determine fair value. The Company believes
that the estimates and assumptions used in calculating the fair value of our assets and liabilities held for sale are reasonable and
appropriate based on the information that was known when the estimates were made. The Company concluded that the fair value
of the wind assets was greater than the carrying value and thus no impairment was recorded.
On June 1, 2018, Clean Energy Ventures completed the sale of its membership interest in a 9.7 MW wind farm in Two Dot,
Montana. See Note 17. Dispositions for more details.
Page 82
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The major classes of assets and liabilities included within the disposal group as held for sale are as follows:
(Thousands)
Assets held for sale:
September 30,
2017
Assets
reclassified as
held for sale
Assets
Sold
September 30,
2018
Property, plant and equipment - wind equipment, at cost $
Property, plant and equipment - accumulated
Prepaid and accrued taxes
Other noncurrent assets
Liabilities held for sale:
Accounts payable and other (1)
Asset retirement obligation
(1)
Transaction fee owed to broker for the sale of Two Dot wind farm.
Available for Sale Securities
$
$
$
— $
—
—
—
— $
— $
—
— $
245,044
(21,561)
866
261
224,610
$
$
(20,688) $
3,060
(77)
—
(17,705) $
— $
4,262
4,262
$
$
186
(266)
(80) $
224,356
(18,501)
789
261
206,905
186
3,996
4,182
Available for sale securities are carried at fair value on the Consolidated Balance Sheets. For fiscal years ended September
30, 2018 and prior, total unrealized gains and losses associated are included as a part of accumulated other comprehensive income,
a component of common stock equity. Reclassifications of realized gains or losses out of other comprehensive income into earnings
are recorded in other income, net on the Consolidated Statements of Operations based on average cost.
Management evaluates its equity securities for other-than-temporary impairment on a quarterly basis, and more frequently
when economic, market or other concerns warrant such evaluation. Consideration is given to the length of time and the extent to
which the fair value has been less than cost; the financial condition and near term prospects of the issuer; whether the market
decline was affected by macroeconomic conditions, changes in tax laws, regulations or other governmental policies; and whether
the Company has the intent to sell the security or more likely than not will be required to sell the security before the recovery of
its amortized cost basis. If the decline in value of our equity securities is determined to be other-than-temporary, an impairment
is recognized through earnings within other income, net on the Consolidated Statements of Operations.
During fiscal 2018, NJR sold shares of its available for sale securities and received proceeds of approximately $6.6 million
and realized a pre-tax gain of approximately $5.3 million, which is included in other income, net on the Consolidated Statements
of Operations, or $3.2 million, net of tax. During fiscal 2017, NJR received proceeds of approximately $6.6 million and realized
a pre-tax gain of $5.4 million, or $3.2 million, net of tax. Reclassifications of realized gains out of other comprehensive income
into income are determined based on average cost.
DM Units
In September 2015, the Company exchanged its ownership interest in Iroquois for approximately 1.84 million DM Common
Units. The investment in DM is included as part of the Company's equity investments in the Midstream segment. The exchange
of ownership interests in Iroquois for DM was considered a contribution of real estate into another real estate venture. As a result,
the Company recorded a deferred gain of $24.6 million on the Consolidated Balance Sheets, based on the difference between the
carrying amount of its investment in Iroquois and the fair value of the DM Common Units on the closing date of the transaction.
The deferred gain will be recognized in other income, net on the Consolidated Statements of Operations upon completion of the
earnings process, typically through the sale of the related securities, or other earnings event.
On March 15, 2018, the FERC issued a policy revision indicating that it no longer will allow interstate natural gas and oil
pipelines held by a MLP to recover an income tax allowance in cost-of-service rates. The policy revision had a material negative
impact on the value of NJR's investment in DM Common Units. As a result, the Company evaluated the decrease in fair value of
its available for sale securities and determined that the decline was other-than-temporary. Accordingly, the Company recognized
an other-than-temporary impairment of $17.8 million, or $14.8 million, net of tax, as of March 31, 2018.
Since the deferred gain was established based upon the difference in the fair value of the DM Common Units acquired and
the carrying value of the ownership of Iroquois, concurrent with the impairment charge to earnings, the Company reduced the
amount of the deferred gain for the DM Common Units. This reduction of the deferred gain of $17.8 million was also recorded
in other income, net on the Consolidated Statements of Operations.
Page 83
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
On July 18, 2018, the FERC finalized its March 15, 2018 policy regarding the tax treatment of MLP pipelines. Natural gas
pipelines within an MLP structure, where the parent is a taxable entity and consolidates the financial results of the MLP on its
federal income tax return, will be allowed to include an income tax allowance in its cost-of-service rates.
As of September 30, 2018, the Company's available for sale securities had a fair value of $32.9 million and total unrealized
gains were $4.7 million, or $3.4 million, net of deferred income tax benefit. The remaining deferred gain associated with the
Company’s investment in DM Common Units totaled $6.8 million. As of September 30, 2017, the Company's available for sale
securities had a fair value of $65.8 million and total unrealized gains were $12.8 million, or $7.7 million, net of deferred income
tax expense.
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, 2018, intangible assets
consist of internal-use software costs of $513,000 and $22.9 million, net of amortization, 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)
2019
2020
2021
2022
2023
Thereafter
Long-lived Assets
$
$
$
$
$
$
8,424
4,925
4,604
2,561
2,271
77
The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes
in circumstances indicate that the carrying value may not be recoverable, such as significant adverse changes in regulation, business
climate or market conditions, including prolonged periods of adverse commodity and capacity prices. If there are changes indicating
that the carrying value of such assets may not be recoverable, an undiscounted cash flows test is performed. If the sum of the
expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing
the recorded value of the asset to its fair value. During the year, the Company evaluated whether there were such events or
circumstances that occurred, including evaluation of the new clean energy legislation signed in May 2018, and concluded that
there were no events or circumstances in the current year that indicated that the carrying value of long-lived assets or finite-lived
intangibles is not recoverable.
Debt Issuance Costs
Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest
method over the term of the related debt. Debt issuance costs are presented as a direct deduction from the carrying amount of the
related debt. See Note 8. Debt for the total unamortized debt issuance costs that are recorded as a reduction to long-term debt on
the Consolidated Balance Sheets.
Sale-Leasebacks
NJNG utilizes sale-leaseback arrangements as a financing mechanism to fund certain of its capital expenditures related to
natural gas meters, whereby the physical asset is sold concurrent with an agreement to lease the asset back. These agreements
include options to renew the lease at the end of the term or repurchase the asset. Proceeds from sale-leaseback transactions are
accounted for as financings and are included in long-term debt on the Consolidated Balance Sheets. During fiscal 2018 and 2017,
NJNG received $7.8 million and $9.6 million, respectively, in connection with the sale-leaseback of its natural gas meters with
terms ranging from seven to 11 years.
In addition, for certain of its commercial solar energy projects, the Company enters into lease agreements that provide for
the sale of commercial solar energy assets to third parties and the concurrent leaseback of the assets. For sale-leaseback transactions
where the Company has concluded that the terms of the arrangement create a continuing involvement in the asset and the asset is
Page 84
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
Clean Energy Ventures received $71.5 million and $32.9 million in proceeds related to the sale of commercial solar assets
during fiscal 2018 and 2017, respectively. Clean Energy Ventures simultaneously entered into agreements to lease the assets back
over six to 15-year terms. The Company will continue to operate the solar assets and is responsible for related expenses and entitled
to retain the revenue generated from SRECs and energy sales. The ITCs and other tax benefits associated with these solar projects
have been 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 recognizes the equivalent value of the ITC in other
income on the Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second
year of the lease. Clean Energy Ventures did not enter into sale-leaseback during fiscal 2016 and therefore recognized the full ITC
in income tax (benefit) provision on the Consolidated Statements of Operations when the assets were placed in service.
Environmental Contingencies
Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is
reasonably estimable in accordance with accounting standards for contingencies. Estimating probable losses requires an analysis
of uncertainties that often depend upon judgments about potential actions by third parties. Accruals for loss contingencies are
recorded based on an analysis of potential results.
With respect to environmental liabilities and related costs, NJNG periodically, and at least annually, performs an
environmental review of the MGP sites, including a review of potential liability for investigation and remedial action. NJNG’s
estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the
review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of
possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it
is NJNG’s policy to accrue the lower end of the range. The actual costs to be incurred by NJNG are dependent upon several factors,
including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other
responsible parties to pay and any insurance recoveries. NJNG will continue to seek recovery of MGP-related costs through the
RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs
would be charged to income in the period of such determination. See Note 13. Commitments and Contingent Liabilities for more
details.
Pension and Postemployment Plans
The Company has two noncontributory defined pension plans covering eligible employees, including officers. Benefits are
based on each employee’s years of service and compensation. The Company’s funding policy is to contribute annually to these
plans at least the minimum amount required under the Employee Retirement Income Security Act, as amended, and not more than
can be deducted for federal income tax purposes. Plan assets consist of equity securities, fixed-income securities and short-term
investments. The Company 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 2018 and 2017.
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 $6.2 million, $6 million and $3.2 million in aggregate to these plans in fiscal
2018, 2017 and 2016, respectively, which is recorded in postemployment employee benefit liability on the Consolidated Balance
Sheets.
See Note 10. Employee Benefit Plans, for a more detailed description of the Company’s pension and postemployment plans.
Asset Retirement Obligations
The Company recognizes 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. The Company
also recognizes 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.
Page 85
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 the
Consolidated Statements of Operations. Accretion amounts associated with NJNG’s ARO are recognized as part of its depreciation
expense and the corresponding regulatory asset and liability will be shown gross on the Consolidated Balance Sheets.
Estimating future removal costs requires management to make significant judgments because most of the removal obligations
span long time frames and removal may be conditioned upon future events. Asset removal technologies are also constantly changing,
which makes it difficult to estimate removal costs. Accordingly, inherent in the estimate of AROs are various assumptions including
the ultimate settlement date, expected cash outflows, inflation rates, credit-adjusted risk-free rates and consideration of potential
outcomes where settlement of the ARO can be conditioned upon events. In the latter case, the Company develops possible retirement
scenarios and assign probabilities based on management’s reasonable judgment and knowledge of industry practice. Accordingly,
AROs are subject to change.
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, 2016
Other comprehensive income, net of tax
Other comprehensive income, before reclassifications, net of tax of $(6,593),
$(2,619), $(9,212)
Amounts reclassified from accumulated other comprehensive (loss) income,
net of tax of $2,192, $(868), $1,324
Net current-period other comprehensive income, net of tax of $(4,401),
$(3,487), $(7,888)
Balance at September 30, 2017
Other comprehensive income, net of tax
Other comprehensive (loss) income, before reclassifications, net of tax of
$6,973, $(125), $6,848
Amounts reclassified from accumulated other comprehensive income, net of
tax of $(858), $(448), $(1,306)
Net current-period other comprehensive (loss) income, net of tax of $6,115,
$(573), $5,542
Reclassifications of certain income tax effects to retained earnings (2)
Unrealized gain
(loss) on
available for
sale securities
$
4,198
Adjustment to
postemployment
benefit obligation
$
(19,353)
Total
$ (15,155)
10,019
(3,173)
3,783
13,802
1,270 (1)
(1,903)
6,846
11,044
$
5,053
(14,300)
11,899
$ (3,256)
$
(19,245)
11,647
464
(18,781)
1,056 (1)
12,703
(6,078)
(3,276)
$ (12,610)
Included in the computation of net periodic pension cost, a component of O&M expense on the Consolidated Statements of Operations. For more details,
see Note 10. Employee Benefit Plans.
Balance at September 30, 2018
(1)
1,520
(3,276)
(16,056)
(7,598)
—
3,446
$
$
(2) Due to the adoption of ASU No. 2018-02, an amendment to ASC 740, Income Taxes. See Note 2. Summary of Significant Accounting Policies - Recently
Adopted Updates to the Accounting Standards Codification section for more details.
Foreign Currency Transactions
The market area of Energy Services includes Canadian delivery points and as a result, Energy Services incurs certain natural
gas commodity costs and demand fees denominated in Canadian dollars. Gains or losses that occur as a result of these foreign
currency transactions are reported as a component of gas purchases on the Consolidated Statements of Operations. Gains and
losses recognized for the fiscal years ended September 30, 2018, 2017 and 2016, are considered immaterial.
Reclassification
Certain prior period amounts related to the amortization of acquired wholesale energy contracts on the Consolidated
Statements of Cash Flows and in the deferred tax table in Note 12. Income Taxes for the fiscal year ended September 30, 2017,
were reclassified to conform to the current period presentation.
Page 86
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Recently Adopted Updates to the Accounting Standards Codification
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 Company adopted the new guidance in the first quarter of fiscal 2018 and
applied the new provisions on a prospective basis, which did not impact its financial position, results of operations or cash flows
upon adoption.
Reporting Comprehensive Income
In February 2018, the FASB issued ASU No. 2018-02, an amendment to ASC 220, Income Statement - Reporting
Comprehensive Income, which allows for the reclassification from accumulated other comprehensive income to retained earnings
for the disproportionate tax effects of the Tax Act. The Company early adopted this guidance in the fourth quarter of fiscal 2018
and reclassified on a prospective basis only, $3.3 million from accumulated other comprehensive income to retained earnings.
This did not materially impact the Company’s financial position, results of operations or cash flows.
Tax
In March 2018, the FASB issued ASU No. 2018-05, an amendment to ASC 740, Income Taxes, which provides relief to
entities in their calculation of the effects of the Tax Act by allowing them to record provisional amounts for certain income tax
effects to address circumstances in which an entity does not have the necessary information available, prepared or analyzed to
complete the accounting. These provisional amounts are subject to change as information and assumptions are updated throughout
the measurement period, which may not extend beyond one year from the enactment date. The new guidance was effective
immediately upon issuance, and the Company adopted the new guidance in the second quarter of fiscal 2018 and applied the new
provision on a prospective basis.
Other Recent Updates to the Accounting Standards Codification
Revenue
In May 2014, the FASB issued ASU No. 2014-09, and added ASC 606, Revenue from Contracts with Customers, to the ASC.
ASC 606 supersedes ASC 605, Revenue Recognition, as well as most industry-specific guidance, and prescribes a single,
comprehensive revenue recognition model designed to improve financial reporting comparability across entities, industries,
jurisdictions and capital markets. The Company adopted the new guidance on October 1, 2018, and will apply the new provisions
on a modified retrospective basis.
Management established an implementation team to evaluate the impact on the Company’s financial position, results of
operations and cash flows upon adoption of ASC 606. This implementation team reviewed the revenue streams of all of its
subsidiaries and formed conclusions to determine if any system, process, controls and organizational changes are necessary upon
adoption. The assessment of the impact of this guidance included reviewing the Company’s accounting policies under ASC 605
and identifying potential differences after the adoption of ASC 606. The Company concluded that its tariff-based sales of natural
gas will be within the scope of the new guidance and it does not anticipate any modification to the pattern of revenue recognition
from such sales. Revenues from derivative instruments such as those related to the Company’s SREC sales and natural gas purchases
and sales will continue to be accounted for under ASC 815 and thus are outside the scope of ASC 606. Additionally, NJNG revenues
generated by the CIP have been determined to be alternative revenue programs under ASC 980 and are also outside the scope of
ASC 606 as they are deemed to be a contract with the regulator. The Company also evaluated its renewable asset PPA arrangements
and does not anticipate any modification to the pattern of revenue recognition of the related electricity, capacity and REC sales.
Revenues from RECs sold as part of a bundled arrangement will be recognized in the same period as the related generation,
consistent with current practice.
The Company has completed its evaluation of its revenue streams, and based on the assessment performed, has concluded
that the new guidance will not have a material impact on its financial position, results of operations or cash flows upon adoption.
Additionally, the Company did not implement significant changes to its business processes, systems or internal controls over
financial reporting upon adoption. ASC 606 requires expanded disclosures, including the disclosure of performance obligations,
disaggregated revenues and contract balances, which the Company will include in its financial statements beginning in the first
quarter of fiscal 2019.
Page 87
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 beginning October 1, 2018. 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 will
reclassify $3.4 million in accumulated other comprehensive income related to available for sale securities to the opening balance
of retained earnings as of October 1, 2018. There will be no material impact to the Company’s 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. An entity will apply the amendment through a cumulative-effect adjustment
to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective
for the Company beginning October 1, 2020, 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.
In January 2018, the FASB issued ASU No. 2018-01, a further amendment to ASC 842, Leases, which was introduced by
ASU No. 2016-02, as discussed above. This update provides an optional practical expedient that allows companies to not evaluate
existing or expired land easements that were not previously accounted for under Topic 840 as leases. The Company expects to
elect this practical expedient upon adoption. The guidance is effective for the Company beginning October 1, 2020, with early
adoption permitted.
In July 2018, the FASB issued ASU No. 2018-11, which provides an optional transition method to ASC 842 that allows the
Company to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. At
this time, the Company does not plan to early adopt the new guidance and expects to transition on a modified retrospective basis.
While the Company is currently evaluating the full impact of the standard and its related updates, it expects to recognize additional
assets and liabilities arising from current operating leases to its financial position upon adoption. Current operating leases primarily
consist of office and land leases related to the Company’s solar and wind assets.
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 beginning
October 1, 2018. The amendment will be applied on a retrospective basis and the Company does not expect any material impacts
to its statement of cash flows.
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 beginning October 1, 2018, and will be applied on
a retrospective basis. Based on the Company's historical restricted cash balances, it does not expect any material impacts to its
statement of cash flows.
Page 88
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Intangibles
In August 2018, the FASB issued ASU No. 2018-15, an amendment to ASC 350, Intangibles - Goodwill and Other, which
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). The guidance is effective for the Company beginning October 1, 2020, with early
adoption permitted. Upon adoption, the amendment will be applied on a prospective or retrospective basis.
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 beginning October 1, 2018, and 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 the accounting framework that is applied 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 as of October 1, 2018 and will be applied
retrospectively with a cumulative effect adjustment at the date of adoption. The Company had a deferred gain of $6.8 million
related to nonfinancial assets on the balance sheet, which will be recognized under the new accounting guidance as a cumulative
effect adjustment to the opening balance of retained earnings as of October 1, 2018.
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 amendment
establishes a practical expedient that permits entities to use their previously disclosed service and other costs in their pension and
other postretirement benefit plan footnotes in the prior comparative periods as the estimation basis when applying the retrospective
presentation of these costs in the income statement. The guidance is effective for the Company beginning October 1, 2018, and
will be applied on a retrospective basis for income statement presentation, and on a prospective basis for changes to capitalization
of costs. The changes related to the costs that will be eligible for capitalization and based on the components of net periodic benefit
costs during fiscal year 2018, will not have a material impact on the Company's financial position, results of operations or cash
flows upon adoption
In August 2018, the FASB issued ASU No. 2018-14, an amendment to ASC 715, Compensation - Retirement Benefits, which
removes disclosures that no longer are considered cost-beneficial, clarifies the specific requirements of certain disclosures, and
adds new disclosure requirements identified as relevant. The guidance is effective for the Company beginning October 1, 2020,
with early adoption permitted. Upon adoption, the amendments will be applied on a retrospective basis. The Company is continuing
to evaluate the amendment to fully understand the impact on the Company's disclosures upon adoption.
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
beginning October 1, 2018, and will be applied prospectively to awards modified on or after the adoption date. There was no
material impact to the Company's financial position, results of operations or cash flows upon adoption.
In June 2018, the FASB issued ASU No. 2018-07, an amendment to ASC 718, Compensation - Stock Compensation, which
expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees.
The guidance is effective for the Company beginning October 1, 2019, with early adoption permitted. The Company is currently
evaluating the impact of the amendment on the Company’s financial position, results of operations and cash flows upon adoption.
Page 89
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
beginning October 1, 2019, 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.
Fair Value
In August 2018, the FASB issued ASU No. 2018-13, an amendment to ASC 820, Fair Value Measurement, which removes,
modifies and adds to certain disclosure requirements of fair value measurements. Disclosure requirements removed include the
amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels and the valuation processes for Level 3 fair value measurements. Modifications include considerations around the
requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might
lapse. The additions include the requirement to disclose changes in unrealized gains and losses for the period in other comprehensive
income for recurring Level 3 fair value measurements held and the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements. The guidance is effective for the Company beginning October 1, 2020, with
early adoption permitted. Upon adoption, the amendments will be applied on a prospective or retrospective basis depending on
the specific amendments’ transition requirements. The Company is currently evaluating the amendments to understand the impact
on its financial position, results of operations, cash flows and disclosures upon adoption and will apply the new guidance.
3. REGULATION
The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape. NJNG is required,
pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas
suppliers. Customers can choose the supplier of their natural gas commodity in NJNG’s service territory.
As required by EDECA, NJNG’s rates are segregated into two primary components: the commodity portion, which represents
the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the gas to NJNG’s service territory;
and the delivery portion, which represents the transportation of the commodity portion through NJNG’s gas distribution system
to the end-use customer. NJNG does not earn utility gross margin on the commodity portion of its natural gas sales. NJNG earns
utility gross margin through the delivery of natural gas to its customers, regardless of whether it or a third-party supplier provides
the wholesale natural gas commodity.
Under EDECA, the BPU is required to audit the state’s energy utilities every two years. The primary purpose of the audit is
to ensure that utilities and their affiliates offering unregulated retail services do not have an unfair competitive advantage over
nonaffiliated providers of similar retail services. A combined competitive services and management audit of NJNG commenced
in August 2013. A draft management audit report was accepted by the BPU on July 23, 2014, for public comment. To date, NJNG
has 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. The current base rate includes a weighted
average cost of capital of 6.9 percent and a return on common equity of 9.75 percent. 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.
Page 90
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Regulatory assets and liabilities included on the Consolidated Balance Sheets as of September 30, are composed of the
following:
(Thousands)
Regulatory assets-current
New Jersey Clean Energy Program
Underrecovered gas costs
Derivatives at fair value, net
Conservation Incentive Program
Total current regulatory assets
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries
Liability for future expenditures
Deferred income taxes
SAVEGREEN
Postemployment and other benefit costs
Deferred storm damage costs
Cost of removal
Other noncurrent regulatory assets
Total noncurrent regulatory assets
Regulatory liability-current
Conservation Incentive Program
Derivatives at fair value, net
Total current regulatory liabilities
Regulatory liabilities-noncurrent
Tax Act impact (1)
Cost of removal
New Jersey Clean Energy Program
Other noncurrent regulatory liabilities
Total noncurrent regulatory liabilities
(1)
2018
2017
$
$
$
$
$
$
$
$
14,052 $
4,137
108
—
18,297 $
33,017 $
130,800
17,225
8,636
136,716
10,858
22,339
9,001
368,592 $
6,994 $
1,191
8,185 $
205,410 $
—
1,902
1,827
209,139 $
14,202
9,910
9,010
17,669
50,791
28,547
149,000
21,795
16,302
141,433
13,030
—
5,812
375,919
—
78
78
—
7,902
5,795
810
14,507
Includes an adjustment related to the re-measurement of NJNG's net deferred tax liabilities to reflect the change in federal tax rates enacted in the Tax Act,
which is net of sales tax collected from customers. For a more detailed discussion, see Note 12. Income Taxes.
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.
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 2019. NJNG recovers the costs associated with its portion
of the NJCEP obligation through its NJCEP rider, with interest.
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.
Page 91
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Derivatives
Derivatives are utilized by NJNG to manage the price risk associated with its natural gas purchasing activities and to participate
in certain BGSS incentive programs. The gains and losses associated with NJNG’s derivatives are recoverable through its BGSS,
as noted above, without interest. See Note 4. Derivative Instruments.
Conservation Incentive Program
The CIP permits NJNG to recover utility gross margin variations related to customer usage resulting from customer
conservation efforts and mitigates the impact of weather on its margin. Such utility gross margin variations are recovered in the
year following the end of the CIP usage year, without interest, and are subject to additional conditions, including an earnings test,
a revenue test and an evaluation of BGSS related savings. This program has no expiration date.
Environmental Remediation Costs
NJNG is responsible for the cleanup of certain former gas manufacturing facilities. Actual expenditures are recovered from
customers, with interest, over seven-year rolling periods, through a RAC rate rider. Recovery for NJNG’s estimated future liability
will be requested and/or recovered when actual expenditures are incurred. See Note 13. Commitments and Contingent Liabilities.
Deferred Income Taxes
Upon adoption of a 1993 provision of ASC 740, Income Taxes, NJNG recognized a transition adjustment and corresponding
regulatory asset representing the difference between NJNG’s existing deferred tax amounts compared with the deferred tax amounts
calculated in accordance with the change in method prescribed by ASC 740. NJNG recovers the regulatory asset associated with
these tax impacts through future base rates, without interest.
SAVEGREEN
NJNG administers certain programs that supplement the state’s NJCEP and that allow NJNG to promote clean energy to its
residential and commercial customers, as described further below. NJNG will recover related expenditures and a weighted average
cost of capital on the unamortized balance through a tariff rider, without interest, as approved by the BPU, over a two- to 10-year
period depending upon the specific program incentive.
Postemployment and Other Benefit Costs
Postemployment and Other Benefit Costs represents NJNG’s underfunded postemployment benefit obligations, as well as a
fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated with Medicare Part D, both of
which are deferred as regulatory assets and are recoverable, without interest, in base rates. The BPU approved the recovery of the
tax charge through NJNG’s base rates effective October 2016 over a seven-year amortization period. See Note 10. Employee Benefit
Plans.
Deferred Storm Damage Costs
Portions of NJNG’s distribution system incurred significant damage as a result of Superstorm Sandy in October 2012. NJNG
deferred the uninsured incremental O&M costs associated with its restoration efforts, which were approved for recovery by the
BPU through NJNG’s base rates, without interest, effective October 2016 over a seven-year amortization period.
Cost of Removal
NJNG accrues and collects for cost of removal in base rates on its utility property, without interest. These costs are recorded
in accumulated depreciation for regulatory reporting purposes, and actual costs of removal, without interest, will be recovered in
subsequent rates, pursuant to the BPU order in docket number GR15111304 dated September 23, 2016. Consistent with GAAP,
amounts recorded within accumulated depreciation for regulatory accounting purposes are reclassified out of accumulated
depreciation to either a regulatory asset or a regulatory liability depending on whether actual cost of removal is still subject to
collection or amounts overcollected will be refunded back to customers. NJNG’s prior regulatory liability represented customer
collections in excess of actual expenditures, which the Company returned to customers as a reduction to depreciation expense.
Page 92
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Regulatory Assets
Other regulatory assets consist primarily of deferred costs associated with certain components of NJNG’s SBC, as discussed
further in the regulatory proceedings section, and NJNG’s compliance with federal- and state-mandated PIM provisions. NJNG’s
related costs to maintain the operational integrity of its distribution and transmission main are recoverable, without interest, subject
to BPU review and approval. As of September 30, 2018, NJNG recorded $3.2 million of PIM in other regulatory assets, which is
being recovered through base rates over a seven-year amortization period effective October 2016.
The Tax Act
On December 22, 2017, the Tax Act was signed into law, which resulted in a reduction in the federal corporate tax rate. As
a result, NJNG recorded a regulatory liability, which included the revaluation of its deferred income taxes and the accounting of
the income tax effects on the revaluation. The revaluation was based on certain assumptions and estimations NJNG made with
respect to its deferred taxes, as well as the effects from the Tax Act, and as such is subject to change if and when assumptions are
updated. See Note 12. Income Taxes for a more detailed discussion on the Tax Act.
On January 31, 2018, the BPU issued an Order which directed New Jersey utilities to submit filings to the BPU by March
2, 2018, to propose the prospective change in base rates as a result of the Tax Act to be effective April 1, 2018, the method to
return to customers the overcollection of taxes in base rates from January 1, 2018, through March 31, 2018 and an outline of the
method by which the excess deferred taxes would be returned to customers. The excess deferred taxes are primarily related to
timing differences associated with utility plant depreciation and are subject to IRS normalization rules, which require amortization
over the remaining life of the utility plant.
On March 1, 2018, NJNG submitted its required filing to the BPU proposing a $19.7 million base rate reduction and customer
refunds of approximately $31 million, which is inclusive of state sales tax and interest at the Company’s short-term debt rate as
specified in the Company’s last base rate case. On March 26, 2018, the BPU approved, on an interim basis, the $19.7 million rate
reduction, effective April 1, 2018. On May 22, 2018, the BPU approved final rates and also customer refunds of the $31 million.
These credits were returned to customer accounts in June 2018.
The following is a description of certain regulatory proceedings during fiscal 2017 and 2018:
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 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 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. A total of $42 million in bill credits were issued during fiscal
2017.
• June 2017 BGSS/CIP filing — In March 2018, the BPU approved NJNG’s petition on a final basis to maintain its BGSS
rate for residential and small commercial customers, increase its balancing charge rate, which resulted in a $3.7 million
increase to the annual revenues credited to BGSS, and decrease its CIP rates, which resulted in a $16.2 million annual
recovery decrease that was effective October 2017.
• May 2018 BGSS/CIP filing — On September 17, 2018, the BPU provisionally approved NJNG’s annual petition to
maintain its BGSS rate for residential and small commercial customers and increase its balancing charge rate, resulting
in a $10.3 million increase to the annual revenues credited to BGSS, as well as changes to the CIP rates, which will
result in a $30.9 million annual recovery decrease effective October 2018.
Page 93
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing
programs that include off-system sales, capacity release and storage incentive programs. The Company is permitted to annually
propose a process to evaluate and discuss alternative incentive programs, should performance of the existing incentives or market
conditions warrant re-evaluation.
Energy Efficiency Programs
SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are
designed to encourage the installation of high efficiency heating and cooling equipment and other 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 three- to 10-year period through a tariff rider mechanism.
As of September 30, 2018, the BPU has approved total SAVEGREEN investments of approximately $354.3 million,
including $135 million that was approved on September 17, 2018, for a continuation of existing EE programs and the
implementation of new programs through December 2021.
SAVEGREEN investments and costs are filed with the BPU on an annual basis. Since inception, $162 million in grants,
rebates and loans have been provided to customers, with a total annual recovery of approximately $16.1 million. 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, respectively. On October 16, 2018, NJNG requested a decrease in its EE recovery rate reflecting costs incurred
through September 30, 2018, which will result in an annual decrease of $8.8 million, anticipated to be effective January 1, 2019.
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:
• 2017 SBC filing — In September 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 July 25, 2018,
the BPU approved NJNG's annual SBC filing requesting to recover remediation expenses incurred through June 30,
2017, a reduction in the RAC, which resulted in an annual decrease of $2.4 million, and to increase the NJCEP factor,
which will result in an annual increase of $1.8 million, effective September 1, 2018.
• 2018 SBC filing — On September 17, 2018, the BPU approved NJNG’s annual USF compliance filing to increase the
statewide USF rate, which will result in a $1 million annual increase, effective October 1, 2018. On September 21, 2018,
NJNG filed its annual SBC application requesting to recover remediation expenses incurred through June 30, 2018, an
increase in the RAC, which will result in an annual increase of $1.4 million, and an increase to the NJCEP factor, which
will result in an annual increase of approximately $1.9 million, effective April 1, 2019.
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.
Page 94
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
SAFE/NJ RISE
The SAFE program replaces 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. SAFE I was approved to invest up to $130 million,
exclusive of AFUDC, over a four-year period. The recovery of SAFE I capital investments and the corresponding rate mechanism
were approved through NJNG’s base rate case effective October 2016. SAFE II was approved to invest up to $200 million,
excluding AFUDC, over a five-year period. NJNG will recover approximately $157.5 million through annual rate filings, with
the remainder recovered through subsequent rate cases. As a condition of approval of the program, NJNG is required to file a
base rate case no later than November 2019.
NJ RISE 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. NJ RISE
includes a weighted average cost of capital that ranges from 6.74 percent to 6.9 percent and a return on equity of 9.75 percent. 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.
In September 2017, the BPU approved NJNG’s annual petition requesting a base rate increase for the recovery of NJ RISE
and SAFE II capital investment costs with an annual increase of $4.1 million effective October 1, 2017. On September 17, 2018,
the BPU approved NJNG’s petition requesting a base rate increase of $6.8 million annually for the recovery of SAFE II and NJ
RISE capital investment costs related to the 12 months ending June 30, 2018 effective October 1, 2018.
SRL
The SRL is an approximately 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 $215 million. 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. In September 2017, the NJ Pinelands Commission approved construction of NJNG’s SRL. All approvals and permits have
been appealed by third parties.
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. Costs associated with this
initiative were approved for recovery through NJNG’s base rates effective October 2016.
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 this initiative were approved for recovery through NJNG’s base rates effective October 2016.
4. DERIVATIVE INSTRUMENTS
The Company is subject to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity.
To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts,
physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing
and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company may utilize foreign
currency derivatives to hedge Canadian dollar denominated gas purchases and/or sales. Therefore, the Company’s primary
underlying risks include commodity prices, interest rates and foreign currency. These contracts, with a few exceptions as described
below, are accounted for as derivatives. Accordingly, all of the financial and certain of the Company’s physical derivative
instruments are recorded at fair value on the Consolidated Balance Sheets. For a more detailed discussion of the Company’s fair
value measurement policies and level disclosures associated with the Company’s derivative instruments, see Note 5. Fair Value.
Page 95
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Energy Services
Energy Services chooses not to designate its financial commodity and physical forward commodity derivatives as accounting
hedges or to elect NPNS. The changes in the fair value of these derivatives are recorded as a component of 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.
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.
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, NJNG 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.
Page 96
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Home Services and Other
On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on its existing $100 million variable rate term
loan, which fixed the variable rate at 2.84 percent. The swap will terminate on August 16, 2019, which coincides with the maturity
of the debt. The change in the fair value of the interest rate swap is recorded as interest expense on the Consolidated Statements
of Operations.
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:
(Thousands)
Derivatives not designated as hedging instruments:
Balance Sheet Location
Fair Value
2018
2017
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Natural Gas Distribution:
Physical commodity contracts
Derivatives - current
$
Financial commodity contracts
Derivatives - current
Interest rate contracts (1)
Derivatives - current
Energy Services:
Physical commodity contracts
Derivatives - current
Derivatives - noncurrent
Financial commodity contracts
Derivatives - current
Derivatives - noncurrent
Foreign currency contracts
Derivatives - current
Home Services and Other:
Interest rate contracts
Total fair value of derivatives
Derivatives - noncurrent
Derivatives - current
85
94
—
7,667
3,930
19,169
6,630
—
—
381
$
192
$
151
$
72
—
—
18,158
11,316
28,176
11,548
126
118
—
—
—
14,588
7,127
15,302
2,033
40
4
—
1,149
8,467
16,589
8,710
20,267
2,620
—
—
—
$ 37,956
$ 69,634
$ 39,245
$ 57,874
(1)
Includes treasury lock which was settled in March 2018. See Note 8. Debt for more information.
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 97
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 and the net amounts the Company could present on the Consolidated Balance Sheets but elects not to.
(Thousands)
As of September 30, 2018:
Derivative assets:
Energy Services
Physical commodity contracts
Financial commodity contracts
Total Energy Services
Natural Gas Distribution
Physical commodity contracts
Financial commodity contracts
Total Natural Gas Distribution
Home Services and Other
Interest rate contracts
Total Home Services and Other
Derivative liabilities:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
Natural Gas Distribution
Physical commodity contracts
Total Natural Gas Distribution
As of September 30, 2017:
Derivative assets:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
Natural Gas Distribution
Physical commodity contracts
Total Natural Gas Distribution
Derivative liabilities:
Energy Services
Physical commodity contracts
Financial commodity contracts
Total Energy Services
Natural Gas Distribution
Amounts
Presented in
Balance Sheets (1)
Offsetting
Derivative
Instruments (2)
Financial Collateral
Received/Pledged (3) Net Amounts (4)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
11,597
25,799
37,396
85
94
179
381
381
29,474
39,724
244
69,442
192
192
21,715
17,335
44
39,094
151
151
25,299
22,887
48,186
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(3,944)
(18,775)
(22,719)
(3)
—
(3)
—
—
(3,944)
(18,775)
—
(22,719)
(3)
(3)
(2,173)
(14,121)
—
(16,294)
(20)
(20)
(2,173)
(14,121)
(16,294)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(200)
—
(200)
—
(94)
(94)
—
—
—
(20,949)
—
(20,949)
—
—
(200)
—
—
(200)
—
—
—
(8,766)
(8,766)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,453
7,024
14,477
82
—
82
381
381
25,530
—
244
25,774
189
189
19,342
3,214
44
22,600
131
131
23,126
—
23,126
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
52
—
8,467
8,519
Total Natural Gas Distribution
(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
—
(1,149)
—
(1,149)
72
1,149
8,467
9,688
(20)
—
—
(20)
$
$
$
$
$
$
$
$
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 98
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, create 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
2017
2018
2016
Physical commodity contracts
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Home Services and Other:
Interest rate contracts
Operating revenues
Gas purchases
Gas purchases
Gas purchases
Interest expense
Total unrealized and realized gains (losses)
$
(9,311)
(197)
(24,622)
(379)
334
(34,175)
$
$
$
8,912
(27,461)
26,563
41
$ 33,034
(45,637)
45,579
(34)
—
8,055
—
$ 32,942
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)
Natural Gas Distribution:
Physical commodity contracts
Financial commodity contracts
Interest rate contracts
Total unrealized and realized (losses) gains
2018
2017
2016
$
1,232
1,844
8,467
$ 11,543
$ (12,303)
5,595
14,606
7,898
$
$ (15,756)
(7,984)
(18,845)
$ (42,585)
NJNG and Energy Services had the following outstanding long (short) derivatives as of September 30:
Natural Gas Distribution
Energy Services
Futures
Physical
Futures
Physical
Volume (Bcf)
2018
2017
27.9
23.1
(7.0)
51.2
18.2
32.1
(16.4)
(13.1)
Not included in the previous table are Energy Services’ gross notional amount of foreign currency transactions of
approximately $8.5 million, interest rate contracts, as previously discussed, and 698,700 SRECs at Energy Services that are open
as of September 30, 2018.
Page 99
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, which is posted
upon the initiation of a position, maintenance margin, which is usually expressed as a percent of initial margin, and variation
margin, which fluctuates based on the daily marked-to-market relative to maintenance margin requirements. The Company
maintains separate broker margin accounts for the Natural Gas Distribution and Energy Services segments. The balances as of
September 30, by segment, are as follows:
(Thousands)
Natural Gas Distribution
Energy Services
Balance Sheet Location
Broker margin - Current assets
Broker margin - Current assets
2018
2017
$
$
2,038 $
51,681 $
2,661
23,166
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.
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.
The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of
September 30, 2018.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
Page 100
Gross Credit
Exposure
$ 179,982
43,486
30,786
25,750
$ 280,004
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2018 and 2017, is approximately $124,000 and $8.7 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, 2018 and 2017, the Company would have been required to post an additional
$33,000 and $8.6 million, respectively, to its counterparties. These amounts differ from the respective net derivative liabilities
reflected on the Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,”
that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral
to be posted, as previously discussed.
5. FAIR VALUE
Fair Value of Assets and Liabilities
The fair value of cash and 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 (1):
(Thousands)
NJNG
Carrying value
Fair market value
NJR
Carrying value
Fair market value
2018
2017
$
$
$
$
672,045 $
669,162 $
672,045
673,051
500,000 $
488,889 $
425,000
434,625
(1)
See Note 8. Debt for a reconciliation to long-term and short-term debt.
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, 2018 and 2017, 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:
Page 101
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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). 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.
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.
Page 102
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(Thousands)
As of September 30, 2018:
Assets
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Interest rate contract
Available for sale equity securities
Other (1)
Total assets at fair value
Liabilities
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Total liabilities at fair value
As of September 30, 2017:
Assets
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Available for sale equity securities
Other (1)
Total assets at fair value
Liabilities
Physical commodity contracts
Financial commodity contracts
Interest rate contract
Total liabilities at fair value
(1)
Includes money market funds.
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable
Inputs
Significant
Unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
Total
$
—
18,868
$ 11,682
7,025
—
—
32,917
1,217
—
381
—
—
$ —
$ 11,682
—
—
—
—
—
25,893
—
381
32,917
1,217
$ 53,002
$ 19,088
$ —
$ 72,090
$
—
$ 29,666
$ —
$ 29,666
39,724
—
—
244
—
—
39,724
244
$ 39,724
$ 29,910
$ —
$ 69,634
$
—
$ 21,866
$ —
$ 21,866
17,335
—
65,752
1,202
44
—
—
—
—
—
17,335
44
65,752
1,202
$ 84,289
$ 21,910
$ —
$ 106,199
$
—
$ 25,371
$ —
$ 25,371
24,036
—
—
8,467
—
—
24,036
8,467
$ 24,036
$ 33,838
$ —
$ 57,874
During the second quarter of fiscal 2018, the Company evaluated the decrease in fair value of its available for sale securities
on a nonrecurring basis and determined that the decline was other-than-temporary. Accordingly, the Company recognized an other-
than-temporary impairment of $17.8 million, which was determined using quoted market prices for identical publicly traded equity
securities on an active exchange. As of March 31, 2018, the Company’s available for sale securities had a fair value of $28.2
million. See the Company’s discussion of available for sale securities in Note 2. Summary of Significant Accounting Policies for
more information regarding the impairment.
Page 103
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
6. 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
2018
117,001 $
73,865
190,866 $
$
$
2017
120,262
52,323
172,585
Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2018 and 2017, 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. PennEast has advised that it
currently expects the pipeline to be completed and operational in 2019; however, the project could be delayed beyond 2019 due
to factors that are beyond PennEast’s ability to control or estimate precisely, including potential delays in obtaining (or the inability
to obtain) governmental and regulatory approvals and land-use rights, and unforeseen construction delays.
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 15. Related Party Transactions for more information
on these intercompany transactions.
7. EARNINGS PER SHARE
The following table presents the calculation of the Company’s basic and diluted earnings per share for the fiscal years ended
September 30:
(Thousands, except per share amounts)
Net income, as reported
Basic earnings per share
Weighted average shares of common stock outstanding-basic
Basic earnings per common share
Diluted earnings per share
Weighted average shares of common stock outstanding-basic
Incremental shares (1)
Weighted average shares of common stock outstanding-diluted
Diluted earnings per common share (2)
2018
2017
$ 233,436 $ 132,065 $ 131,672
2016
87,689
$2.66
86,321
$1.53
85,884
$1.53
87,689
86,321
85,884
626
88,315
$2.64
823
87,144
$1.52
847
86,731
$1.52
(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 2018, 2017 and 2016.
8. DEBT
NJNG and NJR finance working capital requirements and capital expenditures through the issuance of various long-term
debt and other financing arrangements, including unsecured credit and private placement debt shelf facilities. Amounts available
under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit.
Page 104
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 LL
Series MM
Series NN
Series OO
Series PP
Series QQ
Series RR
Series SS
Series TT
Series UU
Series VV
First mortgage bonds:
5.60%
Variable
Variable
Variable
3.15%
3.58%
4.61%
2.82%
3.66%
3.63%
4.01%
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
2.51%
3.25%
3.48%
3.20%
3.54%
3.96%
Variable
Less: Debt issuance costs
Less: Current maturities of long-term debt
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Term loan
Total NJR long-term debt
Clean Energy Ventures
Maturity date:
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
May 11, 2048
June 1, 2021
Various dates
September 15, 2018
September 17, 2022
November 7, 2024
August 18, 2023
August 18, 2026
June 8, 2028
August 16, 2019
2018
2017
$
— $
9,545
41,000
46,500
50,000
70,000
55,000
50,000
100,000
125,000
125,000
8,749
27,188
(6,515)
(9,502)
691,965
—
50,000
100,000
50,000
100,000
100,000
100,000
(1,136)
(100,000)
398,864
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
Solar asset financing obligation
Less: Current maturities of long-term debt
Total Clean Energy Ventures long-term debt
Various dates
Total long-term debt
103,923
(14,133)
89,790
$ 1,180,619 $
32,790
(4,582)
28,208
997,080
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)
2019
2020
2021
2022
2023
Thereafter
NJNG
— $
— $
— $
— $
— $
672,045 $
$
$
$
$
$
$
NJR
100,000
—
—
50,000
50,000
300,000
Page 105
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, 2018, NJNG’s equity to total capitalization ratio is 56.7 percent and has the
ability to issue up to $1 billion 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, 2018, the interest rate on the EDA Bonds was 2.03 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.
On May 11, 2018, NJNG entered into a Note Purchase Agreement, under which NJNG issued $125 million, 4.01 percent
senior notes due May 11, 2048. The interest rate includes the quoted March 9, 2018, 30-year treasury rate, plus a market based
credit spread. The notes are secured by an equal principal amount of NJNG's FMB (series VV) issued under NJNG's Mortgage
Indenture.
In June 2015, NJNG entered into a treasury lock transaction to fix a benchmark treasury rate of 3.26 percent associated with
a $125 million debt issuance that was finalized in May 2018. This debt issuance coincided with the maturity of the $125 million,
5.6 percent notes that came due May 15, 2018. This treasury lock was settled on March 13, 2018, which coincided with the pricing
of the new debt being issued. Settlement of the treasury lock resulted in a $2.6 million loss, which is recorded as a component of
regulatory assets on the Consolidated Balance Sheets and will be amortized in earnings over the term of the May 11, 2018 debt
issuance, discussed above.
Sale-Leasebacks
NJNG has entered into a sale-leaseback for its headquarters building, which has a 25.5-year term that expires in June 2021,
subject to an option by NJNG to renew the lease for additional five-year terms a maximum of four times. The present value of the
agreement’s minimum lease payments is reflected as both a capital lease asset and a capital lease obligation, which are included
in utility plant and long-term debt, respectively, on the Consolidated Balance Sheets.
NJNG received $7.8 million, $9.6 million and $7.1 million for fiscal 2018, 2017 and 2016, 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 2018, 2017 and 2016, NJNG
exercised early purchase options with respect to meter leases by making final principal payments of $2.2 million, $2.4 million
and $1.9 million, respectively. NJNG continues to evaluate this sale-leaseback program based on current market conditions.
Page 106
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Contractual commitments for capital lease payments, as of the fiscal years ended September 30, are as follows:
(Thousands)
2019
2020
2021
2022
2023
Thereafter
Subtotal
Less: Interest component
Total
NJR
Lease Payments
10,932
$
7,989
9,236
3,775
2,393
5,245
39,570
(3,633)
35,937
$
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 January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on its existing $100 million variable rate term
loan due August 16, 2019, which fixed the variable rate at 2.84 percent. On July 17, 2018, the $100 million variable rate term loan
was amended to permit the disposition of assets relating to sale leaseback or other similar tax equity financing arrangements of
meter assets or of solar or wind facilities. These transactions are permissible so long as NJR is in compliance with certain covenants
both before and after such incurrence, and if no event of default may be caused by such sale leaseback or similar arrangement. As
of September 30, 2018, NJR’s variable rate term loan was classified within current maturities of long-term debt.
On June 8, 2018, NJR entered into a Note Purchase Agreement, under which the Company issued $100 million, 3.96 percent
senior notes due June 8, 2028. The notes are not secured by assets, but are instead guaranteed by certain unregulated subsidiaries
of NJR.
Clean Energy Ventures
Clean Energy Ventures received proceeds of $71.5 million and $32.9 million in connection with the sale-leasebacks of
commercial solar projects for fiscal 2018 and 2017, respectively. Clean Energy Ventures enters into transactions to sell the
commercial solar assets concurrent with agreements to lease the assets back over a period of six to 15 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 are transferred to the buyer. Clean
Energy Ventures continues 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.
Contractual commitments for solar sale-leaseback lease payments, as of the fiscal years ended September 30, are as follows:
(Thousands)
2019
2020
2021
2022
2023
Thereafter
Subtotal
Less: Interest component
Total
Lease Payments
9,794
$
7,830
7,803
7,802
7,878
38,303
79,410
(26,728)
52,682
$
Page 107
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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)
2018
2017
$ 425,000
$ 87,950
$ 425,000
$ 255,000
3.07%
2.14%
$ 322,144
$ 156,601
$ 250,000
$ 64,000
$ 250,000
$
11,000
2.18%
1.13%
$ 185,269
$ 238,269
(1)
(2)
(3)
(4)
Committed credit facilities, which require commitment fees of .075 percent on the unused amounts.
Letters of credit outstanding total $14.9 million and $13.4 million as of September 30, 2018 and 2017, 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, 2018 and 2017, which reduces amount available by the same amount.
NJR
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.
On June 25, 2018, the $425 million NJR Credit Facility was amended to permit liens and the disposition of assets relating
to sale-leaseback or other similar tax equity financing arrangements of meter assets or of solar or wind facilities. These transactions
are permissible so long as NJR is in compliance with certain covenants both before and after such incurrence, and if no event of
default may be caused by such sale-leaseback or similar arrangement.
On December 14, 2017, NJR entered into a four-month, $75 million revolving line of credit facility. On January 19, 2018,
NJR amended the agreement to increase the available amount to $100 million. This facility expired on April 14, 2018. No amounts
were outstanding on the facility at the time of expiration.
As of September 30, 2018, NJR had six letters of credit outstanding totaling $14.9 million. Three letters of credit totaling
$11.9 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 2018 to September 2019. 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 2019 to August 2019.
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
Page 108
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2018, 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 2019. 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.
9. 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,
2017, 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, 2018, 3,473,062 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
2018
2017
2016
$
$
3,526 $
2,191
7,128
2,614 $
3,188
1,732
1,461
2,161
1,885
12,845
(3,734)
9,111 $
5,807
(2,372)
3,435 $
7,234
(2,955)
4,279
(1)
Excludes additional tax benefit related to delivered shares of $3 million, $1.3 million and $1.8 million as of September 30, 2018, 2017 and 2016,
respectively.
Performance Shares
In fiscal 2018, the Company granted to various officers 31,836 performance shares, which are market condition awards that
vest on September 30, 2020, subject to the Company meeting certain performance conditions. In fiscal 2018, the Company also
granted to various officers 59,341 performance shares, of which 29,608 vest on September 30, 2020 and 29,733 vest annually
over a three-year period beginning on September 30, 2018, both of which are subject to the Company meeting certain performance
conditions.
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 in September 30, 2017, both of which are subject to the Company meeting certain performance
conditions.
In fiscal 2016, the Company granted to various officers 46,175 performance shares, which are market condition awards that
vested 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 vested in September 30, 2018 and 30,516 vest annually
over a three-year period beginning in September 2016, both of which were subject to the Company meeting certain performance
conditions. The vesting of these awards are shown in the table below.
There is approximately $3.8 million of deferred compensation related to unvested performance shares that is expected to
be recognized over the weighted average period of 1.7 years.
Page 109
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2015
Granted
Vested (2)
Cancelled/forfeited (3)
Non-vested and outstanding at September 30, 2016
Granted
Vested (4)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2017
Granted
Vested (5)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2018
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
$23.40
$27.37
$21.40
$23.40
$27.47
$33.57
$28.88
$29.14
$30.12
$44.67
$29.49
$31.45
$39.67
—
—
$ 5,657
—
—
—
$ 4,179
—
—
—
$ 4,714
—
—
Shares (1)
214,464
115,480
(137,053)
(12,975)
179,916
96,507
(95,407)
(24,429)
156,587
91,177
(100,146)
(2,442)
145,176
(1)
(2)
(3)
(4)
(5)
The number of common shares issued related to certain performance shares may range from zero to 150 percent of the number of shares shown in the
table above based on the Company’s achievement of performance goals.
As certified by the Company’s Leadership and Compensation Committee on November 15, 2016, the number of common shares related to performance
shares earned 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.
As certified by the Company’s Leadership and Compensation Committee on November 13, 2018, the number of common shares earned related to TSR
performance was 99 percent or 38,660 shares, the number of common shares earned related to NFE performance was 121 percent or 39,694 shares and
the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 36,998 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.
Restricted Stock
In fiscal 2018, the Company granted 27,949 shares of restricted stock that vest annually over a three-year period beginning
October 15, 2018. In fiscal 2017, the Company granted 22,591 shares of restricted stock that vest annually over a three-year period
beginning in October 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. There is approximately $612,964 of deferred compensation related to unvested
restricted stock shares that is expected to be recognized over the weighted average period of two years.
Page 110
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 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
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2018
Deferred Retention Stock
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
$27.17
$30.03
$26.66
$29.21
$29.09
$35.79
$28.92
$31.56
$32.40
$45.00
$31.23
$33.54
$41.24
—
—
$ 1,469
—
—
—
$ 1,344
—
—
$ 1,438
—
Shares
81,492
41,909
(48,089)
(2,241)
73,071
28,734
(38,752)
(11,899)
51,154
27,949
(33,815)
(1,120)
44,168
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, 2015
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2016
Granted/Vested
Delivered
Outstanding at September 30, 2017
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2018
Weighted Average
Grant Date
Fair Value
Total Fair Value
of Vested Shares
(in Thousands)
$27.03
$30.37
$20.31
$28.14
$29.06
$35.64
$23.11
$29.54
$45.00
$29.42
$35.56
$32.99
—
—
$ 3,751
—
—
—
$ 1,774
—
$ 19,581
—
Shares
632,730
159,831
(121,764)
(8,318)
662,479
63,977
(53,878)
672,578
24,167
(452,694)
(1,969)
242,082
Page 111
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Non-Employee Director Stock
Non-employee director compensation includes an annual 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
2018
26,524
$39.85
(1)
2017
27,972
$35.59
2016
27,481
$32.75
(1)
$264,000 of expense remains as of September 30, 2018, to be recognized through December 31, 2018.
10. EMPLOYEE BENEFIT PLANS
Pension and Other Postemployment Benefit Plans
The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and
nonrepresented employees with more than one year of service. Defined benefit plan benefits are based on years of service and
average compensation during the highest 60 consecutive months of employment. The Company also provides postemployment
medical and life insurance benefits to employees who meet certain eligibility requirements.
All represented employees of NJRHS hired on or after October 1, 2000, non-represented employees hired on or after October
1, 2009 and NJNG represented employees hired on or after January 1, 2012, are covered by an enhanced defined contribution plan
instead of the defined benefit plan. Participation in the postemployment medical and life insurance plan was also frozen to new
employees as of the same dates, with the exception of new NJRHS represented employees, for which benefits were frozen beginning
April 3, 2012.
The Company maintains an unfunded nonqualified PEP that was established to provide employees with the full level of
benefits as stated in the qualified plan without reductions due to various limitations imposed by the provisions of federal income
tax laws and regulations. There were no plan assets in the nonqualified plan due to the nature of the plan.
In April 2018, the Company implemented a voluntary early retirement program open to certain eligible employees. As of
September 30, 2018, pension and postemployment benefit costs related to the special termination benefits were $4.2 million and
other severance benefits were $2.2 million. For the amounts incurred, NJNG recognized an expense of approximately $5.1 million
and Home Services and other recognized an expense of approximately $1.3 million, as a component of O&M in the Consolidated
Statements of Operations.
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 2018 and 2017, the Company had no minimum funding requirements.
The Company made no discretionary contributions to the pension plans in fiscal 2018 or 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 $6.2 million and $6 million, in fiscal 2018 and 2017,
respectively, and estimates that it will contribute between $5 million to $8 million over each of the next five years. Additional
contributions may be required based on market conditions and changes to assumptions.
Page 112
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)
Special termination benefits (3)
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
2018
2017
2018
2017
$
$
$
$
$
$
$
297,835 $
8,139
10,493
45
3,730
(12,846)
(8,821)
298,575 $
271,743 $
16,306
137
(8,776)
279,410 $
(19,165) $
(294) $
(18,871)
(19,165) $
293,654 $
8,347
9,771
45
—
(5,995)
(7,987)
297,835 $
175,090 $
4,607
6,365
161
490
15,145
(5,073)
196,785 $
160,393
4,380
5,545
120
—
8,985
(4,333)
175,090
249,875 $
62,035
7,953
29,736
6,049
74
(4,503)
(7,942)
271,743 $
71,534
(26,092) $ (118,805) $ (103,556)
71,534 $
5,284
6,222
(5,060)
77,980 $
(669) $
(158) $
(602)
(118,136)
(25,934)
(102,954)
(26,092) $ (118,805) $ (103,556)
Total
(1)
(2)
(3)
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.
Related to the voluntary early retirement program offered during fiscal 2018, as previously discussed.
The actuarial gain on the Company’s pension plans is primarily due to an increase in the discount rate used to measure the
obligation. 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. The Company recognizes a liability for its underfunded benefit plans as required
by ASC 715, Compensation - Retirement Benefits. The Company records the offset to regulatory assets for the portion of liability
relating to NJNG and to accumulated other comprehensive income for the portion of the liability related to its unregulated operations.
The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income
as of September 30:
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
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, 2018
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
94,941 $
59,147
$
28,436 $
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
(6,090)
12,378
(3,422)
2,834
(6,177)
(105)
66,233 $
(4,464)
311
68,685
(1,359)
(1)
$
14,633 $
(196)
54
7,659
$
$
Page 113
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
2018
65,664 $
569
66,233 $
2017
77,930 $
675
78,605 $
2018
69,477 $
(792)
68,685 $
2017
61,563 $
(1,103)
60,460 $
2018
14,633 $
—
14,633 $
$
$
2017
19,414 $
1
19,415 $
2018
2017
7,750 $
(91)
7,659 $
5,113
(146)
4,967
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 2019 are as follows:
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
Regulatory Assets
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
Pension
OPEB
$
$
4,662 $
102
4,764 $
5,527
(312)
5,215
$
$
1,103 $
—
1,103 $
643
(53)
590
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
2018
2017
$ 298,575 $ 297,835
$ 263,279 $ 258,514
$ 279,410 $ 271,743
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
$
$
Special termination benefit
Net periodic benefit cost recognized as expense $
2018
8,139 $
10,493
(19,639)
7,537
106
6,636 $
3,730
10,366 $
Pension
2017
2016
2018
8,347 $
9,771
(19,313)
8,827
7,591 $
11,342
(20,118)
7,281
111
7,743 $
—
7,743 $
111
6,207 $
—
6,207 $
4,607 $
6,365
(5,352)
4,660
(365)
9,915 $
490
10,405 $
OPEB
2017
2016
4,380 $
4,521
5,545
(4,767)
4,370
(365)
9,163 $
—
6,256
(4,845)
3,274
(365)
8,841
—
9,163 $
8,841
Page 114
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:
2018
Pension
2017
2016
2018
OPEB
2017
2016
Benefit costs:
4.50%
Discount rate
7.50%
8.75%
Expected asset return
Compensation increase 3.25/3.50% (1) 3.25/3.50% (1) 3.25/3.50%
3.96/3.94%
7.75%
4.04/4.03%
Obligations:
Discount rate
Compensation increase 3.25/3.50% (1) 3.25/3.50% (1) 3.25/3.50% (1)
4.03% (1) 3.96/3.94%
4.36/4.35%
4.12/4.08% (1) 4.08/4.01% (1) 4.60/4.55%
8.75%
3.50%
7.75%
3.25/3.50% (1) 3.25/3.50%
7.50%
4.38/4.37% (1) 4.12/4.08% (1) 4.08/4.01% (1)
3.25/3.50% (1) 3.25/3.50%
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 this 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.
Information relating to the assumed HCCTR used to determine expected OPEB benefits as of September 30, and the effect
of a 1 percent change in the rate, are as follows:
($ in thousands)
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
2018
7.9%
4.5%
2024
2017
8.3%
4.5%
2025
2016
8.5%
4.5%
2025
$ 36,260
2,482
$
$ 32,019
2,468
$
$ 28,803
2,331
$
$ (28,743)
$ (1,937)
$ (25,466)
$ (1,909)
$ (22,862)
$ (1,801)
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
Other assets
Total
Page 115
2019
Target
Allocation
34%
17
41
8
100%
Assets at
September 30,
2018
41%
19
37
3
100%
2017
39%
21
40
—
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 projection scale, MP-2017, did not materially impact 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 fiscal years:
(Thousands)
2019
2020
2021
2022
2023
2024 - 2028
Pension
OPEB
$
$
$
$
$
$
10,320 $
11,769 $
12,399 $
13,239 $
14,217 $
5,450
6,512
7,096
7,810
8,413
85,426 $
50,869
The Company’s OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare
Part D. Therefore, under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Company qualifies
for federal subsidies.
The following estimated subsidy payments are expected to be paid during the following fiscal years:
(Thousands)
2019
2020
2021
2022
2023
2024 - 2028
Estimated Subsidy
Payment
$
$
$
$
$
$
280
316
347
375
417
2,787
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
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Pension
OPEB
2018
2017
2018
2017
$
8,207
$
— $
2,273
$
11
97,016
17,741
53,516
11,754
—
—
—
25,720
64,039
$ 277,993
88,321
16,329
56,446
13,516
—
—
—
26,540
70,591
$ 271,743
27,340
5,014
14,874
3,264
7,970
4,798
4,830
7,236
—
77,599
$
23,986
4,409
15,000
3,551
8,082
4,744
4,673
7,078
—
71,534
$
The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2018 and 2017, and there have been no changes
in valuation methodologies as of September 30, 2018. The Plan held $1.8 million of other assets as of September 30, 2018, that
are valued using net asset value as a practical expedient, which are excluded from the fair value hierarchy.
Page 116
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following is a description of the valuation methodologies used for assets measured at fair value:
Money Market funds — Represents bank balances and money market funds that are valued based on the net asset value of
shares held at year end.
Registered Investment Companies — Equity and fixed income funds valued at the net asset value of shares held by the plan
at year end as reported on the active market on which the individual securities are traded.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with
other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
Defined Contribution Plan
The Company offers a Savings Plan to eligible employees. As of January 1, 2015, the Company matches 65 percent of
participants’ contributions up to 6 percent of base compensation. Represented NJRHS employees, non-represented employees
hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are eligible for an employer
special contribution of between 3 and 4 percent of base compensation, depending on years of service, into the Savings Plan on
their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was $3.9 million in fiscal 2018,
$2.9 million in fiscal 2017 and $2.8 million in fiscal 2016. The amount contributed for the employer special contribution of the
Savings Plan was $959,000 in fiscal 2018, $781,000 in fiscal 2017 and $571,000 in fiscal 2016.
11. ASSET RETIREMENT OBLIGATIONS
The Company recognizes AROs when the legal obligation to retire an asset has been incurred and a reasonable estimate of
fair value can be made. Accordingly, 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 are recognized as part of its depreciation expense and the corresponding
regulatory asset and liability will be shown gross on the Consolidated Balance Sheets. Accretion amounts associated with Clean
Energy Ventures’ ARO are recognized as a component of operations and maintenance expense on the Consolidated Statements of
Operations.
The following is an analysis of the change in the Company’s AROs for the fiscal years ended September 30:
(Thousands)
Balance at October 1
Accretion
Additions
Revisions in estimated cash flows
Retirements
Reclassification to held for sale or sold
Balance at period end
2018
2017
NJNG
NJRCEV
NJNG
NJRCEV
$
$
24,825 $
1,366
1,880
(2,133)
(298)
—
25,640 $
6,595
198
517
—
—
(4,262)
3,048
$
$
23,521 $
1,304
729
(245)
(484)
—
24,825 $
4,858
245
1,492
—
—
—
6,595
Accretion for the next five years, for the fiscal years ended September 30, is estimated to be as follows:
(Thousands)
2019
2020
2021
2022
2023
Total
Page 117
Estimated
Accretion
1,557
$
1,627
1,702
1,778
1,863
8,527
$
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
12. INCOME TAXES
The income tax (benefit) provision from operations for the fiscal years ended September 30, consists of the following:
(Thousands)
Current:
Federal
State
Deferred:
Federal
State
Investment/production tax credits
Income tax (benefit) provision
2018
2017
2016
$
$
(2,848) $
4,563
(16,023) $
2,470
(23,597)
(2,209)
(40,785)
6,731
(21,446)
(53,785) $
54,965
11,457
(34,526)
18,343 $
70,386
11,441
(32,491)
23,530
As of September 30, 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 (2)
State net operating losses
Amortization of intangibles
Conservation incentive plan
Other
Total deferred tax assets
Deferred tax liabilities
Property related items
Remediation costs
Equity investments
Postemployment benefits
Conservation incentive plan
Underrecovered gas costs
Other
Total deferred tax liabilities
2018
2017
$
$
$
$
123,258
—
4,646
8,411
24,500
34,754
3,737
1,955
8,213
209,474
(392,886)
(9,229)
(31,956)
(353)
—
(1,156)
(7,826)
(443,406)
$
$
$
$
111,642
3,877
6,260
11,519
28,487
23,597
2,747
—
11,098
199,227
(620,850)
(11,625)
(38,370)
(6,855)
(7,195)
(4,035)
(16,643)
(705,573)
Total net deferred tax liabilities
(1)
(506,346)
Includes $2.2 million and $2.3 million for NJNG for fiscal 2018 and 2017, respectively, which is being amortized over the life of the related assets, and
$121.1 million and $109.3 million for Clean Energy Ventures for fiscal 2018 and 2017, respectively, which is ITC carryforward.
See discussion of federal net operating loss utilization in the Other Tax Items section of this note.
(233,932)
(2)
$
$
A reconciliation of the U.S. federal statutory rate to the effective rate from operations for the fiscal years ended September 30,
is as follows:
(Thousands)
Statutory income tax expense
Change resulting from:
Tax Act - nonutility excess deferred income taxes (1)
Tax Act - utility excess deferred income taxes refunded to customers (1)
Tax Act - utility excess deferred income taxes amortized (1)
State income taxes, net of federal benefit
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 (benefit) provision
Effective income tax rate (2) (3)
(1)
(2)
(3)
For a more detailed description, see The Tax Act section of this note.
The U.S. federal statutory rate was 24.5 percent for fiscal 2018 and 35 percent for fiscal 2017 and 2016.
The effective tax rate without the impact of the Tax Act would have been 12.4 percent for fiscal 2018.
Page 118
2018
$ 44,014
2017
52,643
2016
54,321
$
$
(59,627)
(14,323)
(1,786)
7,092
(5,829)
(21,446)
1,080
(2,117)
(843)
$ (53,785)
—
—
—
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
$
$
(29.9)%
12.2%
15.2%
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 2014 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 2014 are
not currently under examination by the IRS. For all periods subsequent to those ended September 30, 2014, the Company’s state
income tax returns are statutorily open to examination in all applicable states with the exception of Colorado, New Jersey and
Texas. In Colorado, New Jersey and Texas, all periods subsequent to September 30, 2013 are statutorily open to examination.
The State of New Jersey is currently conducting a sales and use tax examination for the period from July 1, 2011 through
September 30, 2018.
On March 7, 2018, the State of New Jersey notified the Company that it will conduct a general tax examination for fiscal
years 2014 through 2017 related to NJRHS. The audit is currently in the information gathering stage. All periods subsequent to
those ended September 30, 2013, 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, 2018 and 2017, based on its analysis, the Company
determined there was no need to recognize any liabilities associated with uncertain tax positions.
The Tax Act
On December 22, 2017, the President signed into law the Tax Act. The law made several changes to the Internal Revenue
Code of 1986, as amended, the most impactful to the Company of which was a reduction in the federal corporate income tax rate
from 35 percent to 21 percent that became effective January 1, 2018. Since the Company's fiscal year end is September 30, it is
required by the Internal Revenue Code to calculate a statutory rate based upon the federal tax rates in effect before and after the
effective date of the change in the taxable year that includes the effective date. Accordingly, the Company will use a federal
statutory tax rate of 24.5 percent during fiscal 2018 and will use the enacted rate of 21 percent beginning in fiscal 2019.
The SEC issued guidance in Staff Accounting Bulletin 118 to address the changes in estimates associated with impacts
resulting from the Tax Act, which allows companies to record provisional amounts during a one-year measurement period. The
Company calculated an original estimate for the measurement and accounting for certain effects of the Tax Act, including the
remeasurement of deferred tax assets and liabilities to reflect the rates that will be in effect when the deferred tax assets and
liabilities are expected to be realized or settled. The adjustments to deferred income taxes were based on assumptions the Company
made with respect to its book versus tax differences and the timing of when those differences will reverse, including estimations
associated with depreciation and the settlement of derivative unrealized amounts. Therefore, the revaluation of net deferred tax
liabilities was subject to change as information and assumptions were updated each quarter for actual results.
As a result of the changes associated with the Tax Act, NJNG recorded a decrease in its net deferred tax liability of $228.4
million, which included $164.3 million for the revaluation of its deferred income taxes and $64.1 million for the accounting of
the income tax effects on the revaluation of those deferred income taxes. These amounts were recorded as a regulatory liability
on the Consolidated Balance Sheets. On May 22, 2018, the BPU approved a refund of $31 million, which included approximately
$20.1 million of the initial revaluation of excess deferred income taxes, $9 million for the overcollection of taxes from customers
from January 1, 2018 through March 31, 2018, and interest on the overcollected taxes at the Company's short-term debt rate. These
credits were returned to customer accounts in June 2018.
During fiscal 2018, NJNG credited approximately $17 million to income tax (benefit) provision on the Consolidated
Statements of Operations, which includes $14.3 million attributable to the remeasurement of deferred income taxes, $1.8 million
for the amortization of excess deferred income taxes primarily related to timing differences associated with utility plant depreciation
and $880,000 related to the revaluation of deferred income taxes not included in base rates. As of September 30, 2018, the regulatory
liability included excess deferred income taxes of $205.4 million, which requires amortization over the remaining life of the utility
plant consistent with IRS normalization principles.
Page 119
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The (decrease) increase of the net deferred tax liability due to the impact of the Tax Act that was recognized on the Consolidated
Statements of Operations for the remaining entities, was as follows:
(Thousands)
Income tax (benefit) provision
Clean Energy Ventures
Energy Services
Midstream
Home Services and Other
Total
2018
$
$
(61,423)
6,062
(13,946)
9,680
(59,627)
There was a $2.1 million change in the original estimate resulting from the use of actual results instead of estimated results
through the Company’s fourth fiscal quarter.
As of September 30, 2018, our accounting for the income tax effects of the Tax Act is considered complete. The Company
does not expect to make any further adjustments to the amounts recorded as a result of the Tax Act.
Other Tax Items
As of September 30, 2018 and 2017, the Company has federal income tax net operating losses of approximately $136.8
million and $125.3 million, respectively. Federal net operating losses can generally can be carried back two years and forward 20
years and will begin to expire in fiscal 2036, with the remainder expiring by 2038. The Company expects to exercise its ability to
carryback federal net operating losses to offset taxable income in prior periods.
For the net operating losses it expects to carryback, the Company estimated the portion considered refundable and recorded
receivables of approximately $23 million and $15.4 million as of September 30, 2018 and 2017, respectively, as a component of
other noncurrent assets on the Consolidated Balance Sheets. Upon filing amended federal income tax returns to carryback its
remaining federal net operating losses totaling $24.5 million, the Company will reduce its taxable income in those periods and
recapture federal investment tax credits of the same amount that were previously utilized to offset taxable income.
In addition, as of September 30, 2018 and 2017, the Company has an ITC/PTC carryforward of approximately $121.1 million
and $109.3 million, respectively, which each have a life of 20 years. When the Company carries back the federal net operating
losses noted above, it expects to recapture investment tax credits totaling $24.5 million. These recaptured tax credits are in addition
to the $121.1 million and will be carried forward to offset future taxable income. The Company expects to utilize this entire
carryforward, which would begin to expire in fiscal 2033.
As of September 30, 2018 and 2017, the Company has state income tax net operating losses of approximately $578.8 million
and $471.7 million, respectively. These state net operating losses have varying carry forward periods dictated by the state in which
they were incurred; these state carry forward periods range from seven to 20 years and would begin to expire in fiscal 2021, with
the majority expiring by 2038.
In March 2018, Clean Energy Ventures committed to a plan to sell its wind assets and expects that the sale will be completed
within the next 12 months. As a result of the planned sale, it is more likely than not that certain state net operating loss carryforwards
will not be realizable prior to their expiration. As of September 30, 2018, the Company had a valuation allowance of $4 million
related to state net operating loss carryforwards in Montana, Iowa, Kansas and Wyoming. As of September 30, 2017, the Company
had a valuation allowance of $1 million related to state net operating loss carryforwards in Montana. This is included as a component
of Other within the composition of deferred tax assets.
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 120
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
13. COMMITMENTS AND CONTINGENT LIABILITIES
Cash Commitments
NJNG has entered into long-term contracts, expiring at various dates through September 2024, for the supply, storage and
transportation of natural gas. These contracts include annual fixed charges of approximately $112 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, 2018, 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
Sub-total Energy Services
NJNG:
Natural gas purchases
Storage demand fees
Pipeline demand fees
Sub-total NJNG
Total
2019
2020
2021
2022
2023
Thereafter
$ 428,015 $
31,716
52,148
$ 511,879 $
28,389 $
19,926
49,790
98,105 $
10,965 $
13,478
28,209
52,652 $
— $
8,904
24,153
33,057 $
— $
4,212
18,988
23,200 $
$
65,737 $
31,384
80,609
37,727 $
24,263
96,241
33,738 $
14,251
89,236
$ 177,730 $ 158,231 $ 137,225 $ 138,422 $ 129,360 $
$ 689,609 $ 256,336 $ 189,877 $ 171,479 $ 152,560 $
33,546 $
12,930
91,946
34,221 $
7,899
87,240
—
991
5,151
6,142
35,762
6,066
586,266
628,094
634,236
As of September 30, 2018, the Company’s future minimum lease payments under various operating leases will not be more
than $3.7 million annually for the next five years and $50 million in the aggregate for all years thereafter.
Guarantees
As of September 30, 2018, there were NJR guarantees covering approximately $418.1 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 recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC
approved by the BPU. NJNG recovered approximately $9.4 million annually through its SBC RAC. In July 2018, the BPU approved
NJNG's annual SBC filing requesting a reduction in the RAC, which decreased the annual recovery to $7 million, effective
September 1, 2018. On September 21, 2018, NJNG filed its annual SBC application requesting to recover remediation expenses
incurred through June 30, 2018, which will result in an annual increase of $1.4 million, effective April 1, 2019. As of September 30,
2018, $33 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 121
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
In the first quarter of fiscal 2018, the NJDEP contacted NJNG regarding its association with a parcel of land, located within
NJNG's service territory, which may have been a MGP site for a period of time. NJNG is investigating to determine the nature and
extent of its relationship to the parcel, its previous owners and the operations conducted on the site and has accrued for costs associated
with the preliminary investigation of the existence of potential contaminants. NJNG will continue to gather information to determine
whether a potential obligation exists to undertake remedial action, if any, and whether there are other potentially responsible parties.
NJNG periodically, and at least annually, performs an environmental review of MGP sites located in Atlantic Highlands,
Berkeley, Long Branch, Manchester and Toms River, 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 $117.7 million to $204.1
million. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in
place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish
a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the
other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, as of September 30, 2018, NJNG recorded an MGP
remediation liability and a corresponding regulatory asset of $130.8 million on the Consolidated Balance Sheets, based on the most
likely amount. This was reduced from $149 million in fiscal 2017, 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 insurance recoveries, if any.
NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that
the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such
determination.
General
The Company is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial,
regulatory and arbitration proceedings relating to matters that arise in the ordinary course of business. In view of the inherent difficulty
of predicting the outcome of litigation matters, particularly when such matters are in their early stages or where the claimants seek
indeterminate damages, the Company cannot state with confidence what the eventual outcome of the pending litigation will be, what
the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending
matter will be, if any. In accordance with applicable accounting guidance, NJR establishes 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. NJR also discloses contingent matters for which there is a reasonable possibility of a loss. Based upon currently available
information, NJR believes that the results of litigation that 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.
Stafford Township
In February 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 the remaining
claims associated with the incident will not have a material effect on its financial condition, results of operations or cash flows.
Subrogated property damage claims asserted against the Company and co-defendants and cross-claims have been amicably resolved
in August 2018.
Page 122
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
14. 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.
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 (2)
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Interest income (3)
Natural Gas Distribution
Energy Services
Midstream
Subtotal
Home Services and Other
Eliminations
2018
2017
2016
$
731,865 $
695,637 $
594,346
71,375
64,394
53,540
2,064,477
48,327
2,916,044
1,462,365
316
2,222,712
1,187,754
9,499
1,845,139
47,392
2,665
(50,992)
45,265
3,232
(12,731)
$ 2,915,109 $ 2,268,617 $ 1,880,905
46,221
3,370
(3,686)
$
$
$
53,208 $
31,877
76
6
85,167
780
(246)
85,701 $
614 $
240
3,374
4,228
1,476
(5,090)
49,347 $
31,834
63
6
81,250
798
(207)
81,841 $
47,828
23,971
88
6
71,893
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
Total
(1)
(2) The amortization of acquired wholesale energy contracts is excluded above and is included in gas purchases - nonutility on the Unaudited Condensed
Includes sales to Canada, which are immaterial.
614 $
$
Consolidated Statements of Operations.
Included in other income, net on the Consolidated Statements of Operations.
(3)
Page 123
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
2018
2017
2016
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 (loss)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Midstream
Subtotal
Home Services and Other
Eliminations
Total
Capital expenditures
Natural Gas Distribution
Clean Energy Ventures
Midstream
Subtotal
Home Services and Other
Total
Investments in equity investees
Midstream
Total
$
$
$
$
$
$
$
$
$
$
$
Page 124
25,299 $
18,320
3,945
1,667
49,231
25,818 $
16,263
2,747
960
45,788
7
(2,952)
46,286 $
410
(1,312)
44,886 $
(1,910) $
(79,932)
24,996
(8,548)
(65,394)
11,944
(335)
(53,785) $
43,485 $
(31,161)
(4,015)
5,820
14,129
3,857
357
19,930
10,304
1,095
287
31,616
252
(824)
31,044
34,951
(26,592)
7,030
6,130
21,519
1,387
624
18,343 $
23,530
16,165 $
(3,157)
13,008 $
17,797 $
(3,984)
13,813 $
13,936
(4,421)
9,515
84,048 $
75,849
60,378
24,367
244,642
(3,829)
(327)
240,486 $
86,930 $
24,873
18,554
12,857
76,104
28,393
21,934
9,406
143,214
6,811
(633)
149,392 $
135,837
2,882
(634)
138,085
254,523 $
123,421
5,431
176,249 $
205,133
149,400
149,063
—
—
383,375
325,649
354,196
1,213
384,588 $
2,434
1,896
328,083 $
356,092
16,151
16,151 $
27,070
27,070 $
11,176
11,176
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 loss (gain) on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
Consolidated net income
2018
240,486 $
2017
149,392 $
2016
138,085
$
26,770
(4,512)
(22,570)
7,362
233,436 $
(11,241)
4,062
38,470
(13,964)
132,065 $
46,883
(17,018)
(36,816)
13,364
131,672
$
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 are 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. Included in the tax effects are current and deferred income tax expense corresponding
with the non-GAAP measure. Also included in the tax effects during fiscal 2018, are the impacts of the Tax Act and resulting
revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation
caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the year. 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 (1)
Energy Services
Midstream
Subtotal
Home Services and Other
Intercompany assets (2)
Total
(1)
(2)
Includes assets held for sale of $206.9 million for September 30, 2018.
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
15. RELATED PARTY TRANSACTIONS
2018
2017
2016
$ 2,663,054 $ 2,519,578 $ 2,517,401
665,696
327,626
186,259
3,696,982
109,487
(87,899)
$ 4,143,664 $ 3,928,507 $ 3,718,570
771,340
398,277
232,806
3,922,001
114,801
(108,295)
865,018
396,852
242,069
4,166,993
114,732
(138,061)
Effective April 1, 2010, NJNG entered into a 10-year agreement for 3 Bcf of firm storage capacity with Steckman Ridge.
Under the terms of the agreement, NJNG incurs demand fees, at market rates, of approximately $9.3 million annually, a portion
of which is eliminated in consolidation. These fees are recoverable through NJNG’s BGSS mechanism and are included in regulatory
assets.
Page 125
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-jurisdictional
natural gas storage facility, Steckman Ridge. As of September 30, 2018, Energy Services has entered into transactions with Steckman
Ridge for varying terms, all of which expire by October 31, 2020.
Demand fees, net of eliminations, associated with Steckman Ridge during the fiscal years ended September 30, are as follows:
(Thousands)
Natural Gas Distribution
Energy Services
Total
2018
2017
2016
$
$
5,730 $
2,775
8,505 $
5,590 $
2,750
8,340 $
5,562
2,789
8,351
The following table summarizes demand fees payable to Steckman Ridge as of September 30:
(Thousands)
Natural Gas Distribution
Energy Services
Total
2018
2017
$
$
775 $
375
1,150 $
775
377
1,152
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, 2018,
NJNG and Energy Services had four asset management agreements with expiration dates ranging from March 31, 2019 through
October 31, 2021.
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.
16. 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. 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, which have not been received as of
September 30, 2018. On November 7, 2017, the Company made an initial payment of $10 million towards the base purchase price,
which is included in other noncurrent assets on the Consolidated Balance Sheets.
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, 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.
17. DISPOSITIONS
Energy Services
On February 28, 2018, NJR sold all of the issued and outstanding shares of capital stock of NJRRS, which was a component
of the Energy Services segment. The Company received $9.5 million in cash and a natural gas swap contract with a fair value of
$14.6 million, which was recorded in Derivatives, at fair value on the Consolidated Balance Sheets. The sale generated a pre-tax
gain of $3.7 million, which was recognized as a reduction to O&M on the Consolidated Statements of Operations.
Clean Energy Ventures
On June 1, 2018, Clean Energy Ventures completed the sale of its membership interest in its 9.7 MW wind farm in Two Dot,
Montana to NorthWestern Energy for a total purchase price of $18.5 million. The transaction generated a pre-tax gain of
approximately $951,000, which is recognized as a reduction to O&M on the Consolidated Statements of Operations.
Page 126
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of fiscal 2018 and 2017 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)
2018
Operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
2017
Operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 705,305 $ 1,019,043 $ 543,435 $ 647,326
(19,295)
$
75,245 $ 177,792 $
(16,255)
$ 123,699 $ 140,266 $
(37,666) $
(14,274) $
$1.42
$1.42
$1.60
$1.59
$(0.16)
$(0.16)
$(0.18)
$(0.18)
$ 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)
(1)
The sum of quarterly amounts may not equal the annual amounts due to rounding.
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, 2018, that has materially affected, or is reasonably likely to materially affect,
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
Page 127
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 2019 Annual
Meeting of Shareowners, which will be filed with the SEC pursuant to Regulation 14A within 120 days after September 30, 2018.
The information regarding executive officers is included in this report 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 128
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 132.
Page 129
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, 2018
Page
131
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 130
New Jersey Resources Corporation
Part IV
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2018, 2017 and 2016
(Thousands)
CLASSIFICATION
2018
Allowance for doubtful accounts
2017
Allowance for doubtful accounts
2016
Allowance for doubtful accounts
BEGINNING
BALANCE
ADDITIONS
CHARGED TO
EXPENSE
OTHER (1)
ENDING
BALANCE
$
$
$
5,181
4,865
5,189
2,579
2,023
1,616
(2,056) $
5,704
(1,707) $
5,181
(1,940) $
4,865
(1) Uncollectible accounts written off, less recoveries and adjustments.
Page 131
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 July 10, 2018 (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K, as filed on July 16, 2018)
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 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)
Page 132
New Jersey Resources Corporation
Part IV
Exhibit
Number
Exhibit Description
4.8
4.9
4.10
4.11
4.12
4.13
4.15
4.16
4.17
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)
$125,000,000 Note Purchase Agreement, dated as of May 11, 2018, 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 May 11, 2018)
Third Supplemental Indenture, dated as of May 1, 2018, by and between New Jersey Natural Gas Company and
U.S. Bank National Association (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, as
filed on May 11, 2018)
$100,000,000 Note Purchase Agreement, dated as of June 8, 2018, by and among New Jersey Resources
Corporation and the Purchasers party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K, as filed on June 8, 2018)
10.1*
Amended and Restated Supplemental Executive Retirement Plan Agreement between the Company and Laurence
M. Downes dated November 28, 2008 (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form
10-Q, as filed on February 6, 2009)
10.2(a)*
Schedule of Supplemental Executive Retirement Plan Agreements for named executive officers (incorporated by
reference to Exhibit 10.2(a) to the Annual Report on Form 10-K for the year ended September 30, 2010, as filed on
November 24, 2010)
10.2(b)* Form of Amendment to Supplemental Executive Retirement Plan Agreement between the Company and Named
Executive Officer (for future use) (incorporated by reference to Exhibit 10.4(b) to the Quarterly Report on Form
10-Q, as filed on February 6, 2009)
10.3
10.4
10.5*
10.6*
Service Agreement for Rate Schedule SS-1 by and between NJNG and Texas Eastern Transmission Company, dated
as of June 21, 1995 (incorporated by reference to Exhibit 10-5B to the Annual Report on Form 10-K for the year
ended September 30, 1996, as filed on December 30, 1996)
Amended and Restated Lease Agreement between NJNG, as Lessee, and State Street Bank and Trust Company of
Connecticut, National Association, as Lessor, for NJNG’s Headquarters Building dated December 21, 1995
(incorporated by reference to Exhibit 10-7 to the Annual Report on Form 10-K for the year ended September 30,
1996, as filed on December 30, 1996)
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 19, 2018)
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)
Page 133
New Jersey Resources Corporation
Part IV
Exhibit
Number
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*
10.21*
10.22*
10.23*
10.24*
Exhibit Description
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)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
Total Shareholder Return (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q, as filed
on February 8, 2018)
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)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
NFE (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q, as filed on February 8, 2018)
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)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Based Restricted Stock Units
Agreement (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q, as filed on February
8, 2018)
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)
New Jersey Resources Corporation Deferred Stock Retention Award Agreement (incorporated by reference to
Exhibit 10.7 to the Quarterly Report on Form 10-Q, as filed on February 8, 2018)
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)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Restricted Stock Units Agreement
(incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q, as filed on February 8, 2018)
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)
New Jersey Resources Corporation Savings Equalization Plan (as amended and restated as of January 1, 2017)
(incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K as filed on November 21, 2017)
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)
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)
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)
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)
10.24(a)*+ Schedule of Employee Continuation Agreements
10.25
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)
Page 134
New Jersey Resources Corporation
Part IV
Exhibit
Number
Exhibit Description
10.26
10.27
10.28
21.1+
23.1+
31.1+
31.2+
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)
First Amendment to Amended and Restated Credit Agreement, dated as of June 25, 2018, by and among New Jersey
Resources Corporation and the Guarantors party thereto, the Lenders party thereto and PNC Bank, National
Association, in its capacity as administrative agent for the Lenders (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, as filed on June 26, 2018)
First Amendment to Amended and Restated Credit Agreement, dated as of July 17, 2018, by and among New Jersey
Resources Corporation and the guarantors party thereto, the lenders party thereto and U.S. Bank National Association,
in its capacity as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K, as filed on July 19, 2018)
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
99.1
101+
Form of Letter to Shareowners Regarding Transfer Agent Change August 17, 2018 (incorporated by reference to
Exhibit 99.1 to the Current Report on Form 8-K, as filed on August 17, 2018)
Interactive Data File {Annual Report on Form 10-K, for the fiscal year ended September 30, 2018, 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 135
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 20, 2018
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 20, 2018
November 20, 2018
November 20, 2018
November 20, 2018
/s/ Laurence M. Downes
Laurence M. Downes
Chairman and
Chief Executive Officer
Director
(Principal Executive Officer)
/s/ Maureen A. Borkowski
Maureen A. Borkowski
Director
/s/ Donald L. Correll
Donald L. Correll
Director
/s/ Robert B. Evans
Robert B. Evans
Director
November 20, 2018
/s/ M. William Howard, Jr.
M. William Howard, Jr.
Director
November 20, 2018
November 20, 2018
/s/ Jane M. Kenny
Jane M. Kenny
Director
/s/ Thomas C. O’Connor
Thomas C. O’Connor
Director
November 20, 2018
November 20, 2018
November 20, 2018
November 20, 2018
November 20, 2018
/s/ Patrick J. Migliaccio
Patrick J. Migliaccio
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ J. Terry Strange
J. Terry Strange
Director
/s/ Sharon C. Taylor
Sharon C. Taylor
Director
/s/ David A. Trice
David A. Trice
Director
/s/ Stephen D. Westhoven
Stephen D. Westhoven
President and Chief Operating
Officer
Director
November 20, 2018
/s/ George R. Zoffinger
George R. Zoffinger
Director
Page 136
SHAREOWNER INFORMATION
ANNUAL MEETING
The Annual Shareowners Meeting will be held at 9:30 a.m. on January
• Invest automatically with optional withdrawals from your bank
23, 2019 at Eagle Oaks Golf and Country Club in Farmingdale,
account.
New Jersey. 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
INVESTOR AND MEDIA INFORMATION
of dividends and each investment of an optional cash payment
Members of the financial community are invited to contact Dennis
or payroll deduction amount, if any.
Puma, director — Investor Relations, at 732-938-1229. Members
• Execute plan transactions online.
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 Broadridge Corporate Issuer Solutions (Broadridge).
Shareowners with questions about account activity should contact
Broadridge investor relations representatives between 9 a.m. and
6 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 Broadridge 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
General written inquiries and address changes may be sent to:
record receive their dividend checks from Broadridge, unless
Broadridge Corporate Issuer Solutions
P.O. Box 1342, Brentwood, NY 11717
or
they have elected to reinvest their dividends through the Plan.
The company offers direct deposit of dividends into shareowners’
bank accounts so the funds are available the same day they are
paid. Please contact Broadridge for details.
For certified and overnight delivery:
REQUEST FOR FORM 10-K AND OTHER DOCUMENTS
Broadridge Corporate Issuer Solutions, Inc, ATTN: IWS
1155 Long Island Avenue, Edgewood, NY 11717
Shareowners can view their account information online at
shareholder.broadridge.com/NJR
The following documents may be obtained when available,
without charge, upon written request to: Investor Relations, New
Jersey Resources, 1415 Wyckoff Road, P.O. Box 1468, Wall, NJ 07719:
• Annual Report and Form 10-K
• Form 10-Q
NEW JERSEY RESOURCES DIRECT STOCK PURCHASE AND
• Form 8-K
DIVIDEND REINVESTMENT PLAN
• Quarterly Earnings News Release
The New Jersey Resources Direct Stock Purchase and Dividend
• Audit Committee Charter
Reinvestment Plan, NJR Direct, provides a convenient and
• Corporate Governance Guidelines
economical method for new eligible investors to make an initial
• Leadership Development and Compensation Committee Charter
investment in shares of common stock and for existing shareowners
• Nominating/Corporate Governance Committee Charter
to invest in additional shares of common stock or reinvest all or
• NJR Code of Conduct
some of their common stock cash dividends. This is neither an
offer to sell nor a solicitation of an offer to buy securities. The Plan
is administered by Broadridge.
As a participant in NJR Direct, you can:
• Conveniently purchase our common stock without incurring
brokerage commissions or transaction/processing fees.
• Build your investment over time, starting with as little as $100, up
to a maximum of $100,000 per calendar year.
• Increase your holdings in NJR by reinvesting all or some of your
These documents, as well as other filings made with the SEC, are
also available through njresources.com.
Information in this Annual Report should not be considered a
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
N
E
W
J
E
R
S
E
Y
R
E
S
O
U
R
C
E
S
2
0
1
8
A
N
N
U
A
L
R
E
P
O
R
T
N
E
W
J
E
R
S
E
Y
R
E
S
O
U
R
C
E
S
2
0
1
8
A
N
N
U
A
L
R
E
P
O
R
T