www.njresources.com
An Essential
Commitment
2020 ANNUAL REPORT
Safe, Reliable and Competitively
Priced Service; Customer
Satisfaction; Growth; Quality;
Valuing Employees; Corporate
Citizenship; Superior Return.
We are committed to enhancing
our customers’ quality of life
by meeting their expectations
for reliability and value in an
environmentally responsible way —
every day.
TABLE OF CONTENTS
Financial Performance
Fiscal 2020 Performance Highlights
Letter from the President and CEO
Corporate Profile
Directors and Officers
Presenting Our 2020 Form 10-K
Form 10-K
Shareowner Information
2
3
6
10
12
14
15
IBC
Our values—the connection
to our community, our
employees and our world is
more important than ever.
Financial Performance
DIVIDENDS DECLARED PER SHARE
PAYOUT RATIO* (On a net financial earnings
(NFE)** basis)
$0.97
$1.04
$1.11
$1.27
$1.19
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
61%
60%
65%
60%
41%
75%
50%
25%
0%
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
* Based on Dividends Declared Per Share.
** 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 reconciliation to GAAP of this non-GAAP financial
measure, see our fiscal 2020 Form 10-K.
† 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 2020
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 report include, but are not limited to,
certain statements regarding NJR’s NFE guidance for
fiscal 2021 through fiscal 2024, forecasted contribution
of business segments to future NFE, our forecasted
dividend growth rate, dividend payout ratio, the impact
of a change to the accounting and financing of solar
investments at NJR Clean Energy Ventures (CEV),
efforts to de-risk our financial outlook, future growth of
NJNG’s customer base and rate base, future NJR capital
expenditures, investment programs and infrastructure
investments, growth of CEV, including expansion of
CEV’s footprint to markets outside of New Jersey, NJR’s
environmental sustainability and clean energy goals,
emissions reduction strategies, initiatives and targets,
our investments in infrastructure, renewables and
emerging technologies such as renewable natural gas
and hydrogen gas, and completion of the construction
of NJNG’s Southern Reliability Link.
factors
information and
that could
Additional
cause actual results to differ materially from NJR’s
expectations are contained in NJR’s filings with the U.S.
Securities and Exchange Commission (SEC), including
NJR’s Annual Reports on Form 10-K and subsequent
Quarterly Reports on Form 10-Q, recent Current
Reports on Form 8-K, and other SEC filings, which are
available at the SEC’s web site, http://www.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.
Fiscal 2020 Performance Highlights
$193.9
million
Consolidated net income
of $193.9 million, compared
to $169.5 million in
fiscal 2019.
$196.2
million
of
Consolidated NFE**
$196.2 million, or $2.07 per
share, compared with $175
million, or $1.96 per share,
last fiscal year.
# 1
in customer satisfaction
#1 in customer satisfaction
with residential natural gas
service in the East among
large utilities six years in a
row, according to J.D. Power.
6.4%
dividend increase
6.4% dividend increase
to an annual rate
of $1.33 per share for
fiscal 2021.
25th
year in a row
25th consecutive year
New Jersey Resources (NJR)
increased its dividend.
1,887
community organizations
1,887 nonprofit and
community organizations
supported by NJR and
its volunteers.
50%
reduction
Achieved a 50% reduction in
emissions from New Jersey
operations from 2006 levels
in fiscal 2020.
$126.9
million
$126.9 million in NFE
reported by New Jersey
Natural Gas (NJNG),
compared to NFE of $78.1
million during fiscal 2019.
$62.2
million
$62.2 million increase to
utility base rates supported
NJNG’s fiscal 2020
NFE growth.
3
8,349
28,000-30,000
new utility customers
new utility customers
8,349 new utility customers
added; NJNG now serves
more than 558,000
homeowners and businesses
throughout New Jersey.
Between 28,000 and 30,000 new utility customers
expected to be added over the next three years,
representing an annual customer growth rate of 1.7%.
84%
complete
$150
million
84% of the Southern
Reliability Link (SRL) is
complete; remaining work
expected to be completed
and the project placed into
service in 2021.
$150 million Infrastructure
Investment Program approved
in October 2020 to support
the enhanced safety and
reliability of NJNG’s natural
gas distribution system.
$25
million
More than $25 million
invested in energy-
efficiency programs.
357
megawatts (MW)
$1.1
billion saved
$53
million
Total installed capacity of
357 MW operated by NJR
Clean Energy Ventures
(CEV), or enough to power
55,900 homes annually.
4
Since inception in 1992,
NJNG’s basic gas supply
incentive programs saved
customers $1.1 billion and
generated $228 million in
utility gross margin†. In
fiscal 2020, shareowners
earned $0.07 per share
through these programs.
NFE of $53 million at CEV,
compared with NFE of
$77.5 million in fiscal 2019;
the change is a result of
lower investment tax credits
recognized on projects
placed in service.
$18.3
million
$18.3 million of NFE at Storage and Transportation, formerly
our Midstream segment, compared with $14.7 million last
year; the increase is due to incremental operating income from
Leaf River and Adelphia Gateway.
32.2
million dekatherm (dth)
32.2 million dth Leaf River
Energy Company storage
facility and Adelphia
Gateway acquisitions
complete.
78,000
service calls
78,000 service calls, nearly 4,000 HVAC and plumbing
installations completed and a net customer retention rate
of 99% achieved by our NJR Home Services team.
5
Letter from the President and CEO
TO OUR SHAREOWNERS,
Fiscal 2020 marks the close of my first full year as
president and chief executive officer of New Jersey
Resources (NYSE: NJR). Looking back, it was a year unlike
any other. Our team demonstrated the ability to execute
our strategy through unprecedented conditions. We
continued to build on our core strengths and delivered
safe, reliable energy to our customers. We redefined what
sustainability means for our company. And through these
challenging times, we met our essential commitments
to our customers, communities and shareowners.
Never has this been more important.
The outbreak of COVID-19 upended the world and
changed virtually every aspect of our lives and our
business. From the outset of this global health crisis,
our team’s response has been outstanding.
We successfully implemented our preparedness plans
and adapted the way we do business, always putting the
safety of our employees and customers first. We established
new protocols for our front-line workers and a record
6
number of employees are now working remotely. Our
team met the challenge and our business remains strong.
As the pandemic continues to impact people’s livelihoods
and force certain industries to pull back and shut down,
this year we were proud to help nearly 1,900 community
organizations throughout our service territory, including
local food banks.
Despite these extraordinary times, we continue to
build on our core strengths — a strong financial profile,
disciplined capital allocation, a diverse portfolio of
regulated and unregulated energy infrastructure
investments and a commitment to in meeting
customers’ energy needs in a decarbonizing world — with
a clear view and optimism for the future.
In fiscal 2020, we executed on our plan and delivered
NFE per share of $2.07. We also achieved our dividend
growth target with an increase of 6.4% — the
25th consecutive year we’ve increased the dividend.
Building on our track record of environmental
responsibility, this year NJR rolled out a far-reaching
sustainability agenda aligned with public policy that
addresses climate impacts and ensures reliable and
affordable energy. It encourages innovation, emissions
reductions, expanded energy-efficiency programs
and conservation.
As a sustainability leader, we surpassed our goal of
voluntarily reducing emissions from our New Jersey
operations to 50% of 2006 levels. Complementing these
efforts, we also issued $120 million of Green Bonds to
fund eligible green initiatives, including our commercial
solar projects.
Through targeted infrastructure investments, NJNG
operates a premier energy delivery system that is the
most environmentally sound in the state, as measured by
leaks per mile. In October 2020, NJNG received approval
from the New Jersey Board of Public Utilities (BPU) for
a new five-year, $150 million Infrastructure Investment
Program designed to further strengthen the safety and
reliability of our delivery system.
NJNG also has one of the most successful energy-
efficiency programs in the state. In fiscal 2020, we
invested over $25 million in The SAVEGREEN Project®
to help our customers save energy and money, as well
as reduce their carbon footprint. We filed a new $249
million proposal with the BPU to enhance and expand
our energy-efficiency offerings. Such efforts have already
helped reduce our average customer’s natural gas
consumption by 12% since 2006.
NJNG made substantial progress on our SRL project.
To date, 84% of the 30-mile pipeline has been installed, with
the remaining work expected to be complete in 2021.
Natural gas continues to deliver significant cost, reliability
and environmental advantages over other fuel options
and remains the preferred home heating choice in our
service territory, with over 82% of households choosing
NJNG to heat their homes. This year, NJNG added 8,349
new customers, and now serves 558,000 homes and
businesses in New Jersey — and we expect to add between
28,000 and 30,000 new customers over the next three years.
Storage and Transportation, formerly our Midstream
segment, continued to grow with the addition of Leaf
River Energy Center and Adelphia Gateway. For the first
7
time in our company’s history, we now own and operate
a Federal Energy Regulatory Commission-regulated
interstate natural gas pipeline and storage facility.
subsidiaries and improve the predictability and stability
of our NFE.
A leader in New Jersey’s solar marketplace, this year
CEV placed eight commercial solar projects into service,
acquired an operational commercial solar asset and
added 481 residential and small-to-midsize commercial
customers. Our total installed capacity is now 357 MW,
or enough to power 55,900 homes annually.
At our core, we are an energy infrastructure company.
We deliver safe, reliable energy that is the foundation
of our customers’ quality of life. Looking ahead, we
have outlined a strategy for the coming years that will
capitalize on our expertise and existing infrastructure.
As always, we will undertake a disciplined approach to
capital allocation and growing our businesses, while
also investing in emerging technologies to stay ahead of
change and ensure long-term value to our shareowners.
Achieving growth at our core businesses, NJNG and
CEV, will continue to be our focus. Additionally, we are
taking action to de-risk the financial outlook across our
8
Over the next four years we will deploy approximately
$2.6 billion of capital, most of which will be allocated to
our core businesses — approximately 60% to NJNG and
30% to CEV. These will remain the growth engines of our
business and are projected to contribute a substantial
portion of our NFE and cash flows going forward.
NJNG will continue to account for the largest contribution
to our NFE. We expect double digit rate base CAGR
through fiscal 2024, and NFE contributions in the 60%
to 70% range over the long term. Additionally, our
investments in reliability and sustainability have created a
world-class distribution system that will allow us to deliver
reliable low-carbon fuels, including renewable natural gas
and hydrogen, to further our emissions reduction goals.
CEV is poised to dramatically accelerate its growth over
the coming years. National carbon reduction targets and
mandates will create robust investment opportunities in the
renewable space, and CEV will begin to expand its footprint
outside of New Jersey to capture these opportunities.
While a change to the accounting and financing of solar
investments at CEV is expected to have a short-term
negative effect in fiscal 2021, we expect NFE per share
growth to rebound in fiscal 2022 and then grow between 6%
and 10% annually through 2024. We are also raising the
upper end of the dividend growth range forecast from
6%-8% to 6%-10% and plan to maintain a reasonable
payout ratio along the way. We believe this change, along
with our capital investments and efforts to de-risk our
financial outlook, will provide more certainty and clarity
into our guidance and growth projections going forward.
Our achievements in fiscal 2020 and our outlook for the
years ahead reflect the strength of our portfolio of
complementary businesses and the talent of our employees,
who are the driving force behind all we do. I would like to
thank our entire team for their hard work in this extraordinarily
challenging year, especially the members of IBEW Local 1820.
We value the strong and collaborative relationships
we have with our regulators and policymakers, and
we are committed to helping New Jersey achieve its
energy goals in a manner that preserves affordability,
maintains reliability and generates value for investors.
We have an active and engaged board of directors, and
I appreciate their counsel and expertise as we focus on
delivering performance for our shareowners, customers
and communities into the future. I’m also pleased to
welcome our newest director, Susan Hardwick. I look
forward to working with her and am confident that with
her experience in the utility and financial sectors she will
be an asset to our board.
I hope you will join us at our Annual Meeting on January
20, 2021, at 9:30 a.m., ET, via webcast. Please see our
proxy statement for details on how to attend.
Thank you for your investment and confidence in NJR.
We work hard every day to reward your trust.
Sincerely,
Steve Westhoven
President 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, storage, asset management and home
services. NJR is composed of five primary businesses:
New Jersey Natural Gas, NJR’s principal subsidiary, operates and maintains over 7,500 miles of natural gas
transportation and distribution infrastructure to serve over half a million customers in New Jersey’s Monmouth, Ocean,
Morris, Middlesex and Burlington counties.
NJR Clean Energy Ventures invests in, owns and operates solar projects with a total capacity of more than
350 megawatts, providing residential and commercial customers with low-carbon solutions.
NJR Energy Services manages a diversified portfolio of natural gas storage and transportation assets and provides
physical natural gas services and customized energy solutions to its customers across North America.
10
Storage and Transportation (formerly NJR Midstream) serves customers from local distributors and producers to
electric generators and wholesale marketers through its ownership of Adelphia Gateway, Leaf River Energy Center and
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 1,100 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.
11
Directors and Officers
NEW JERSEY RESOURCES
Directors
Donald L. Correll, 70 (A,B,C)
Chairman of the Board
New Jersey Resources
Chief Executive Officer, Co-founder
Water Capital Partners, LLC
(2008)
Gregory E. Aliff, 67 (A,B)
Partner (retired)
Deloitte & Touche LLP
(2019)
James H. DeGraffenreidt Jr., 67 (D)
Chairman and
Chief Executive Officer (retired)
WGL Holdings, Inc.
(2019)
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
As of January 1, 2021.
Sharon C. Taylor, 66 (B,C,D)
Senior Vice President
Human Resources (retired)
Prudential Financial
(2012)
David A. Trice, 72 (C,D)
President and
Chief Executive Officer (retired)
Newfield Exploration Company
(2004)
Stephen D. Westhoven, 52 (B)
President and
Chief Executive Officer
New Jersey Resources
(2018)
George R. Zoffinger, 72 (A,D)
President and
Chief Executive Officer
Constellation Capital Corporation
(1996)
Robert B. Evans, 72 (A)
President and
Chief Executive Officer (retired)
Duke Energy Americas
(2009)
M. Susan Hardwick, 58 (A)
Executive Vice President and
Chief Financial Officer
American Water Works Company, Inc.
(2020)
M. William Howard Jr., 74 (C,D)
Pastor (retired)
Bethany Baptist Church
(2005)
Jane M. Kenny, 69 (B,C,D)
Co-owner and Managing Partner
The Whitman Strategy Group, LLC
(2006)
Thomas C. O’Connor, 64 (A)
Chairman, President and
Chief Executive Officer (retired)
DCP Midstream, LLC
(2017)
12
NEW JERSEY RESOURCES AND SUBSIDIARIES
Officers
Stephen D. Westhoven, 52
(1,2,3,4,5,7)
President and
Chief Executive Officer
(1990)
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
Sean N. Annitto, 52 (4)
Vice President—NJR Energy
Services
(1996)
Roberto Bel, 48 (1,2,3,4,5,7)
Vice President — Treasury
and Investor Relations
(2019)
John C. Bremner, 62 (5)
Vice President-Midstream
(2019)
Amy Cradic, 49 (1,3,4,5)
Senior Vice President and Chief
Operating Officer—Non-Utility
Businesses, Strategy and
External Affairs
(2018)
Keith S. Hartman, 59 (7)
Vice President—NJR Retail
(2015)
David Johnson, 52 (1)
Vice President—Corporate
Business Development
(2002)
Mark G. Kahrer, 58 (2)
Vice President—Regulatory
Affairs, Marketing and
Energy Efficiency
(2017)
James W. Kent, 51 (1)
Corporate Risk Officer
(2013)
Craig A. Lynch, 59 (2)
Senior Vice President—Energy
Delivery and Customer Service
(1984)
Thomas J. Massaro Jr., 54 (6,7)
Senior Vice President—NJR
Retail and President, NJR
Home Services
(1989)
Patrick J. Migliaccio, 46
(1,3,4,5,6,7)
Senior Vice President
and Chief Financial Officer
(2009)
Amanda E. Mullan, 54 (1,7)
Senior Vice President and Chief
Human Resources Officer
(2015)
Richard Reich, 46 (1,2,3,4,5,7)
Corporate Secretary and
Assistant General Counsel
(2006)
Ginger P. Richman, 56 (5)
Vice President-Midstream
(2003)
Kraig E. Sanders, 55 (2)
Vice President—New Jersey
Natural Gas
(1987)
Jacqueline K. Shea, 56 (1,7)
Vice President and
Chief Information Officer
(2016)
Timothy F. Shea, 55 (4)
Vice President — NJR Energy
Services
(1998)
Mark F. Valori, 57 (3)
Vice President — NJR Clean
Energy Ventures
(2010)
Nancy A. Washington, 56
(1,2,3,4,5,7)
Senior Vice President and
General Counsel
(2017)
John B. Wyckoff, 53 (2)
Vice President—New Jersey
Natural Gas
(1989)
13
Presenting Our 2020 Form 10-K
Our 2020 Form 10-K includes financial statements
PART I: NJR’s business includes:
for NJR. It also includes detailed information about each
• Detailed descriptions of NJR subsidiaries
of our subsidiaries and the competitive environments of
• Risk factors related to our business
our businesses, properties we own and other matters.
• Information about our executive officers
• Description of properties owned and operated
All publicly held companies in the United States are
by NJR
required to file a Form 10-K report with the U.S.
• Legal proceedings
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 2020 Form 10-K (without exhibits)
consistent with our commitment to provide transparency
and full disclosure to our shareowners.
The 2020 Form 10-K is amended, supplemented
and updated by any amendment we may file, and by
all of the quarterly reports on Form 10-Q and current
reports on Form 8-K we file or furnish with the SEC
during the year. We urge you to read all such reports.
Copies may be obtained as described under “Request
for Documents” on the inside back cover of this
Annual Report.
PART II: Market for Common Shares and Financial
Statements in Items 5 and 6 include:
• Selected financial data for NJR
Items 7 and 7A include:
• Management’s Discussion and Analysis of Financial
Condition and Results of Operations
• Quantitative and qualitative disclosures about
market risk
Items 8 and 9 include:
• Management’s report on internal control over
financial reporting
• Report of independent registered public
accounting firm
• Financial statements and notes for NJR
• Supplementary financial information (unaudited)
Form 10-K Overview
PART III: Information about board members, executive
This Annual Report is not a part of, and should not
officers, governance, shareowners and auditors includes:
be considered to be included in, our 2020 Form 10-K.
• members of the board of directors and
Use the following listing, which includes highlights of the
executive officers;
2020 Form 10-K, to help you find information easily. A
• corporate governance;
comprehensive Table of Contents with the page number
• executive compensation;
for each item can be found on page “i” of the 2020
• NJR’s shareowners and related matters;
• related-person transactions;
• director independence; and
• accounting fees, each of which are 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
Form 10-K.
14
Form 10-K
15
–
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, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-08359
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
incorporation or organization)
1415 Wyckoff Road, Wall, New Jersey 07719
(Address of principal executive offices)
22-2376465
(I.R.S. Employer
Identification Number)
(732) 938‑1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
Common Stock ‑ $2.50 Par Value
Trading symbol(s)
NJR
Securities registered pursuant to Section 12 (g) of the Act:
None
Name of each exchange on which registered)
New York Stock Exchange
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of
the Exchange Act.
Large accelerated filer
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report.
☒
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 $3,248,998,994 based on the closing price of $33.97 per share on
March 31, 2020, as reported on the New York Stock Exchange.
The number of shares outstanding of $2.50 par value common stock as of November 26, 2020 was 96,132,545.
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 20, 2021, 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.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III*
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reporting Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Natural Gas Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clean Energy Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Storage and Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home Services and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Human Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information About our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4. Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5. Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6. Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7. Investments in Equity Investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8. Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10. Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12. Asset Retirement Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15. Commitments and Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16. Common Stock Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17. Reporting Segment and Other Operations Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 19. Acquisitions and Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 20. Selected Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
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New Jersey Resources Corporation
GLOSSARY OF KEY TERMS
Adelphia Gateway
AFUDC
ARO
ASC
ASU
Bcf
BGSS
BPU
Bridge Facility
CARES Act
CIP
CME
COVID-19
CR&R
Degree-day
Dominion
DM
DM Common Units
DRP
Dths
EDA
EDA Bonds
EDECA
EE
Energy Services
EPS
ERP
Exchange Act
FASB
FCM
FERC
Financial Margin
Fitch
FMB
GAAP
GWRA
HCCTR
Home Services and Other
ICE
IEC
IIP
IRS
ISDA
ITC
LDCC
Leaf River
LIBOR
LNG
Loan Agreement
MGP
MMBtu
Moody’s
Mortgage Indenture
MW
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
The $350 million term loan credit agreement
Coronavirus Aid, Relief, and Economic Security Act
Conservation Incentive Program
Chicago Mercantile Exchange
Novel coronavirus disease
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, Inc.
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
Bonds issued to NJNG by the EDA
Electric Discount and Energy Competition Act
Energy Efficiency
Energy Services segment
Earnings Per Share
Enterprise Resource Planning
Securities Exchange Act of 1934, as amended
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
Fitch Ratings Company
First Mortgage Bonds
Generally Accepted Accounting Principles of the United States
Global Warming Response Act of 2007
Health Care Cost Trend Rate
Home Services and Other Operations
Intercontinental Exchange
Interstate Energy Company, LLC
Infrastructure Investment Program
Internal Revenue Service
The International Swaps and Derivatives Association
Investment Tax Credit
Leadership Development and Compensation Committee
Leaf River Energy Center LLC
London Inter-Bank Offered Rate
Liquefied Natural Gas
Loan Agreement between the EDA and NJNG
Manufactured Gas Plant
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, as
amended
Megawatts
Page 1
New Jersey Resources Corporation
GLOSSARY OF KEY TERMS (cont.)
MWh
NAESB
NAV
Natural Gas Act
NFE
NJ RISE
NJCEP
NJDEP
NJNG
NJNG Credit Facility
NJR Credit Facility
NJR or The Company
NJRCEV
NJRES
NJRHS
NJRRS
Non-GAAP
NPNS
NYMEX
OASDI
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
Securities Act
SREC
SRL
Steckman Ridge
Talen
TETCO
The Tax Act
Third Circuit
Storage and Transportation
Trustee
TSR
U.S.
Union
USF
Megawatt Hour
The North American Energy Standards Board
Net Asset Value
The Natural Gas Act of 1938, as amended; the federal law regulating interstate natural gas
pipeline and storage companies, among other things, codified beginning at 15 U.S.C.
Section 717.
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 December 2023
The $425 million unsecured committed credit facility expiring in December 2023
New Jersey Resources Corporation
NJR Clean Energy Ventures Corporation or Clean Energy Ventures Segment
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
Old Age, Survivors and Disability Insurance tax
Operations 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
Securities Act of 1933, as amended
Solar Renewable Energy Certificate
Southern Reliability Link
Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
Talen Energy Marketing, LLC or Talen Generation, LLC
Texas Eastern Transmission
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
The United States Court of Appeals for the Third Circuit
Storage and Transportation segment, formerly Midstream segment
U.S. Bank National Association
Total Shareholder Return
The United States of America
International Brotherhood of Electrical Workers Local 1820
Universal Service Fund
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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, Section 21E of the
Exchange Act, 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, RECs, 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 2021 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:
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risks related to the impact of COVID-19 on business operations, financial performance and condition and cash flows;
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
Storage and Transportation infrastructure projects, including PennEast and Adelphia Gateway, in a timely manner;
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, TRECs and electricity prices, and operational risks related to
projects in service;
risks associated with acquisitions and the related integration of acquired assets with our current operations, including the acquisition of Adelphia
Gateway and Leaf River;
our ability to comply with current and future regulatory requirements;
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 performance of our subsidiaries;
access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;
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 regulatory and pricing policies of federal and state regulatory agencies;
operating risks incidental to handling, storing, transporting and providing customers with natural gas;
demographic changes in our service territory and their effect on our customer growth;
timing of qualifying for ITCs due to delays or failures to complete planned solar projects and the resulting impact on our effective tax rate and
earnings;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the Company;
the impact of volatility in the equity and credit markets on our access to capital;
our ability to comply with debt covenants;
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 cyberattacks or failure of information technology systems;
the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of
potential downturns in the financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection
and Affordable Care Act;
commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale
energy trading market;
accounting effects and other risks associated with hedging activities and use of derivatives contracts;
our ability to optimize our physical assets;
weather and economic conditions;
the costs of compliance with present and future environmental laws, potential climate change-related legislation or any legislation resulting from
the 2019 New Jersey Energy Master Plan;
uncertainties related to litigation, regulatory, administrative or environmental proceedings;
changes to tax laws and regulations;
any potential need to record a valuation allowance for our deferred tax assets;
the impact of natural disasters, terrorist activities and other extreme events on our operations and customers;
risks related to our employee workforce and succession planning;
risks associated with the management of our joint ventures and partnerships; and
risks associated with keeping pace with technological change.
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 a diversified 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
natural gas storage and transportation 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 utility service to approximately 558,000
residential and commercial customers throughout Monmouth, Ocean, Morris, Middlesex and Burlington counties in
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.
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 transportation and storage 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 Midstream Holdings Corporation, which comprises the Storage and Transportation segment, formerly known
as 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, and NJR Midstream Company, formerly NJR Pipeline Company, which includes our 20
percent ownership interest in PennEast, our wholly-owned subsidiaries of Leaf River, located in southeastern
Mississippi, and Adelphia Gateway, located in eastern Pennsylvania, and are subject to FERC regulation. See Note 7.
Investments in Equity Investees for more information on Steckman Ridge and PennEast.
NJR Home Services Company provides heating, ventilation and cooling service, sales and installation of appliances
to approximately 107,000 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 Storage
and Transportation, formerly known as 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, as well as
energy management services. The Clean Energy Ventures segment consists of capital investments in clean energy projects. The
Storage and Transportation segment consists of investments in the natural gas storage and transportation market, such as natural
gas storage and transportation facilities.
Net income by reporting segment and other business operations for the fiscal years ended September 30, are as follows:
Energy Services incurred a net loss of $11 million and $1.3 million in fiscal 2020 and 2019, respectively, which is not shown
clearly in the above graph.
Assets composition by reporting segment and other business operations at September 30, are as follows:
2020
2019
Assets at Home Services and Other are immaterial, which is not shown clearly in the above charts.
Page 5
($ in Thousands)$193,919$193,919$169,505$169,505$233,436$233,436$126,902$78,062$84,048$53,023$77,473$75,849$53,139$18,311$14,689$24,367Natural Gas DistributionClean Energy VenturesEnergy ServicesStorage and TransportationHome Services and Other202020192018$0$20,000$40,000$60,000$80,000$100,000$120,000$140,000$160,000$180,000$200,000$220,000$240,000Natural GasDistribution,63%Clean EnergyVentures,18%EnergyServices, 4%Storage andTransportation,15%HomeServices andOther, 0%Natural GasDistribution,69%Clean EnergyVentures, 19%EnergyServices, 7%Storage andTransportation,5%Home Servicesand Other, 0%
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 natural 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 for the fiscal years ended September 30:
(Thousands)
Net income
Add:
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
NFE (1)
Basic earnings per share
Add:
2020
2019
$ 193,919 $ 169,505 $ 233,436
2018
2,881
(711)
4,309
(1,024)
(9,644)
2,296
12,690
(3,016)
26,770
(4,512)
(22,570)
7,362
$ 196,245 $ 174,960 $ 240,486
2.66
$
2.05 $
1.90 $
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
Basic NFE per share
(0.10)
0.02
0.13
(0.03)
2.07 $
0.03
(0.01)
0.05
(0.01)
1.96 $
0.31
(0.05)
(0.26)
0.08
2.74
$
(1) 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 fiscal years ended September 30, are as follows:
NFE at Energy Services had a loss of $7.9 million in fiscal 2020 and income of $2.9 million in fiscal 2019, which is not shown
clearly in the above graph.
Page 6
($ in Thousands)$196,245$196,245$174,960$174,960$240,486$240,486$126,902$78,062$84,048$53,023$77,473$75,849$60,378$18,311$14,689$24,367Natural Gas DistributionClean Energy VenturesEnergy ServicesStorage and TransportationHome Services and Other202020192018$0$25,000$50,000$75,000$100,000$125,000$150,000$175,000$200,000$225,000$250,000
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS Continued)
Natural Gas Distribution
General
Our Natural Gas Distribution segment consists of regulated utility operations that provide natural gas service to
approximately 558,000 customers. NJNG’s service territory includes Monmouth, Ocean, Morris, Middlesex and Burlington
counties in New Jersey. It encompasses 1,516 square miles, covering 105 municipalities with an estimated population of 1.5
million people. It is primarily suburban, highlighted by approximately 100 miles of New Jersey coastline. It is in close
proximity to New York City, Philadelphia and the metropolitan areas of northern New Jersey and is accessible through a
network of major roadways and mass transportation.
NJNG’s business is subject to various risks, such as those associated with adverse economic conditions, which can
negatively impact customer growth and operating and financing costs; fluctuations in commodity prices, which can impact
customer usage; customer conservation efforts; certain regulatory actions; and environmental remediation. It is often difficult to
predict the impact of trends associated with these risks. NJNG employs strategies to manage the challenges it faces, including
pursuing customer conversions from other fuel sources and monitoring new construction markets through contact with
developers, utilizing incentive programs through BPU-approved mechanisms to reduce natural gas costs, pursuing rate and
other regulatory strategies designed to stabilize and decouple gross margin, and working actively with consultants and the
NJDEP to manage expectations related to its obligations associated with its former MGP sites.
Operating Revenues/Throughput
For the fiscal years ended September 30, operating revenues and throughput by customer class for our Natural Gas
Distribution segment are as follows:
($ in thousands)
Residential
Commercial and other
Firm transportation
Total residential and commercial
Interruptible
Total system
BGSS incentive programs (1)
Total
2020
Bcf
Operating
Revenue (2)
44.6
$ 500,271
8.2
98,463
13.3
66,871
66.1
665,605
30.9
6,322
671,927
97.0
57,996 118.4
$ 729,923 215.4
2019
2018
Bcf
Operating
Revenue (2)
$ 450,515
104,372
57,513
612,400
6,637
46.0
9.7
13.7
69.4
39.0
619,037 108.4
37.8
91,756
$ 710,793 146.2
Bcf
Operating
Revenue
$ 441,486
95,351
65,256
602,093
7,522
45.5
8.9
15.5
69.9
46.2
609,615 116.1
42.8
122,250
$ 731,865 158.9
(1) Does not include 86.3, 86 and 107.4 Bcf for the capacity release program and related amounts of $3.1 million, $4.1 million and $5.7 million, which are
recorded as a reduction of natural gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30, 2020, 2019 and
2018, respectively.
(2) Operating revenue presents sales tax, net during fiscal 2020 and 2019, due to the adoption of ASC 606, Revenue from Contracts with Customers. During
fiscal 2018, operating revenue only included sales tax on operating revenues excluding tax-exempt sales.
NJNG added 8,349 and 9,711 new customers and added natural gas heat and other services to another 260 and 218
existing customers in fiscal 2020 and 2019, respectively. NJNG expects its new customer annual growth rate to continue to be
approximately 1.7 percent with projected additions in the range of approximately 28,000 to 30,000 new customers over the next
three fiscal years. This anticipated customer growth represents approximately $6.3 million in new annual utility gross margin, a
non-GAAP financial measure, as calculated under NJNG’s current CIP tariff. For a definition of utility gross margin see Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Natural Gas Distribution Segment.
In fiscal 2020, no single customer represented more than 10 percent of consolidated operating revenues.
Seasonality of Natural 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 4.
Regulation in the accompanying Consolidated Financial Statements and Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Natural Gas Distribution Segment.
Natural Gas Supply
Firm Natural Gas Supplies
In fiscal 2020, NJNG purchased natural gas from approximately 65 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.
Columbia Gas Transmission Corp.
Tennessee Gas Pipeline Co.
Transcontinental Gas Pipe Line Corp.
Algonquin Gas Transmission
Total
Dths(1)
300,738
50,000
55,166
210,606
12,000
628,510
Expiration
Various dates between 2021 and 2025
Various dates between 2024 and 2030
Various dates between 2021 and 2024
Various dates between 2021 and 2033
2022
(1) Numbers are shown net of any capacity release contracted amounts.
Eastern Gas Transmission and Storage, Inc., formerly known as 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
2022
2028
NJNG also has upstream storage contracts. The maximum daily deliverability and contract expiration dates are as
follows:
Company
Eastern Gas Transmission and Storage, Inc.
Steckman Ridge, L.P.
Central New York Oil & Gas
Total
Expiration
Various dates between 2023 and 2026
2025
2023
Dths
251,829
38,000
25,337
315,166
Page 8
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS Continued)
NJNG utilizes its transportation contracts to transport natural gas to NJNG’s citygates from the Eastern Gas Transmission
and Storage, Inc., 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.
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 Eastern Gas Transmission and Storage, 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, 2019 to March 31, 2021. NJNG can call upon a supply of up
to 20,000 Dths/day delivered to NJNG’s TETCO 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, 2018 to October 31, 2021. Under these agreements, NJNG can call upon a supply of up to 160,000 Dths/day
delivered to its TETCO citygate as needed. See Note 18. 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 4. Regulation in the accompanying Consolidated Financial Statements.
Wholesale natural gas prices are, by their nature, volatile. NJNG mitigates the impact of volatile price changes on
customers through the use of financial derivative instruments, which are part of its storage incentive program 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. See Note 4. Regulation in the accompanying Consolidated Financial Statements for additional
information regarding NJNG’s rate proceedings.
Page 9
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS Continued)
Federal
FERC regulates rates charged by interstate pipeline companies for the transportation and storage of natural gas. This
affects NJNG’s agreements with several interstate pipeline companies for the purchase of such services. Costs associated with
these services are currently recoverable through the BGSS.
Competition
Although its franchises are nonexclusive, NJNG is not currently subject to competition from other natural gas distribution
utilities with regard to the transportation of natural gas in its service territory. Due to significant distances between NJNG’s
current large industrial customers and the nearest interstate natural gas pipelines, as well as the availability of its transportation
tariff, NJNG currently does not believe it has significant exposure to the risk that its distribution system will be bypassed.
Competition does exist from suppliers of oil, 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, 2020, NJNG had 22,420 residential and
9,184 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, Connecticut and Rhode Island.
As of September 30, 2020, Clean Energy Ventures has constructed a total of 357.4 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 solar 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 a large number of 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 RECs. One
REC is created for every MWh of electricity produced by a solar generator. Clean Energy Ventures sells SRECs generated 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. In December 2019, the BPU established the TREC as the interim program successor to the SREC program.
TRECs provide a fixed compensation base multiplied by an assigned project factor in order to determine their value. The
project factor is determined by the type and location of the project, as defined. All TRECs generated are required to be
purchased monthly by a TREC program administrator as appointed by the BPU.
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 and TRECs. 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 transportation and storage 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 transportation and storage 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 transportation and storage commitments.
In fiscal 2020, Energy Services did not purchase over 10 percent of its natural gas from any one supplier.
Transportation and Natural Gas 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 transportation and storage 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.
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 2020 and 2019, Energy Services managed and sold 526.7
Bcf and 584.9 Bcf of natural gas, respectively. In addition, as of September 30, 2020 and 2019, Energy Services had 34.3 Bcf
or $57.4 million of natural gas in storage and 25.6 Bcf or $52.4 million of natural gas in storage, respectively.
Page 11
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS Continued)
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 natural 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 North American
wholesale markets, including in the Northeastern, Appalachian, Mid-Continent and Southeast regions. Changes in natural gas
supply can affect capacity values and Energy Services’ financial margin, which, as described below, 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 monitors
changing market dynamics and strategically adjusts its portfolio of transportation and storage assets, which currently includes
an average of approximately 35bcf of firm storage and 1.4bcf/d of firm transportation capacity.
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 transportation and storage 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.
Storage and Transportation
Our Storage and Transportation segment, formerly known as our Midstream segment, includes investments in FERC-
regulated interstate natural gas storage and transportation 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., which built, owns and operates a natural gas storage facility with up to 12 Bcf of working natural gas
capacity in Bedford County, Pennsylvania. The facility has direct access to the TETCO and Eastern Gas
Transmission and Storage, Inc. pipelines and has access to the Northeast and Mid-Atlantic markets; and
• NJR Midstream Company, formerly NJR Pipeline Company, which includes our 20 percent equity investment in
PennEast, which is expected to construct a 120-mile, FERC-regulated interstate natural gas pipeline system that will
extend from northern Pennsylvania to western New Jersey; Leaf River Energy Center LLC, which owns and operates
a 32.2 million Dth salt dome natural gas facility, located in southeastern Mississippi; and FERC-regulated Adelphia
Gateway, an indirect wholly-owned subsidiary of NJR, which acquired all of Talen’s membership interests in IEC, an
existing 84-mile pipeline in southeastern Pennsylvania. See Note 19. Acquisitions and Dispositions for more
information.
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
107,000 service contract customers, as well as installation of solar equipment;
• NJR Plumbing Services, Inc., which provides plumbing repair and installation services;
• New Jersey Resources Corporation, a diversified energy services holding company;
• 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 and affiliates.
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 identified former 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 former
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 former MGP sites for
which it is responsible will range from approximately $143.1 million to $181.7 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 2020. 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,
2020, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of $150.6 million on the Consolidated
Balance Sheets, based on the most likely amount; however, actual costs may differ from these estimates.
HUMAN CAPITAL RESOURCES
Employee Overview
NJR fundamentally believes that its employees make the Company a unique, successful organization – in creativity,
commitment, ingenuity, hard work and innovation. NJR employees fulfill the responsibilities that enable the Company to
deliver natural gas service to its customers; to be a leader in clean energy investments; to grow its storage and transportation
energy business; and, to earn the loyalty of its retail home services customers. NJR also is committed to provide every
appropriate resource to ensure its employees’ safety. Through initiatives that start at the top, NJR has invested time, energy and
manpower to foster a culture where safety is top-of-mind at all times, and where achieving safety goals is a shared priority for
every NJR employee.
As of September 30, 2020, the Company and our subsidiaries employed 1,156 employees compared with 1,108
employees as of September 30, 2019. Of the total number of employees, NJNG had 469 and 460 and NJRHS had 101 and 101
Union or Represented employees as of September 30, 2020 and 2019, 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 on December 7, 2021 and April 2, 2023, 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. 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)
The Company depends on its key personnel to successfully operate its businesses, including its executive officers, senior
corporate management and management at its operating units. NJR seeks to attract and retain its employees by offering
competitive compensation packages including base and incentive compensation (and in certain instances share-based
compensation and retention incentives), attractive benefits and opportunities for advancement and rewarding careers. NJR
periodically reviews and adjusts, if needed, its employees’ total compensation (including salaries, annual cash incentive
compensation, other cash and equity incentives, and benefits) to ensure that it is competitive within the industry and is
consistent with our level of performance. NJR has also implemented enterprise-wide talent development and succession
planning programs designed to identify future and/or replacement candidates for key positions. In addition to compensation,
NJR promotes numerous charitable, philanthropic, and social awareness programs that not only support the communities
served, but also provide experiences for employees to promote a collaborative and rewarding work environment.
Further, in order to take advantage of available opportunities and successfully implement our long-term strategy, NJR
must be able to employ, train and retain the necessary skilled personnel. As a result, NJR supports and utilizes various training
and educational programs and has developed additional company-wide and project-specific employee training and educational
programs. NJR continues key programs focused on employee safety, leadership development, work-life balance, talent
management, health and wellness, diversity and inclusion as well as employee engagement. Moreover, diversity, inclusion and
employee engagement are integral to NJR’s vision, strategy and business success. NJR prides itself on a culture that respects
co-workers and values concern for others. Fostering an environment that values diversity, inclusion and ethics helps create an
inclusive organization that is able to embrace, leverage and respect the differences of employees, customers and the
communities where we live, work and serve.
NJR regularly evaluates employees and their productivity against future demand expectations and historical trends. NJR
employees continue to maintain high levels of engagement, satisfaction and retention according to NJR’s annual employee
survey. From time to time, NJR may reduce or add resources in certain areas in an effort to align with changing demands.
NJR’s Board of Directors’ Role in Human Capital Resource Management
NJR’s Board of Directors believes that human capital management is an important component of the Company’s
continued growth and success, and is essential for our ability to attract, retain and develop talented and skilled employees. We
pride ourselves on a culture that respects co-workers and values concern for others.
Management regularly reports to the LDCC of the Board of Directors on human capital management topics, including
corporate culture, diversity and inclusion, employee development and compensation and benefits. The LDCC has oversight of
talent retention and development and succession planning, and the Board of Director’s provides input on important decisions in
each of these areas.
Each year, NJR conducts an employee feedback survey designed to help the Company measure overall employee
engagement. The feedback employees provide during the survey helps NJR evaluate employee programs and benefits and
monitor its current practices for potential areas of improvement. The LDCC maintains oversight of matters related to human
capital management and in that capacity reviews the results of the employee feedback survey.
Employee Benefits
The LDCC believes employee benefits are an essential component of the Company’s competitive total compensation
package. These benefits are designed to attract and retain our employees and include medical, health and dental insurance, long-
term disability insurance, accidental death and disability insurance, travel and accident insurance, and our 401(k) Plan. As part
of the 401(k) Plan, NJR generally matches 80 percent of the first 6 percent of compensation contributed by the employee into
the 401(k) Plan, subject to the Internal Revenue Code and NJR’s 401(k) Plan limits. The matching contribution is limited to 70
percent for represented employees of NJRHS. Additionally, for employees who are not eligible to participate in the defined
benefit plans, NJR contributes between 3.5 percent and 4.5 percent of base compensation, depending upon years of service, into
the 401(k) Plan on their behalf.
AVAILABLE INFORMATION AND CORPORATE GOVERNANCE DOCUMENTS
The following reports and any amendments to those reports are available free of charge on our website at https://
investor.njresources.com/financials/sec-filings/default.aspx 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.
Page 14
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS Continued)
The following documents are available free of charge on our website (https://investor.njresources.com/governance/
governance-documents/default.aspx):
Amended and Restated 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 2021
Annual Meeting of Shareowners. We expect to file that Proxy Statement with the SEC on or about December 11, 2020. We will
make it available on our website as soon as reasonably possible following that filing date. Please refer to the Proxy Statement
when it is available.
A printed copy of each document is available free of charge to any shareowner who requests it by contacting the
Corporate Secretary at New Jersey Resources Corporation, 1415 Wyckoff Road, Wall, New Jersey 07719.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The Company’s Executive Officers and their age, position and business experience during the past five years are below.
Name
Age
Stephen D. Westhoven 52
Officer
since
2004
Patrick J. Migliaccio
Amanda E. Mullan
Amy Cradic
46
54
49
2013
2015
2018
Nancy A. Washington
56
2017
Business experience during last five years
President and Chief Executive Officer (October 2019 - present)
President and Chief Operating Officer (October 2018 - September 2019)
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)
Senior Vice President and Chief Financial Officer (January 2016 - present)
Vice President, Finance and Accounting (November 2014 - 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 and Chief Operating Officer of Non-Utility Businesses, Strategy and
External Affairs (March 2020 - present)
Vice President, Corporate Strategy and External Affairs (January 2020 – February 2020)
Vice President, Government Affairs and Policy (January 2018 – December 2019)
Chief of Staff, Office of New Jersey Governor Chris Christie (April 2016 – January 2018)
Chief Policy Advisor, Office of New Jersey Governor Chris Christie (December 2013 – March
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)
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 and affiliates.
Risks Related to the Ongoing COVID-19 Pandemic and Other Extreme Events
The Company and our subsidiaries and affiliates are subject to risk associated with the ongoing novel coronavirus,
COVID-19 pandemic, which could materially and adversely impact our business, including our financial condition, results
from operations, liquidity, cash flows and the market value of our common stock.
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New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
COVID-19 has been declared a pandemic by the World Health Organization and the Centers for Disease Control and
Prevention and has spread globally, including throughout the U.S. In response, the U.S. federal government and many
jurisdictions, including without limitation, New Jersey, Pennsylvania, Mississippi and Texas have instituted emergency orders,
restrictions on travel, limitations on public gatherings and non-essential business, shelter-in-place requirements and government
shutdowns. These emergency orders and restrictions have significantly disrupted economic activity in the jurisdictions in which
we operate and have caused volatility in the capital markets.
The effects of the ongoing COVID-19 pandemic and related government responses could include extended disruptions to
supply chains and capital markets, reduced labor availability and productivity and a prolonged reduction in economic activity.
We are currently evaluating the potential prolonged impacts that the ongoing COVID-19 pandemic may have on our future
operating results and liquidity, which include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
impacts related to the health, safety, productivity and availability of our employees and contractors;
reduced demand for energy and forecasted customer growth;
our ability to develop, construct and operate facilities;
suspension of collection activities and the inability to shutoff natural gas services for nonpayment;
reduced demand for commercial, industrial and residential natural gas services;
deterioration of the credit quality of our counterparties;
increases in costs and supply chain delays and disruptions;
delays and disruptions to capital construction and infrastructure operations and maintenance programs, including
delays in the permitting process and base rate cases;
delays and disruptions to financing plans and increasing costs related thereto;
impacts on pension valuations and increased pension and post-retirement plan costs and funding requirements;
deterioration in our financial metrics or the business environment that impacts our credit ratings;
impacts to our liquidity position and cost of and ability to access funds from financial institutions and capital
markets;
impacts on our legal and regulatory matters, including the potential for delayed state regulatory filings and recovery
of invested capital, as well as delays in newly enacted and proposed state regulatory actions and federal laws;
exacerbation of other risks that may impact us; and
other unpredictable events.
These uncertain economic conditions may also result in the inability of our customers to pay for utility and certain non-
utility services, which could affect the collectability and recognition of our revenues and adversely affect our financial results.
While we have implemented our business continuity plan (including without limitation employee travel restrictions,
employee remote work locations and cancellation of physical participation in meetings, events, and conferences) to conform to
government restrictions and best practices encouraged by federal, state, and local government and regulatory authorities, if a
large proportion of our employees in essential capacities were to contract COVID-19, there is no certainty that such measures
will be sufficient to mitigate an adverse impact to our operations.
The situation surrounding the ongoing COVID-19 pandemic remains fluid and the likelihood of material impacts
therefrom increases the longer the pandemic impacts activity levels in the U.S. As of September 30, 2020, the ongoing
COVID-19 pandemic has not had a material impact on the Company and our subsidiaries and affiliates; however, the ultimate
severity and duration of the COVID-19 pandemic and the responses thereto are uncertain and we cannot predict whether they
will have a material impact on our liquidity, financial condition, results of operations or cash flows and when and to what extent
normal economic and operating conditions can resume.
We may be adversely impacted by natural disasters, pandemic illness (including COVID-19), terrorist activities and
other extreme events to which we may be unable to promptly respond.
Local or national natural disasters, pandemic illness (including COVID-19), 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
Page 16
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
pandemic illness (including COVID-19) 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.
Risk Related to Our Business Operations
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 Leaf River and other natural gas storage
facilities, NJNG infrastructure improvements, such as SRL and NJ RISE, pipeline transportation systems, such as PennEast and
Adelphia Gateway Pipeline project, 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 method investments could be impaired.
Such impairment could have a materially adverse effect on our financial condition, results of operations and cash flows.
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 state 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. These projects face the risk that the current state regulatory programs and tax laws may
expire or be adversely modified. Specifically, the legislature in New Jersey ordered the BPU to close the current SREC market
to new projects and transition to a new incentive program to support long-term solar growth. If the BPU does not execute on the
legislative requirements to effect this transition in an orderly manner, protect investor value and support long term industry
growth, this could result in an oversupply of SRECs and a corresponding decrease in SREC prices. A sustained decrease in the
value of SRECs could negatively impact the return on our investments and could impair our portfolio of solar assets.
In addition, there are risks associated with our ability to develop and manage such projects profitably, including logistical
risks and potential delays related to construction, permitting, regulatory approvals (including any approvals by the BPU
required pursuant to solar energy legislation in the State of New Jersey, and similar approvals required by the State of
Connecticut and State of Rhode Island) 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.
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 transportation and storage 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
Page 17
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 U.S. 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.
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
transportation and storage 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 natural 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 utility gross margin, severe weather
conditions may have an impact on the ability of suppliers and pipelines to deliver the natural gas to NJNG, which can
negatively affect our earnings. The CIP does not mitigate the impact of severe weather conditions on our cash flows.
Future results at Energy Services are subject to volatility in the natural gas market due to weather. Variations in weather
may affect earnings and working capital needs throughout the year. During periods of milder temperatures, demand and
volatility in the natural gas market may decrease, which can negatively impact Energy Services’ earnings and cash flows.
Failure 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 on December 7, 2021 and April 2, 2023, respectively.
Disputes with the Union over terms and conditions of the agreements could result in instability in our labor relationship and
work stoppages that could impair the timely delivery of natural gas and other services from our utility and Home Services
business, 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 agreements may also increase the cost of employing our natural gas
distribution segment and Home Services 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.
Our success as a company depends upon our ability to attract, effectively transition, motivate and retain key employees
and identify and develop talent to succeed senior management. We depend on senior executive officers and other key personnel
to develop, implement and execute on our overall business strategy. The inability to recruit and retain or effectively transition
key personnel or the unexpected loss of key personnel may adversely affect our operations.
Page 18
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
Uncertainties associated with our Adelphia Gateway Pipeline project could adversely affect our business, results of
operations, financial condition and cash flows.
We acquired Adelphia Gateway in January 2020, which involves the operation of a natural gas transmission pipeline
extending approximately 90 miles through eastern Pennsylvania. As part of the Adelphia Gateway Pipeline project, we expect
to convert the remaining sections of the southern mainline of the pipeline to transport natural gas. Any delays in the expected
timeframe relating to converting the southern mainline of the pipeline to transport natural gas could cause disruption and create
uncertainties, which could have an adverse effect on our business, results of operations, financial condition and cash flows.
Risk Related to Technologies
Failure to keep pace with technological change may limit customer growth and have an adverse effect on our operations.
Advances in technology and changes in laws or regulations are reducing the cost of alternative methods of producing
energy. In addition, customers are increasingly expecting enhanced communications regarding their electric and natural gas
services, which, in some cases, may involve additional investments in technology. New technologies may require us to make
significant expenditures to remain competitive and may result in the obsolescence of certain of our operating assets.
Our future success will depend, in part, on our ability to anticipate and successfully adapt to technological changes and to
offer services that meet customer demand. Failure to adapt to advances in technology and manage the related costs could make
us less competitive and negatively impact our financial condition, results of operations and cash flows.
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, financial
position, results of operations and cash flows.
We rely on information technology to manage our natural gas distribution and storage, energy trading and other corporate
operations; maintain customer, employee, Company and vendor data; and 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.
Risk Related to Acquisition and Investment Strategies
Any acquisitions that we may undertake involve risks and uncertainties. We may not realize the anticipated synergies,
cost savings and growth opportunities as a result of these transactions.
The integration of acquisitions require significant time and resources. Investments of resources are required to support
any acquisition, which could result in significant ongoing operating expenses, and we 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.
Page 19
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 in a timely and seamless manner. We may experience challenges
when combining separate business cultures, information technology systems and employees. Even if we are able to complete an
integration successfully, we may not fully realize all the growth opportunities, cost savings and other synergies that we expect.
Investing through partnerships or joint ventures decreases our ability to manage risk.
We have utilized joint ventures through partnerships for certain Storage and Transportation investments, including
Steckman Ridge and PennEast. 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 and affiliates.
Our financial condition, results of operations or cash flows could be harmed if a joint venture participant acts contrary to our
interests.
Risk Related to Regulations and Litigation
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.
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, including Steckman Ridge, Leaf River and
Adelphia Gateway. FERC will also have regulatory authority over the operations of PennEast. 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 effect on our earnings.
We cannot predict the impact of any future revisions or changes in interpretations of existing regulations or the adoption
of new laws and applicable regulations. Changes in regulations or the imposition of additional regulations could influence our
operating environment and may result in substantial costs to us.
Our costs of compliance with present and future environmental laws are significant and could adversely affect our cash
flows and profitability.
Our operations are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air
quality, water quality, waste management, natural resources and site remediation. Compliance with these laws and regulations
may require us to expend significant financial resources to, among other things, conduct site remediation and perform
environmental monitoring. If we fail to comply with applicable environmental laws and regulations, even if we are unable to do
so due to factors beyond our control, we may be subject to civil liabilities or criminal penalties and may be required to incur
significant expenditures to come into compliance. Additionally, any alleged violations of environmental laws and regulations
may require us to expend significant resources in our defense against alleged violations.
Furthermore, the U.S. Congress has for some time been considering various forms of climate change legislation. In
addition, in July 2019, the State of New Jersey amended the GWRA, which targets 80 percent reduction in greenhouse gas
emissions economy-wide by 2050. The amendments to the GWRA require NJDEP to publish a report detailing measures to
accomplish the goals of the GWRA, and within 18 months of the report, mandates that NJDEP promulgate regulations to
achieve environmental targets. The policies in the state’s Energy Master Plan, currently in draft form, could be used to inform
future regulations.
Page 20
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
There is a possibility that the final form of such legislation at the federal level and regulations at the state level 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.
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 construct rate based assets timely and 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.
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.
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, natural 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.
Risk Related to our Markets
We are exposed to market risk and may incur losses in our wholesale business.
Our transportation and storage portfolios consist of contracts to transport and store natural gas. The value of our
transportation and storage portfolio could be negatively impacted if the value of these contracts changes in a direction or
manner that we do not anticipate. In addition, upon expiration of these transportation and storage contracts, to the extent that
they are renewed or replaced at less favorable terms, our results of operations and cash flows could be adversely affected.
Major changes in the supply and price of natural gas may affect financial results.
While NJRES and NJNG expect to meet customers’ demand for natural gas for the foreseeable future, factors affecting
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, energy efficiency
mandates or changes in consumer behaviors, 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.
NJRES and NJNG actively hedge 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.
Page 21
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
Changes in customer growth may affect earnings and cash flows.
NJNG’s ability to increase its utility 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 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.
Adverse economic conditions, including inflation, increased natural gas costs, foreclosures and business failures, could
adversely impact NJNG’s customer collections and increase our level of indebtedness.
Inflation may cause increases in certain operating and capital costs. We continually review the adequacy of NJNG’s base
tariff rates in relation to the increasing cost of providing service and the inherent regulatory lag in adjusting those rates. The
ability to control operating expenses is an important factor that will influence future results.
Rapid increases in the price of purchased natural gas may cause NJNG to experience a significant increase in short-term
debt because it must pay suppliers for natural 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 natural gas delivered to customers. Increases in purchased
natural gas costs also slow collection efforts as customers are more likely to delay the payment of their natural gas bills, leading
to higher-than-normal accounts receivable.
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.
Risk Related to Credit and Liquidity
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.
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 Fitch 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
Page 22
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 Storage and Transportation, 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, we may
not be able to finance our capital obligations to PennEast or for the conversion of the southern end of Adelphia Gateway.
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.
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 U.S. or in the regions where we operate;
political conditions, such as a shutdown of the U.S. federal government;
financial difficulties of unrelated energy companies;
capital market conditions generally;
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.
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 and term loans. 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.
Page 23
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
Risks Related to Tax and Accounting Matters
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.
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.
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. Any future change in tax
laws 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.
A valuation allowance may be required for our deferred tax assets.
During fiscal 2018, 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. 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. 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.
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
Page 24
New Jersey Resources Corporation
Part I
ITEM 1A. RISK FACTORS (Continued)
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 taxes 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.
Risks Related to Takeovers
Our restated certificate of incorporation, as amended, and amended and restated bylaws may delay or prevent a
transaction that shareowners would view as favorable.
Our restated certificate of incorporation, as amended and amended and restated 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 is authorized to issue preferred stock without stockholder approval on such terms as our
Board may determine. Our common shareowners will be subject to, and may be negatively affected by, the rights of any
preferred stock that may be issued in the future. In addition, we are subject to the New Jersey Shareholders’ Protection Act,
which could delay or prevent a change of control of NJR.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Natural Gas Distribution Segment
As of September 30, 2020, NJNG owns approximately 7,392 miles of distribution main, 7,630 miles of service main, 221
miles of transmission main and 566,249 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, natural 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 $1 billion as of September 30, 2020. 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, 2020.
Clean Energy Ventures Segment
As of September 30, 2020, 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 throughout the State of New Jersey. In addition to the lease agreements and easements,
Clean Energy Ventures owns solar panels with a total of 357.4 MW of capacity, 79.5 acres of land in Vineland, Cumberland
County and 101.75 acres of land in Fairfield Township, Cumberland County.
Clean Energy Ventures leases office space in Wall Township, Monmouth County.
Page 25
New Jersey Resources Corporation
Part I
ITEM 2. PROPERTIES (Continued)
Energy Services Segment
As of September 30, 2020, Energy Services leases office space in Wall Township, New Jersey; Charlotte, North Carolina;
and Allentown, Pennsylvania.
Storage and Transportation Segment
As of September 30, 2020, Adelphia Gateway owns 11.48 acres of land in Delaware County, Pennsylvania, 20 acres in
Bucks County, Pennsylvania, 119.4 acres in Northampton County, Pennsylvania and 17.7 acres in Montgomery County,
Pennsylvania and leases office space in Wall Township, New Jersey. Leaf River owns 43.94 acres of land and a 5,000 square
foot building in Smith County, Mississippi, 65.4 acres in Jasper County, Mississippi and 3.53 acres in Clarke County,
Mississippi and leases office space in Houston, Texas.
All Other Business Operations
As of September 30, 2020, CR&R’s real estate portfolio consisted of 23 acres of undeveloped land in Atlantic County,
New Jersey. NJRHS leases service centers in Dover, New Jersey and Wall Township, New Jersey. NJR Service Corporation
leases office space in Red Bank, 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 2021 and 2022 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 certain former 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 NJDEP regulations.
NJNG periodically, and at least annually, performs an environmental review of former MGP sites located in Atlantic
Highlands, Berkeley, Long Branch, Manchester, Toms River, and Freehold, New Jersey, collectively, the "former MGP sites",
including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the most recent
review the total future expenditures at the former MGP sites for which it is responsible, including potential liabilities for further
and continued natural resource damages that may be brought by the NJDEP for alleged injury to groundwater or other natural
resources concerning these sites. As we have not yet completed the remedial investigation of the site, the total amount of
potential costs of all remedial actions at the MGP site in Freehold, New Jersey, cannot be reasonably estimated at this time.
The estimated total future expenditures for all former MGP sites will range from approximately $143.1 million to $181.7
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, we accrue at the lower end of the range. Accordingly, NJNG recorded an MGP remediation liability and a
corresponding regulatory asset on the Consolidated Balance Sheets of $150.6 million as of September 30, 2020 and $131.1
million as of September 30, 2019, based on the most likely amount. The remediation liability at September 30, 2020 includes
adjustments for actual expenditures during fiscal 2020. 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.
In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership
and if former MGP operations were active at the location. As of September 30, 2019, costs associated with preliminary
assessment activities were considered immaterial and included as a component of NJNG’s annual SBC application to recover
remediation expenses. The preliminary assessment and site investigation activities are ongoing at the Aberdeen site. The
estimated costs to complete the preliminary assessment and site investigation phase is included in the MGP remediation liability
and corresponding regulatory asset on the Consolidated Balance Sheet at September 30, 2020. NJNG will continue to gather
information to determine whether the obligation exists to undertake remedial action.
Page 26
New Jersey Resources Corporation
Part I
ITEM 3. LEGAL PROCEEDINGS (Continued)
NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC
approved by the BPU. On September 9, 2020, the BPU approved NJNG's request for an increase in the RAC, which increased
the annual recovery from $8.5 million to $9.7 million and is effective October 1, 2020. As of September 30, 2020, $36.5 million
of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory
assets on the Consolidated Balance Sheets. NJNG 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
accruals 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 accrued.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
Page 27
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 October 27, 2020,
NJR had 60,383 holders of record of its common stock.
Performance Graph
The performance graph and table below illustrates a five-year comparison of cumulative total returns based on an initial
investment of $100 in our common stock, as compared with the S&P 500 Stock Index, the S&P 500 Utilities Industry Index
and the customized peer company group listed below, referred to herein as the Peer Group. The Peer Group companies were
selected based on similarities to the Company’s business model, size and other growth and business factors.
Cumulative Total Return
NJR
S&P 500 Utilities
S&P 500
Peer Group
2015
$100.00
$100.00
$100.00
$100.00
2016
$112.67
$117.37
$115.43
$126.37
2017
$148.40
$131.49
$136.91
$144.57
2018
$166.62
$135.34
$161.43
$150.79
2019
$167.49
$172.02
$168.30
$178.99
2020
$104.21
$163.47
$193.80
$146.25
The 10 companies in the Peer Group are: Atmos Energy Corporation; Avista Corporation; Black Hills Corporation;
National Fuel Gas Company; NiSource Inc.; Northwest Natural Gas Company; ONE Gas, Inc.; South Jersey Industries, Inc.;
Southwest Gas Corporation; and Spire lnc.
This performance graph and accompanying information shall not be deemed “filed” for purposes of Section 18 of the
Exchange Act, or incorporated by reference into any of the Company’s filings under the Securities Act, or the Exchange Act,
except as shall be expressly set forth by specific reference in such filing.
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, authorizing a total of 19.5 million shares of common stock for
repurchase. 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 terminated earlier 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, 2020:
Period
7/01/20 - 7/31/20
8/01/20 - 8/31/20
9/01/20 - 9/30/20
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 28
Comparison of 5 year Cumulative ReturnNJRS&P 500 UtilitiesS&P 500Peer Group201520162017201820192020$50.00$100.00$150.00$200.00 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
Natural 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)
2020
2019
2018
2017
2016
$ 1,953,668 $ 2,592,045 $ 2,915,109 $ 2,268,617 $ 1,880,905
$ 1,304,719 $ 2,044,302 $ 2,275,342 $ 1,703,767 $ 1,352,686
$ 193,919 $ 169,505 $ 233,436 $ 132,065 $ 131,672
$ 5,569,802 $ 4,372,985 $ 4,143,664 $ 3,928,507 $ 3,718,570
$ 1,844,692 $ 1,551,717 $ 1,418,978 $ 1,236,643 $ 1,166,591
$ 2,259,466 $ 1,537,177 $ 1,180,619 $ 997,080 $ 1,055,038
$2.05
$2.04
$1.27
$1.90
$1.89
$1.19
$2.66
$2.64
$1.11
$1.53
$1.52
$1.038
$1.53
$1.52
$0.975
$ 193,919 $ 169,505 $ 233,436 $ 132,065 $ 131,672
(9,644)
2,296
2,881
(711)
26,770
(4,512)
(11,241)
4,062
46,883
(17,018)
12,690
(3,016)
(36,816)
13,364
$ 196,245 $ 174,960 $ 240,486 $ 149,392 $ 138,085
(22,570)
7,362
38,470
(13,964)
4,309
(1,024)
$2.05
$1.90
$2.66
$1.53
$1.53
(0.10)
0.02
0.13
(0.03)
$2.07
0.03
(0.01)
0.05
(0.01)
$1.96
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
$2.04
$1.89
$2.64
$1.52
$1.52
(0.10)
0.02
0.13
(0.03)
$2.06
0.03
(0.01)
0.05
(0.01)
$1.95
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
Includes long-term financel leases of $63.7 million, $25 million, $26.4 million, $28.9 million and $30.7 million, respectively.
Includes long-term solar asset financing obligation of $105.5 million, $80.4 million, $89.8 million, $28.2 million and $0, respectively.
(1)
(2)
(3) NFE is a non-GAAP financial measure that eliminates the timing differences surrounding the recognition of certain derivative gains or losses, to
effectively match the earnings effects of economic hedges associated with the physical sale or purchase of natural gas and, therefore, eliminate the impact
of volatility to GAAP earnings associated with the related derivative instruments. For further discussion of this financial measure, see the Energy Services
segment discussion in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Page 29
New Jersey Resources Corporation
Part II
ITEM 6. SELECTED FINANCIAL DATA (Continued)
NJNG OPERATING STATISTICS
Fiscal Years Ended September 30,
Operating revenues ($ 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
2020
2019
2018
2017
2016
$ 500,271
98,463
66,871
665,605
6,322
671,927
57,996
$ 729,923
$ 450,515
104,372
57,513
612,400
6,637
619,037
91,756
$ 710,793
$ 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
44.6
8.2
13.3
66.1
30.9
97.0
118.4
215.4
46.0
9.7
13.7
69.4
39.0
108.4
123.8
232.2
45.5
8.9
15.5
69.9
46.2
116.1
150.2
266.3
40.7
8.7
14.4
63.8
55.0
118.8
178.4
297.2
36.9
7.3
14.1
58.3
61.5
119.8
216.7
336.5
497,779
28,735
31,604
558,118
29
19
558,166
8.29
486,474
28,992
32,107
547,573
32
21
547,626
6.57
474,495
28,037
36,126
538,658
31
28
538,717
6.35
460,013
26,947
42,790
529,750
33
27
529,810
7.96
448,273
26,218
46,608
521,099
34
30
521,163
8.97
895
8,683
4,254
92.8 %
721
945
10,198
4,506
99.0 %
709
959
10,992
4,537
99.5 %
686
885
11,183
4,129
90.0 %
680
824
11,378
3,867
82.5 %
670
(1)
(2)
(3)
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.
Operating revenue presents sales tax, net during fiscal 2020 and 2019, due to the adoption of ASC 606, Revenue from Contracts with Customers. Prior
to fiscal 2019, operating revenue only included sales tax on operating revenues excluding tax-exempt sales.
Page 30
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.
Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing
and amount of assets to be recovered by rates. The BPU’s regulation of rates is premised on the full recovery of prudently
incurred costs and a reasonable rate of return on invested capital. Decisions to be made by the BPU in the future will impact the
accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital
included in rates and any refunds that may be required. If the BPU indicates that recovery of all or a portion of a regulatory
asset is not probable or does not allow for recovery of and a reasonable return on investments in property plant and equipment,
a charge to income would be made in the period of such determination.
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 15. Commitments and Contingent Liabilities for more details.
Page 31
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 affected 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.
The remeasurement of plan assets and obligations for a significant event should occur as of the date of the significant
event. We may use a practical expedient to remeasure the plan assets and obligations as of the nearest calendar month-end date.
When performing interim remeasurements, we obtain new asset values, roll forward the obligation to reflect population changes
and review the appropriateness of all assumptions, regardless of the reason for performing the interim remeasurement.
Our postemployment employee benefit plan assets consist primarily of U.S. equity securities, international equity
securities, fixed-income investments and other assets, with a targeted allocation of 34 percent, 17 percent, 38 percent and 11
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 and other income, net on the Consolidated Statements of Operations.
The following is a summary of a sensitivity analysis for each actuarial assumption:
Pension Plans
Actuarial Assumptions
Discount rate
Discount rate
Rate of return on plan assets
Rate of return on plan assets
Other Postemployment Benefits
Actuarial Assumptions
Discount rate
Discount rate
Rate of return on plan assets
Rate of return on plan assets
Actuarial Assumptions
Health care cost trend rate
Health care cost trend rate
Acquisitions
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)
$(49,896)
$62,361
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
$(4,671)
$5,643
$(2,840)
$2,839
Estimated
Increase/(Decrease) on PBO
(Thousands)
$ (36,740)
$ 47,260
n/a
n/a
Estimated
Increase/(Decrease) to Expense
(Thousands)
(3,608)
4,486
(898)
898
$
$
$
$
Estimated
Increase/(Decrease) on PBO
(Thousands)
$ 49,106
$ (38,844)
Estimated
Increase/(Decrease) to Expense
(Thousands)
6,861
(5,383)
$
$
The Company follows the guidance in ASC 805, Business Combinations, for determining the appropriate accounting
treatment for acquisitions. ASU No. 2017-01, Clarifying the Definition of a Business, provides an initial fair value screen to
determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets. If
the initial screening test is not met, the set is considered a business based on whether there are inputs and substantive processes
in place. Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or an
asset acquisition, the accounting treatment is derived.
Page 32
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
If the acquisition is deemed to be a business, the acquisition method of accounting is applied. Identifiable assets acquired
and liabilities assumed at the acquisition date are recorded at fair value. If the transaction is deemed to be an asset purchase, the
cost accumulation and allocation model is used whereby the assets and liabilities are recorded based on the purchase price and
allocated to the individual assets and liabilities based on relative fair values.
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. The valuation of an acquired business is based on available
information at the acquisition date and assumptions that are believed to be 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.
Investments in Equity Investees
The Company accounts for its investments in Steckman Ridge and PennEast, using the equity method of accounting
where it is not the primary beneficiary, as defined under ASC 810, Consolidation, in that its respective ownership interests are
50 percent or less and/or it has significant influence over operating and management decisions. The Company’s share of
earnings is recognized as equity in earnings of affiliates on the Consolidated Statements of Operations.
Equity method investments are reviewed for impairment when changes in facts and circumstances indicate that the
current fair value may be less than the asset’s carrying amount. Factors that the Company analyzes in determining whether an
impairment in its equity investments exists include reviewing the financial condition and near-term prospects of the investees,
including economic conditions and trends in the general market, significant delays in or failure to complete significant projects,
unfavorable regulatory or legal actions expected to substantially impact future earnings potential and lower than expected cash
distributions from investees. If the Company determines the decline in the value of its equity method investment is other than
temporary, an impairment charge is recorded in an amount equal to the excess of the carrying value of the asset over its fair
value.
On September 10, 2019, the Third Circuit issued an order overturning the U.S. District Court for the District of New
Jersey’s order granting PennEast condemnation and immediate access in accordance with the Natural Gas Act to certain
properties in which New Jersey holds an interest. The Petition for Panel Rehearing or Rehearing En Banc filed with the Third
Circuit was denied on November 5, 2019.
On October 8, 2019, the NJDEP issued a letter indicating that it deemed PennEast’s freshwater wetlands permit
application to be administratively incomplete and closed the matter without prejudice. On October 11, 2019, PennEast
submitted a letter to the NJDEP objecting to its position that the freshwater wetlands permit application is administratively
incomplete.
On November 14, 2019, PennEast announced that it will ask the Supreme Court of the U.S. to review the September 2019
decision by the Third Circuit.
As a result of the adverse court rulings, the Company evaluated its investment in PennEast for impairment and
determined an impairment charge was not necessary. The Company estimated the fair value of its investment using probability-
weighted scenarios of discounted future cash flows. Management made significant estimates and assumptions related to
development options and legal outcomes, construction costs, timing of capital investments and in-service dates, revenues and
discount rates. The discounted cash flow scenarios contemplate the impact of key assumptions of potential future court
decisions and potential future management decisions and require management to make significant estimates regarding the
likelihood of various scenarios and assumptions. It is reasonably possible that future unfavorable developments, such as a
reduced likelihood of success from development options and legal outcomes, estimated increases in construction costs,
increases in the discount rate or further significant delays, could result in an impairment of our equity method investment. Also,
the use of alternate judgments and assumptions could result in a different calculation of fair value, which could ultimately result
in the recognition of an impairment charge in the Consolidated Financial Statements. Higher probabilities were assumed related
to those scenarios where the project is completed.
Page 33
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Due to the anticipated expiration of a customer contract for Steckman Ridge, the Company evaluated its investment in
Steckman Ridge for other-than-temporary impairment and determined an impairment charge was not necessary.
The fair value of the Company’s investment in Steckman Ridge was determined using a discounted cash flow method and
utilized management’s best estimates and assumptions related to expected future results, including the price and capacity of
firm natural gas storage contracting, operations and maintenance costs, the nature and timing of major maintenance and capital
investment, and discount rates. Fair value determinations require considerable judgment and are sensitive to changes in
underlying assumptions and other factors. As a result, it is reasonably possible that unfavorable developments, such as the
failure to execute storage contracts and other services for available capacity at anticipated price levels could result in an other-
than temporary impairment charge in the Consolidated Financial Statements.
For further information on these investments, see Note 7. Investments in Equity Investees.
Impairment of Long-lived assets
Property, plant and equipment and finite-lived intangible assets are reviewed periodically for impairment 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. Factors that the Company analyzes in determining whether an impairment in its long-lived
assets exists include determining if a significant decrease in the market price of a long-lived asset is present; a significant
adverse change in the extent in which a long-lived asset is being used in its physical condition; legal proceedings or factors;
significant business climate changes, accumulations of costs in significant excess of the amounts expected; a current-period
operating or cash flow loss coupled with historical negative cash flows or expected future negative cash flows; and current
expectations that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its
estimated useful life. When an impairment indicator is present, the Company determines if the carrying value of the asset is
recoverable by comparing it to its expected undiscounted future cash flows. If the 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.
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 natural gas purchases on the Consolidated Statements of Operations. Changes in the fair
value of foreign exchange contracts are recognized in natural 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 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, 2020, the fair value of its derivative assets and
liabilities reported on the Consolidated Balance Sheets that is based on such pricing is considered immaterial.
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 2020,
2019 and 2018. 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.
Page 34
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 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, 2020 and 2019.
Income Taxes
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 tax benefits. We use the asset and
liability method to determine and record deferred tax assets and liabilities, representing future tax benefits and taxes payable,
which result from the differences in basis recorded in GAAP financial statements and amounts recorded in the income tax
returns. The deferred tax assets and liabilities are recorded utilizing the statutorily enacted tax rates expected to be in effect at
the time the assets are realized, and/or the liabilities 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 13. Income Taxes in the accompanying Consolidated Financial
Statements.
For state income tax and other taxes, estimates and judgments are required with respect to the apportionment among the
various jurisdictions. In addition, we operate within multiple tax jurisdictions and are subject to audits in these jurisdictions.
These audits can involve complex issues, which may require an extended period of time to resolve. We maintain a liability for
the estimate of potential income tax exposure and, in our opinion, adequate provisions for income taxes have been made for all
years reported. Any significant changes to the estimates and judgments with respect to the apportionment factor could result in
a material change to earnings and cash flows.
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. Accounting guidance also requires that regulatory liabilities/assets be considered a
temporary difference for which a deferred tax asset/liability shall be recognized.
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. Any changes to the estimates and judgments with respect
to the interpretations, timing or deductibility could result in a change to earnings and cash flows. Interest and penalties related
to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest, and penalties are
recognized within accrued taxes on the Consolidated Balance Sheets.
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. In general, 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.
Recently Issued Accounting Standards
Refer to Note 2. Summary of Significant Accounting Policies in the accompanying Consolidated Financial Statements for
discussion of recently issued accounting standards.
Page 35
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Management’s Overview
Consolidated
NJR is a diversified energy services holding company providing retail natural gas service in New Jersey and wholesale
natural gas and related energy services to customers in the U.S. and Canada. In addition, we invest in clean energy projects,
natural gas storage and transportation assets and provide various repair, sales and installation services. A more detailed
description of our organizational structure can be found in Item 1. Business.
The following sections include a discussion of results for fiscal 2020 compared to fiscal 2019. The comparative results
for fiscal 2019 with fiscal 2018 have been omitted from this Form 10-K, but may be found in Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations on Form 10-K of our Annual Report for the fiscal year ended
September 30, 2019, filed with the SEC on November 22, 2019.
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.
Impacts of the COVID-19 Pandemic
We are closely monitoring developments related to the COVID-19 pandemic and are taking steps intended to limit
potential exposure for our employees and those we serve. We have also taken proactive steps to ensure business continuity in
the safe operation of our business. Both NJR and NJNG continue to have sufficient liquidity to meet their current obligations,
and business operations remain fundamentally unchanged at this time. This is, however, a rapidly evolving situation, and we
cannot predict the extent or duration of the outbreak, the effects of the pandemic on the global, national or local economy or its
effects on our financial condition, results of operations and cash flows. We cannot predict the nature and extent of impacts to
future operations. We will continue to monitor developments affecting our employees, customers and operations and take
additional steps to address the COVID-19 pandemic and its impacts, as necessary.
Page 36
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Results
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)
2020
2019
2018
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Storage and Transportation
Home Services and Other
Intercompany (1)
Total
Net Income
$
Assets
Net Income
Assets
Net Income
Assets
126,902 $ 3,531,477 $
1,015,073
53,023
244,836
(11,008)
844,799
18,311
138,375
5,784
(204,758)
907
193,919 $ 5,569,802 $
78,062 $ 3,064,309 $
864,323
77,473
290,847
(1,268)
240,955
14,689
104,411
1,637
(191,860)
(1,088)
169,505 $ 4,372,985 $
84,048 $ 2,663,054
865,018
75,849
396,852
53,139
242,069
24,367
114,732
(3,555)
(138,061)
(412)
233,436 $ 4,143,664
$
(1)
Consists of transactions between subsidiaries that are eliminated in consolidation.
The increase in net income of $24.4 million during fiscal 2020, compared with fiscal 2019, was driven primarily by
increased earnings at our Natural Gas Distribution segment due to higher base rates resulting from the base rate case in
November 2019, partially offset by decreased earnings at Energy Services resulting from warmer weather, which lead to
decreased demand, lower natural gas prices and ultimately decreased volatility in the wholesale natural gas markets and
decreased earnings at Clean Energy Ventures resulting from a decrease in ITC recognition, as well as the absence of wind
revenue in fiscal 2020. The primary drivers of the changes noted above are described in more detail in the individual segment
discussions.
The increase in assets during fiscal 2020, compared with fiscal 2019, was due primarily to the acquisition of Leaf River
and Adelphia Gateway within our Storage and Transportation segment, increases in utility plant and solar asset investment
within our Natural Gas Distribution segment and Clean Energy Ventures segment, respectively, and the recognition of a right-
of-use asset upon adoption of ASC 842 - Leases on October 1, 2019.
Non-GAAP Financial Measures
Our management uses NFE, a non-GAAP financial measure, when evaluating our operating results. Energy Services
economically hedges its natural gas inventory with financial derivative instruments. NFE is a measure of the earnings based on
eliminating timing differences surrounding the recognition of certain gains or losses, to effectively match the earnings effects of
the economic hedges with the physical sale of natural gas and, therefore, eliminates the impact of volatility to GAAP earnings
associated with the derivative instruments. There is a related tax effect on current and deferred income tax expense
corresponding with this non-GAAP measure. To the extent we utilize forwards, futures or other derivatives to hedge forecasted
SREC production, unrealized gains and losses are also eliminated for NFE purposes.
GAAP requires us, during the interim periods, to estimate our annual effective tax rate and use this rate to calculate the
year-to-date tax provision. We also determine an annual estimated effective tax rate for NFE purposes and calculate a quarterly
tax adjustment based on the difference between our forecasted net income and our forecasted NFE for the fiscal year. Since the
annual estimated effective tax rate is based on certain forecasted assumptions, including estimates surrounding completion of
Clean Energy Ventures projects, the rate and resulting NFE are subject to change. No adjustment is needed during the fourth
quarter, since the actual effective tax rate is calculated at fiscal year-end.
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.
Page 37
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Below 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 (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory (1)
Tax effect
Net financial earnings
Basic earnings per share
Add:
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory (1)
Tax effect
Basic net financial earnings per share
2020
2019
$ 193,919 $ 169,505 $ 233,436
2018
(9,644)
2,296
12,690
(3,016)
26,770
(4,512)
(22,570)
7,362
$ 196,245 $ 174,960 $ 240,486
2,881
(711)
4,309
(1,024)
$
2.05 $
1.90 $
2.66
(0.10)
0.02
0.13
(0.03)
2.07 $
0.03
(0.01)
0.05
(0.01)
1.96 $
0.31
(0.05)
(0.26)
0.08
2.74
$
(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
Storage and Transportation
Home Services and Other
Eliminations (1)
Total
2020
$ 126,902
53,023
(7,873)
18,311
5,784
98
$ 196,245
2019
2018
65 % $ 78,062
45 % $ 84,048
77,473
27
75,849
44
2,918
(4)
60,378
2
14,689
9
24,367
8
(3,829)
1,911
3
1
(327)
—
(93)
—
100 % $ 174,960 100 % $ 240,486 100 %
35 %
32
25
10
(2)
—
(1) Consists of transactions between subsidiaries that are eliminated in consolidation.
The increase in NFE of $21.3 million during fiscal 2020, compared with fiscal 2019, was driven primarily by increased
base rates at our Natural Gas Distribution and Transportation segments, partially offset by lower financial margin generated at
Energy Services resulting from warmer weather, which led to decreased demand, lower natural gas prices and ultimately
decreased volatility in the wholesale natural gas markets and decreased earnings at Clean Energy Ventures, as previously
discussed.
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 throughout Monmouth, Ocean, Morris, Middlesex and Burlington counties in New Jersey to approximately 558,000
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, including those risks associated with COVID-19 and may include but are not
limited to impacts to customer growth and customer usage, customer collections, the timing and costs of capital expenditures
and construction of infrastructure projects, operating and financing costs, fluctuations in commodity prices and customer
conservation efforts. In addition, NJNG may be subject to adverse economic conditions, certain regulatory actions,
environmental remediation and severe weather conditions. It is often difficult to predict the impact of events or trends
associated with these risks.
NJNG’s business is seasonal by nature, as weather conditions directly influence the volume of natural gas delivered 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 fiscal year.
Page 38
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
As a regulated company, NJNG is required to recognize the impact of regulatory decisions on its financial statements.
See Note 4. Regulation in the accompanying Consolidated Financial Statements for a more detailed discussion on regulatory
actions, including filings related to programs and associated expenditures, as well as rate requests related to recovery of capital
investments and operating costs.
NJNG’s operations are managed with the goal of providing safe and reliable service, growing its customer base,
diversifying its utility gross margin, promoting clean energy programs and mitigating the risks discussed above.
Base Rate Case
On March 29, 2019, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $128.2 million,
including a change in NJNG’s overall rate of return on rate base to 7.87 percent. NJNG was also seeking permission to request
recovery for SRL in a future filing, upon completion of the project. On July 2, 2019, NJNG filed an update with actual
information through May 31, 2019, which reflected a revenue increase of $129.8 million. On September 30, 2019, NJNG filed a
second update with actual information through August 31, 2019, which reflected a revenue increase of $134.3 million. On
November 13, 2019, the BPU issued an order adopting a stipulation of settlement approving a $62.2 million increase to base
rates, effective November 15, 2019. The increase includes an overall rate of return on rate base of 6.95 percent, return on
common equity of 9.6 percent, a common equity ratio of 54 percent and a depreciation rate of 2.78 percent.
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 for fiscal 2020 and estimates for expected
investments over the next fiscal year:
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.
Infrastructure Investment Program
On February 28, 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year Infrastructure
Investment Program. The IIP consists of two components: transmission and distribution investments and information
technology replacement and enhancements. The total investment for the IIP is approximately $507 million. All approved
investments will be recovered through annual filings to adjust base rates. On October 28, 2020, the BPU approved the
Page 39
$ (Millions)$8.2$56.5$56.3$72.7$—$8.7$52.9$78.6$14.6$22.4$53.3$93.4$6.4$33.7$154.2$65.42020A2021ENJ RISESAFE IICustomerGrowthSystemMaintenanceInfrastructureInvestmentProgramTechnologyUpgradesCost ofRemovaland OtherSRL$0$20$40$60$80$100$120$140$160 New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Company’s transmission and distribution component of the IIP for $150 million over five years, effective November 1, 2020.
NJNG voluntarily withdrew the information technology upgrade component and will seek to recover associated costs in future
rate case proceedings.
SAFE II and NJ RISE
NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability and
integrity of NJNG’s natural gas distribution system.
The BPU approved the 5-year SAFE II program and the associated rate mechanism 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. With the approval of SAFE II, $157.5 million was approved for accelerated cost recovery methodology.
The remaining $42.5 million in capital expenditures must be requested for recovery in base rate cases, of which $23.4 million
was approved in NJNG’s most recent base rate case.
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 natural 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 September 2019, the BPU approved NJNG’s annual petition requesting a rate increase of $7.8 million, effective
October 1, 2019.
On March 30, 2020, NJNG filed a petition with the BPU requesting a rate increase of approximately $7.4 million for the
recovery associated with NJ RISE and SAFE II capital investment costs of approximately $57.9 million. On July 24, 2020, the
Company updated this filing with actual information through June 30, 2020 and the revised rate increase requested was $7.1
million based on $55.1 million of actual capital investments. On September 9, 2020, the BPU approved the increase to base rate
revenue, effective October 1, 2020.
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. Construction began on the project in December 2018 and is
estimated to cost between $250 million and $270 million upon completion. Costs associated with SRL will be requested for
recovery in a future base rate case.
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
2020
2019
2018
497,779
28,735
22,420
9,184
558,118
48
558,166
486,474
28,992
22,870
9,237
547,573
53
547,626
474,495
28,037
26,490
9,636
538,658
59
538,717
During fiscal 2020, NJNG added 8,349 new customers, which represents a new customer growth rate of approximately
1.5 percent. During that same time period, NJNG converted 260 existing customers to natural gas heat and other services. This
Page 40
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
customer growth, as well as commercial customers who switched from interruptible to firm natural gas service, will contribute
approximately $6.2 million, on an annualized basis, to utility gross margin. NJNG also added 9,711 and 9,596 new customers
and converted 218 and 613 existing customers to natural gas heat and other services during the fiscal years ended
September 30, 2019 and 2018, respectively.
NJNG continues to expect to add approximately 28,000 to 30,000 new customers during the three-year period of fiscal
2021 to 2023. 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 65 percent of the growth will come from new
construction markets and 35 percent from customer conversions to natural gas from other fuel sources. 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 designed
to encourage the installation of high-efficiency heating and cooling equipment and other energy efficiency upgrades. Depending
on the specific incentive or approval, NJNG recovers costs associated with the programs over a two- to 10-year period through
a tariff rider mechanism. On September 25, 2020, NJNG filed a petition with the BPU for an additional three-year
SAVEGREEN program consisting of approximately $127 million in direct investment, $113 million in financing options, and
approximately $23 million in operation and maintenance expenses, to be effective July 1, 2021.
On December 18, 2018, the BPU approved a decrease in NJNG's EE recovery rate reflecting actual costs incurred
through September 30, 2018, which resulted in an annual recovery of approximately $8.8 million, effective January 1, 2019. On
October 25, 2019, the BPU approved NJNG’s annual filing to increase its EE recovery rate, which resulted in an annual
recovery of approximately $11.3 million, effective November 1, 2019. On May 29, 2020, NJNG filed a petition with the BPU
to minimally decrease its EE recovery rate. Throughout the course of the proceeding, the Company updated the filing with
additional actual information. Based on the updated information, the BPU approved the Company to maintain its existing rate,
which will result in an annual recovery of approximately $11.4 million, effective November 1, 2020.
The following table summarizes, since inception, loans, grants, rebates and related investments as of September 30:
(Thousands)
Loans
Grants, rebates and related investments
Total
2020
119,400 $
80,500
199,900 $
2019
99,000
70,100
169,100
$
$
Program recoveries from customers during the period ending September 30, 2020 and 2019, were $10.3 million and
$11.6 million, respectively. 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/BGSS
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 natural gas supply cost savings achieved and is subject to a
variable margin revenue 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.
NJNG’s total utility firm gross margin includes the following adjustments related to the CIP mechanism:
(Thousands)
Weather (1)
Usage
Total
2020
2019
2018
$
$
17,882 $
292
18,174 $
2,699 $
(341)
2,358 $
205
(1,629)
(1,424)
(1)
Compared with the CIP 20-year average, weather was 7.2 percent, 1 percent and 0.5 percent warmer-than-normal during fiscal 2020, 2019 and 2018,
respectively.
Page 41
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 natural 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.
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 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.
On December 28, 2018, NJNG notified the BPU that it would implement a BGSS increase effective February 1, 2019,
which resulted in an increase in revenues credited to BGSS of $10.9 million through September 30, 2019.
On March 27, 2020, the BPU approved, on a final basis, a decrease to NJNG’s BGSS rate for residential and small
commercial customers, an increase to its balancing charge rate, resulting in a $2 million decrease to the annual revenues
credited to BGSS, as well as changes to the CIP rates, which resulted in a $10.6 million annual recovery increase, effective
October 1, 2019.
On May 29, 2020, NJNG filed its annual petition with the BPU to decrease its BGSS rate for residential and small
commercial customers, decrease its balancing charge and modify its CIP rates. On September 9, 2020, the BPU approved
NJNG’s petition, effective October 1, 2020, which will result in a $7.7 million overall net decrease to the annual recovery. 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.
On November 20, 2020, NJNG submitted notification that it will provide an estimated $10 million in BGSS bill credits in
December 2020
Refer to Note 4. Regulation - BGSS and CIP in the accompanying Consolidated Financial Statements for a further
discussion of NJNG’s periodic BGSS and CIP rate adjustments.
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. Utility gross
margin from incentive programs was $9.5 million, $8.4 million and $12.5 million during the fiscal years ended September 30,
2020, 2019 and 2018, respectively.
Hedging
In order to provide relative price stability to its natural gas supply portfolio, NJNG employs a hedging strategy with the
goal of having at least 75 percent of the Company’s projected winter periodic BGSS natural gas sales volumes hedged by each
November 1 and at least 25 percent of the projected periodic BGSS natural 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.
Page 42
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Commodity prices
Our Natural Gas Distribution segment is affected by the price of natural gas, which can have a significant impact on our
cash flows, short-term financing costs, the price of natural gas charged to our customers through the BGSS clause, our ability to
collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other
energy sources.
Natural gas commodity prices may experience high volatility as shown in the graph below, which illustrates the daily
natural gas prices(1) in the Northeast market region, also known as TETCO M-3.
(1) Data sourced from S&P Global Platts.
The maximum price per MMBtu was $5.59, $9.17 and $94.93 and the minimum price was $0.68, $1.09 and $0.53 for the
fiscal years ended September 30, 2020, 2019 and 2018, respectively. A more detailed discussion of the impacts of the price of
natural gas on operating revenues, natural 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.
Societal Benefits Charge
USF
NJNG’s qualifying customers are eligible for the USF program, which is administered by the New Jersey Department of
Community Affairs, to help make energy bills more affordable. In September 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 June 24, 2019, NJNG filed its annual USF compliance filing proposing an increase to the statewide USF rate, which
will result in the annual recovery increasing by $1.2 million, effective October 1, 2019. On June 25, 2020, NJNG filed its
annual USF compliance filing proposing a decrease to the statewide USF rate, which will result in annual decreases of
approximately $400,000. On September 23, 2020, the BPU approved the decrease, effective October 1, 2020. Refer to Note 4.
Regulation - Societal Benefits Clause in the accompanying Consolidated Financial Statements for a further discussion of
NJNG’s USF rates.
Page 43
($ per MMBtu)Tetco M-3 Daily Prices202020192018OctNovDecJanFebMarAprMayJuneJulyAugSept$0$20$40$60$80 New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Environmental Remediation
NJNG is responsible for the environmental remediation of former 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 $150.6 million as of September
30, 2020, an increase of $19.5 million compared with the prior fiscal period. On September 27, 2019, NJNG filed its annual
SBC application requesting to recover remediation expenses, including an increase in the RAC, of approximately $1.4 million
annually and an increase to the NJCEP factor, which will result in an annual increase of approximately $3.3 million, to be
effective April 1, 2020. On March 16, 2020, a stipulation was signed in NJNG’s annual SBC application including recovery of
remediation expenses, an increase in the RAC of approximately $1.2 million annually and an annual decrease to the NJCEP
factor of $600,000. The BPU approved the stipulation on September 9, 2020. On September 29, 2020, NJNG filed its annual
SBC application requesting to recover remediation expenses, including an increase in the RAC, of approximately $1.3 million
annually and an increase to the NJCEP factor, which will result in an annual increase of approximately $6 million, effective
April 1, 2021.
In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership
and if there were former MGP operations active at the location. The Company is in the process of conducting site investigation
activities to identify and evaluate the nature and extent of MGP-related contaminants present at the location. The costs
associated with preliminary assessment and site investigation activities are considered immaterial and are included as a
component of NJNG’s annual SBC application to recover remediation expenses. We will continue to gather information to
further refine and enhance its estimate of potential costs for this site as it becomes available. See Note 15. Commitments and
Contingent Liabilities for a more detailed description.
Other regulatory filings and a more detailed discussion of the filings in this section can be found in Note 4. Regulation in
the accompanying Consolidated Financial Statements.
Operating Results
NJNG’s operating results for the fiscal years ended September 30, are as follows:
(Thousands)
Operating revenues
Operating expenses
Natural gas purchases (1) (2)
Operation and maintenance
Regulatory rider expense (3)
Depreciation and amortization
Total operating expenses
Operating income
Other income, net
Interest expense, net of capitalized interest
Income tax provision (benefit)
Net income
2020
2019
$ 729,923 $ 710,793 $ 731,865
2018
287,307
162,792
34,529
71,883
556,511
173,412
11,486
30,975
27,021
$ 126,902 $
336,489
171,198
33,937
57,980
599,604
111,189
2,441
26,134
9,434
78,062 $
333,208
203,627
38,969
53,208
629,012
102,853
4,584
25,299
(1,910)
84,048
(1)
(2)
(3)
Includes the purchased cost of the natural gas, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and
hedging transactions. These expenses are passed through to customers and are offset by corresponding revenues.
Includes related party transactions of approximately $11.5 million, $16.2 million and $57.2 million during fiscal 2020, 2019 and 2018, 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 are offset by corresponding revenues.
Page 44
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Revenues and Natural Gas Purchases
Operating revenues increased 2.7 percent during fiscal 2020 compared with fiscal 2019. Natural gas purchases decreased
14.6 percent during fiscal 2020 compared with fiscal 2019. The factors contributing to the increases (decreases) in operating
revenues and natural gas purchases during fiscal 2020, are as follows:
(Thousands)
Base rate impact
CIP adjustments
SAFE II/NJ RISE
Firm sales
BGSS incentives
Average BGSS rates
Other (1)
Total increase (decrease)
2020 v. 2019
Operating
revenue
Natural gas
purchases
$
$
55,348 $
15,816
7,728
(27,461)
(33,761)
(5,258)
6,718
19,130 $
—
—
—
(13,217)
(34,834)
(5,258)
4,127
(49,182)
(1)
Other includes changes in rider rates, including those related to EE, NJCEP and other programs.
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:
Natural gas purchases
Energy taxes
Regulatory rider expense
Utility gross margin
2020
729,923 $
2019
710,793 $
2018
731,865
$
287,307
—
34,529
408,087 $
336,489
—
33,937
340,367 $
333,208
39,426
38,969
320,262
$
(1)
Energy taxes does not include sales tax during fiscal 2020 and 2019, due to the adoption of ASC 606, Revenue from Contracts with Customers. Energy
taxes includes only sales tax on operating revenues during fiscal 2018, excluding tax-exempt sales.
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.
Page 45
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The following provides more information on the components of utility gross margin and associated throughput (Bcf) of
natural gas delivered to customers:
($ in thousands)
Utility gross margin/throughput
Residential
Commercial, industrial and other
Firm transportation
Total utility firm gross margin/throughput
BGSS incentive programs
Interruptible/off-tariff agreements
Total utility gross margin/throughput
Utility Firm Gross Margin
2020
2019
2018
Margin
Bcf
Margin
Bcf
Margin
Bcf
$ 275,033 44.6
57,929
8.2
60,199 13.3
393,161 66.1
9,471 118.4
5,455 30.9
$ 408,087 215.4
$ 224,597
50,553
51,069
326,219
46.0
9.7
13.7
69.4
8,398 123.8
39.0
5,750
$ 340,367 232.2
$ 203,195
46,636
51,880
301,711
45.5
8.9
15.5
69.9
12,482 150.2
6,069
46.2
$ 320,262 266.3
Utility firm gross margin increased $66.9 million during fiscal 2020 compared with fiscal 2019, due primarily to the
increase in base rates, along with increased returns on infrastructure programs related to SAFE II and NJ RISE.
BGSS Incentive Programs
A description of the factors contributing to the increases (decreases) in utility gross margin generated by NJNG’s BGSS
incentive programs during fiscal 2020 is as follows:
(Thousands)
Storage
Off-system sales
Capacity release
Total increase
2020 v. 2019
1,217
$
795
(939)
1,073
$
The increase in utility gross margin was due primarily to an increase in storage incentive from market opportunities for
low-cost storage injections and improved margins from off-system sales, partially offset by a decrease in capacity release
volume.
Operation and Maintenance Expense
O&M expense decreased $8.4 million during fiscal 2020 compared with fiscal 2019, due primarily to decreased
consulting expenses related to technology improvements projects, partially offset by increased compensation costs.
Depreciation Expense
Depreciation expense increased $13.9 million in fiscal 2020, compared with fiscal 2019, as a result of additional utility
plant being placed into service, as well as an increase in the overall depreciation rate from 2.4 percent to 2.78 percent resulting
from the settlement of the base rate case.
Interest Expense
Interest expense increased $4.8 million in fiscal 2020, compared with fiscal 2019, due primarily to the increased
outstanding long-term debt.
Other Income
Other income increased $9 million during fiscal 2020, compared with fiscal 2019, due primarily to increased AFUDC
earned on infrastructure projects.
Income Tax Provision
Income tax provision increased $17.6 million during fiscal 2020, compared with fiscal 2019, due primarily to increased
operating income.
Page 46
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Net Income
Net income increased $48.8 million to $126.9 million in fiscal 2020, compared with fiscal 2019, due primarily to the
increase in operating revenues related to increased base rates and increased other income related to AFUDC earned on
infrastructure projects, partially offset by the increases in depreciation, income tax expense and interest expense, as previously
discussed.
Clean Energy Ventures Segment
Overview
Our Clean Energy Ventures segment actively pursues opportunities in the renewable energy markets. Clean Energy
Ventures enters 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 enters into various long-term agreements,
including PPAs, to supply energy from commercial solar projects.
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. Clean Energy Ventures is also subject to risks associated with
COVID-19, which may include impacts to residential solar customer growth and customer collections, our ability to identify
and develop commercial solar asset investments, impacts to our supply chain and our ability to source materials for
construction.
Through fiscal 2020, the primary contributors toward the value of qualifying clean energy projects are tax incentives and
SRECs. Changes in the federal statutes related to the ITC or in the marketplace and/or relevant state legislation and regulatory
policies affecting the market for solar renewable energy credits, could significantly affect future results.
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:
Commercial (1) (2)
Residential
Total placed in service
2020
Projects MW Costs
2019
Projects MW Costs
2018
Projects MW Costs
9 60.1 $ 121,516
3 29.0 $ 64,684
3 33.7 $ 70,216
43
— —
481 5.9
17,474
490 66.0 $ 139,033
71,730
4 22.8
815 8.3
26,796
822 60.1 $ 163,210
— —
74
910 8.5 27,342
913 42.2 $ 97,632
(1)
(2)
Includes projects subject to sale leaseback arrangements.
Includes a 4.4 MW commercial solar project acquired in August 2019.
Since inception, Clean Energy Ventures has constructed a total of 357.4 MW of solar capacity and has an additional 8.1
MW under construction. Projects that were placed in service through December 31, 2019, qualify for a 30-percent federal ITC.
The credit declines to 26 percent for property under construction during 2020, 22 percent for property under construction during
2021 and 10 percent for any property that is under construction after 2021. Projects placed in service after December 31, 2019,
may also qualify for a 30 percent federal ITC if five percent or more of the total costs of a solar property are incurred before the
end of the applicable year and there are continuous efforts to advance towards completion of the project, based on the IRS
guidance around the ITC safe harbor determination. We have taken steps to preserve the ITC at the higher rate for certain solar
projects that are completed after the scheduled reduction in rates, in accordance with IRS guidance.
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 five 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, TRECs and energy sales. The
ITCs and other tax benefits associated with these solar projects transfer to the buyer as applicable; however, the lease payments
are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Accordingly, for solar
projects financed under sale leasebacks for which the assets were sold during the first 5 years of in-service life, 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. During fiscal 2020 and 2018, Clean
Page 47
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Energy Ventures received proceeds of $42.9 million and $70.2 million, respectively, in connection with the sale leaseback of
commercial solar assets. Clean Energy Ventures did not enter into any sale leaseback transactions for its commercial solar
assets during fiscal 2019.
Excluding the project costs related to the commercial solar projects that were included in the sale leaseback transactions,
the Company had $124 million, $163.2 million and $27.4 million of solar-related capital expenditures that were placed in
service and ITC-eligible during fiscal 2020, 2019 and 2018, respectively, which were recognized in income tax (benefit)
provision on the Consolidated Statements of Operations.
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.
In December 2019, the BPU established the TREC as pursuant to the successor program to the SREC program. TRECs
provide a fixed compensation base multiplied by an assigned project factor in order to determine their value. The project factor
is determined by the type and location of the project, as defined. All TRECs generated are required to be purchased monthly by
a TREC program administrator as appointed by the BPU.
SREC and TREC activity for the fiscal years ended September 30, is as follows:
Inventory balance as of October 1,
SRECs generated
TRECS generated
SRECs delivered
Inventory balance as of September 30,
2020
53,395
389,716
9,270
(408,100)
44,281
2019
105,192
311,803
—
(363,600)
53,395
2018
48,357
245,147
—
(188,312)
105,192
The average SREC sales price was $199 in fiscal 2020, $207 in fiscal 2019 and $217 in fiscal 2018 and the average TREC
price was $144 in fiscal 2020.
Clean Energy Ventures hedges a portion of its expected SREC production through the use of forward sales contracts. The
following table reflects the hedged percentage of SREC inventory and projected SREC production related to its in-service
commercial and residential assets:
Energy Year (1)
2021
2022
2023
2024
Percent of SRECs Hedged
99%
93%
59%
22%
(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 and TRECs 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 invested in small to mid-size onshore wind projects. In February 2019, Clean Energy Ventures
finalized the sale of its remaining wind assets to a subsidiary of Skyline Renewables LLC for total proceeds of $208.6 million.
The transaction generated a pre-tax gain of $645,000, which was recognized as a component of O&M expense on the
Consolidated Statements of Operations.
Page 48
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Results
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
Total operating expenses
Operating income
Other income, net
Interest expense, net
Income tax benefit
Net income
Operating Revenues
2020
102,617 $
$
2019
2018
98,099 $
71,375
30,310
37,855
68,165
34,452
6,420
20,253
(32,404)
53,023 $
28,614
32,997
61,611
36,488
6,910
14,846
(48,921)
77,473 $
27,058
31,877
58,935
12,440
1,797
18,320
(79,932)
75,849
$
Operating revenues increased $4.5 million in fiscal 2020, compared with fiscal 2019, due primarily to increased SREC
and electricity sales, partially offset by the sale of the remaining wind assets in February 2019.
Operation and Maintenance Expense
O&M expense increased $1.7 million in fiscal 2020, compared with fiscal 2019, due primarily to increased project
maintenance expenses, partially offset by a decrease in shared corporate costs, as well as a pre-tax gain of $645,000, associated
with the sale of the remaining wind assets in February 2019, that did not recur.
Depreciation Expense
Depreciation expense increased $4.9 million in fiscal 2020, compared with fiscal 2019, as a result of increases in solar
capital additions placed in service, partially offset by the change in estimated useful lives of our commercial solar assets in the
fourth quarter of fiscal 2020.
Income Tax Benefit
Income tax benefit decreased $16.5 million during fiscal 2020, compared with fiscal 2019, due primarily to decreased
ITCs recognized.
Income tax benefit during fiscal 2020 and 2019 includes $41.9 million and $61.9 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 2019 includes $3.8 million of PTCs associated with our former wind projects. Clean Energy Ventures recognized $37.1
million and $56.8 million related to tax credits, net of deferred taxes, during fiscal 2020 and 2019, respectively.
Net Income
Net income in fiscal 2020 decreased $24.5 million, compared with fiscal 2019, due primarily to decreased ITCs
recognized and increased depreciation expense, partially offset by increased revenue, as previously discussed.
Energy Services Segment
Overview
Energy Services markets and sells natural gas to wholesale and retail customers and manages natural gas transportation
and storage assets throughout major market areas across North America. Energy Services maintains a strategic portfolio of
natural gas transportation and storage contracts that it utilizes in conjunction with its market expertise to provide service and
value to its customers. Availability of these transportation and storage contracts allows Energy Services to generate market
opportunities by capturing price differentials over specific time horizons and between geographic market locations.
Page 49
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Energy Services also provides management of transportation and storage 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.
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 transportation and storage 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.
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 natural 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
Natural gas purchases (including demand charges (2)(3))
Operation and maintenance (4)
Depreciation and amortization
Total operating expenses
Operating income (loss)
Other income
Interest expense, net
Income tax (benefit) provision
Net (loss) income
2020
2019
$ 1,030,419 $ 1,742,791 $ 2,112,804
2018
1,024,579
17,368
123
1,042,070
(11,651)
304
3,276
(3,615)
(11,008) $
1,719,519
20,943
118
1,740,580
2,211
153
5,205
(1,573)
(1,268) $
1,995,335
35,616
76
2,031,027
81,777
303
3,945
24,996
53,139
$
(1)
(2)
(3)
(4)
Includes related party transactions of approximately $1.1 million, $8.2 million and $48.3 million during fiscal 2020, 2019 and 2018, respectively, which
are 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 $183,000, $3.4 million and $4.5 million during fiscal 2020, 2019 and 2018, respectively, a portion
of which are eliminated in consolidation.
Includes energy and other taxes due to change in presentation in the Consolidated Statements of Operations.
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 Natural Gas Purchases
2020
2019
2018
29.3
—
34.6
1.0
24.3
—
During fiscal 2020, operating revenues decreased $712.4 million and natural gas purchases decreased $694.9 million, due
primarily to warmer weather compared to the prior period, which led to decreased demand and lower natural gas prices,
increased natural gas in storage and ultimately decreased volatility in the wholesale natural gas markets.
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 decreased $3.6 million during fiscal 2020, compared with fiscal 2019, due primarily to decreased
compensation costs.
Income Tax Benefit
Income taxes increased $2 million during fiscal 2020, compared with fiscal 2019, due primarily to decreased operating
income.
Net Loss
Net loss increased $9.7 million during fiscal 2020, compared with fiscal 2019, due primarily to lower operating income,
partially offset by the related increase in income tax benefit, as previously discussed.
Non-GAAP Financial Measures
Management uses financial margin and NFE, non-GAAP financial measures, when evaluating the operating results of
Energy Services. Financial margin and NFE are based on removing timing differences associated with certain derivative
instruments, as discussed above. There is a related tax effect on current and deferred income tax expense corresponding with
NFE.
Management views these measures as representative of the overall expected economic result and uses these measures to
compare Energy Services’ results against established benchmarks and earnings targets as these measures eliminate the impact
of volatility on GAAP earnings as a result of timing differences associated with the settlement of derivative instruments. To the
extent that there are unanticipated impacts from changes in the market value related to the effectiveness of economic hedges,
Energy Services’ actual non-GAAP results can differ from the results anticipated at the outset of the transaction. Non-GAAP
financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a
substitute for, the comparable GAAP measure.
When Energy Services reconciles the most directly comparable GAAP measure to both financial margin and NFE, the
current period unrealized gains and losses on derivatives are excluded as a reconciling item. Financial margin and NFE also
exclude the effects of economic hedging of the value of our natural gas in storage and, therefore, only include realized gains and
losses related to natural gas withdrawn from storage, effectively matching the full earnings effects of the derivatives with
realized margins on the related physical natural gas flows.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Financial Margin
The following table is a computation of Energy Services’ financial margin for the fiscal years ended September 30.
(Thousands)
Operating revenues
Less: Natural gas purchases
Add:
Unrealized (gain) loss on derivative instruments and related transactions (1)
Effects of economic hedging related to natural gas inventory (2)
Financial margin
2020
2019
2018
$ 1,030,419 $ 1,742,791 $ 2,112,804
1,024,579 1,719,519 1,995,335
(8,583)
12,690
1,195
26,728
4,309
(22,570)
$
9,947 $
28,776 $ 121,627
(1)
(2)
Includes unrealized (gains) losses related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation
of approximately $(809,000), $995,000 and $85,000 for the fiscal years ended September 30, 2020, 2019 and 2018, 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 (loss) income
Add:
Operation and maintenance
Depreciation and amortization
Subtotal
Add:
Unrealized (gain) loss on derivative instruments and related transactions
Effects of economic hedging related to natural gas inventory
Financial margin
2020
2019
2018
$ (11,651) $
2,211 $ 81,777
17,368
123
5,840
20,943
118
35,616
76
23,272 117,469
26,728
1,195
(8,583)
12,690
(22,570)
4,309
9,947 $ 28,776 $ 121,627
$
Financial margin decreased $18.8 million during fiscal 2020, compared with fiscal 2019, due primarily to warmer
weather compared to the prior period, which led to decreased demand and lower natural gas prices, increased natural gas in
storage and ultimately decreased volatility in the wholesale natural gas markets.
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 (loss) income
Add:
2020
2019
$ (11,008) $ (1,268) $ 53,139
2018
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect (1)
Effects of economic hedging related to natural gas inventory
Tax effect
Net financial earnings
(8,583)
2,044
12,690
(3,016)
1,195 26,728
(4,281)
(294)
4,309 (22,570)
7,362
(1,024)
$ (7,873) $ 2,918 $ 60,378
(1)
Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately
$252,000, $(310,000) and $(337,000) for the fiscal years ended September 30, 2020, 2019 and 2018, respectively.
NFE decreased $10.8 million during fiscal 2020, compared with fiscal 2019, due primarily to lower financial margin, as
previously discussed.
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.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Storage and Transportation Segment, formerly Midstream
Overview
Our Storage and Transportation segment invests in natural gas assets, such as natural gas storage and transportation
facilities. We believe that acquiring, owning and developing these storage and transportation assets, which operate under a tariff
structure that has either regulated or market-based rates, can provide us a growth opportunity. Our Storage and Transportation
segment is subject to various risks, including the construction, development and operation of our storage and transportation
assets, obtaining necessary governmental, environmental and regulatory approvals, our ability to obtain necessary property
rights and our ability to obtain financing at reasonable costs for the constructions and maintenance of our assets. In addition, our
storage and transportation assets may be subject to risk associated with the COVID-19 pandemic, such as disruption to supply
chain and availability of critical equipment and supplies, disruptions to the availability of our specialized workforce and
contractors and changes to demand for natural gas, transportation and other downstream activities.
Our Storage and Transportation segment is comprised of 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. NJR
Midstream Company acquired 100 percent of Leaf River for $367.5 million, on October 11, 2019. Leaf River owns and
operates a 32.2 million Dth salt dome natural gas storage facility that operates under market-based rates. In addition, on
January 13, 2020, Adelphia Gateway, acquired all of Talen’s membership interests in IEC, an existing 84-mile pipeline in
southeastern Pennsylvania, including related assets and rights of way, for a base purchase price of $166 million. Adelphia
Gateway operates under cost of service rates but can enter into negotiated rates with counterparties. The northern portion of the
pipeline was operational upon acquisition and it currently serves two natural gas generation facilities. The conversion of the
southern portion of the pipeline to natural gas began in October 2020 upon receipt of the Notice to Proceed from FERC.
Through our subsidiary NJR Pipeline Company, we are a 20 percent investor in PennEast, a partnership whose purpose is
to construct and operate a 120-mile natural gas pipeline that will extend from northeast Pennsylvania to western New Jersey.
PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018.
On September 10, 2019, the Third Circuit issued an order overturning the U.S. District Court for the District of New
Jersey’s order granting PennEast condemnation and immediate access in accordance with the Natural Gas Act to certain
properties in which the State of New Jersey holds an interest. A Petition for Rehearing was denied by the Third Circuit on
November 5, 2019.
On October 8, 2019, the NJDEP issued a letter indicating that it deemed PennEast’s freshwater wetlands permit
application to be administratively incomplete and closed the matter without prejudice. On October 11, 2019, PennEast
submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast’s
objections were rejected by the NJDEP on November 18, 2019.
On October 4, 2019, PennEast filed a petition for Declaratory Order with FERC requesting an interpretation of the
eminent domain authority of a FERC certificate holder under the Natural Gas Act. The Declaratory Order was granted on
January 30, 2020.
On January 30, 2020, PennEast filed an amendment with FERC to construct the PennEast pipeline in two phases. Phase
one consists of construction of a 68-mile pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County
that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in
Pennsylvania and New Jersey. Construction could begin following approval by FERC of the phased approach and receipt of
any remaining governmental and regulatory permits.
On February 18, 2020, PennEast filed a writ of certiorari with the Supreme Court of the U.S. to review the September 10,
2019 Third Circuit decision. On June 29, 2020, the Supreme Court requested that the Solicitor General of the U.S. file a brief
that expresses the views on the question of the use of eminent domain to acquire state owned lands for pipeline construction.
We evaluated our investment in PennEast for an other-than-temporary impairment and determined an impairment charge
was not necessary. It is reasonably possible that future unfavorable developments, such as a reduced likelihood of success from
development options and legal outcomes, estimated increases in construction costs, increases in the discount rate, or further
significant delays, could result in an impairment of our equity method investment. Also, the use of alternate judgments and
assumptions could result in a different calculation of fair value, which could ultimately result in the recognition of an
impairment charge in the Consolidated Financial Statements.
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New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Due to the anticipated expiration of a customer contract for Steckman Ridge, the Company evaluated its investment in
Steckman Ridge for other-than-temporary impairment and determined an impairment charge was not necessary.
The fair value of the Company’s investment in Steckman Ridge was determined using a discounted cash flow method and
utilized management’s best estimates and assumptions related to expected future results, including the price and capacity of
firm natural gas storage contracting, operations and maintenance costs, the nature and timing of major maintenance and capital
investment, and discount rates. Fair value determinations require considerable judgment and are sensitive to changes in
underlying assumptions and other factors. As a result, it is reasonably possible that unfavorable developments, such as the
failure to execute storage contracts and other services for available capacity at anticipated price levels could result in an other-
than temporary impairment charge in the Consolidated Financial Statements.
As of September 30, 2020, our investments in Steckman Ridge and PennEast were $112.4 million and $96 million,
respectively.
Operating Results
The financial results of our Storage and Transportation segment for the fiscal years ended September 30, are summarized
as follows:
(Thousands)
Operating revenues (1)
Operating expenses
Natural gas purchases
Operation and maintenance
Depreciation and amortization
Total operating expenses
Operating income
Other income, net
Interest expense, net
Income tax provision
Equity in earnings of affiliates
Net income
2020
2019
2018
$
44,728 $
— $
—
1,122
21,862
9,293
32,277
12,451
7,328
13,124
4,247
15,903
18,311 $
—
4,043
6
4,049
(4,049)
7,345
2,185
2,254
15,832
14,689 $
—
4,448
6
4,454
(4,454)
5,775
1,667
(8,548)
16,165
24,367
$
(1)
Includes related party transactions of approximately $2.7 million, which are eliminated in consolidation.
Operating revenue in fiscal 2020 increased $44.7 million, due to operating revenues at Leaf River and Adelphia Gateway
that were not present during fiscal 2019.
Equity in earnings of affiliates remained flat during fiscal 2020, compared with fiscal 2019, due primarily to decreases in
storage revenue at Steckman Ridge, offset by an increase in AFUDC earned at PennEast.
O&M and depreciation expenses increased $17.8 million and $9.3 million, respectively during fiscal 2020, compared
with fiscal 2019, due primarily to operations of Leaf River and Adelphia Gateway during fiscal 2020.
Interest expense, net increased $10.9 million during fiscal 2020, compared with fiscal 2019, due primarily to increased
debt service requirements related to the acquisition of Leaf River and Adelphia Gateway.
Income tax provision increased $2 million during fiscal 2020, compared with fiscal 2019, due primarily to the increased
operating income generated at Leaf River and Adelphia Gateway.
Net income in fiscal 2020 increased $3.6 million, compared with fiscal 2019, due primarily to an increased revenue,
partially offset by increased O&M and interest expense, as previously discussed.
Page 54
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Home Services and Other Operations
Overview
The financial results of Home Services and Other consist primarily of the operating results of NJRHS. NJRHS provides
service, sales and installation of appliances to approximately 107,000 service contract customers. Home Services and Other also
includes organizational expenses incurred at NJR and rental income at CR&R.
Operating Results
The condensed 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 (1)
Income tax (benefit) provision
Net income (loss)
2020
2019
2018
$
$
$
$
51,017 $
41,529 $
(2,478) $
5,784 $
50,902 $
44,846 $
1,428 $
1,637 $
50,057
46,561
11,944
(3,555)
(1)
Includes energy and other taxes due to change in presentation in the Consolidated Statements of Operations.
O&M expense decreased $3.3 million during fiscal 2020, compared with fiscal 2019, due primarily to lower consulting
expenses related to technology improvement projects that were higher in the prior year, partially offset by increased
compensation and shared corporate costs in the current period.
Income tax expenses decreased $3.9 million during fiscal 2020, compared with fiscal 2019, due primarily to tax credits
and impacts of New Jersey corporate business tax reform.
Net income increased $4.1 million during fiscal 2020, compared with fiscal 2019, due primarily to changes in income
taxes noted above.
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 loss (gain) on derivative instruments and related transactions
Tax effect
Net financial earnings (loss)
Liquidity and Capital Resources
2020
2019
2018
$
5,784 $
1,637 $
(3,555)
—
—
5,784 $
381
(107)
1,911 $
(381)
107
(3,829)
$
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
2020
2019
43 %
53
4
100 %
50 %
49
1
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
Page 55
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
to raise capital. NJR raised approximately $18.1 million and $16.7 million of equity through the DRP by issuing approximately
520,000 and 351,000 shares of treasury stock, fiscal 2020 and 2019, respectively. During the fiscal 2019, NJR raised
approximately $57.4 million of equity by issuing approximately 1,181,000 shares of common stock through the waiver discount
feature of the DRP. There were no shares of common stock issued through the waiver discount feature of the DRP during fiscal
2020.
On December 4, 2019, we completed an equity offering of 6,545,454 common shares, consisting of 5,333,334 common
shares issued directly by NJR and 1,212,120 common shares issuable pursuant to forward sales agreements with investment
banks. The issuance of 5,333,334 common shares resulted in proceeds of approximately $212.9 million, net of issuance costs,
and was reflected in shareholders' equity and as a financing activity on the statement of cash flows.
Under the forward sale agreements, a total of 1,212,120 common shares were borrowed from third parties and sold to the
underwriters. Each forward sale agreement allows us, at our election and prior to September 30, 2020, to physically settle the
forward sale agreements by issuing common shares in exchange for net proceeds at the then-applicable forward sale price
specified by the agreement, which was initially $40.0125 per share, or, alternatively, to settle the forward sale agreements in
whole or in part through the delivery or receipt of shares or cash. The forward sale price is subject to adjustment daily based on
a floating interest rate factor and will decrease with respect to certain fixed amounts specified in the agreements, such as
dividends.
On September 18, 2020, the Company amended our forward sale agreements to extend the maturity date of such forward
sales agreements from September 30, 2020 to September 10, 2021. As of September 30, 2020, if we had elected to net settle the
forward sale agreements, we would have received $14 million under a cash settlement or 543,150 common shares under a net
share settlement.
In 1996, the Board of Directors authorized us to implement a share repurchase program, which has been 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, 2020, 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 no shares of common stock shares repurchased during fiscal 2020 and
2019.
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, Transportation and Storage 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.
We believe that as of September 30, 2020, NJR and NJNG were, and currently are, in compliance with all existing debt
covenants, both financial and non-financial.
As a result of the COVID-19 pandemic there have been disruptions, uncertainty and volatility in the credit and capital
markets. The Company has been able to obtain sufficient financing to meet its funding requirements for operations and capital
expenditures.
Short-Term Debt
We use our short-term borrowings primarily to finance Energy Services’ short-term liquidity needs, transportation and
storage investments and 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.
As of September 30, 2020, NJR had revolving credit facilities totaling $675 million, with $539.4 million available under
the facilities. On July 23, 2020, the remaining borrowings for the $350 million Bridge Facility were repaid.
Page 56
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NJNG satisfies its debt needs by issuing short-term 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.
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. As of September 30, 2020, 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 $249.3 million.
Short-term borrowings were as follows:
($ 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, 2020
$
$
$
$
$
$
125,350
1.49 %
178,400
1.07 %
336,300
—
— %
—
— %
—
$
$
$
$
$
$
125,350
1.49 %
404,823
1.93 %
416,300
—
— %
13,940
1.61 %
62,300
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 the November through
January time frame.
NJR
Based on its average borrowings during fiscal 2020, NJR’s average interest rate was 1.93 percent, resulting in interest
expense of approximately $7.8 million.
As of September 30, 2020, NJR had seven letters of credit outstanding totaling $10.3 million, which reduced the amount
available under the NJR Credit Facility by the same amount. NJR does not anticipate that these letters of credit will be drawn
upon by the counterparties.
On October 9, 2019, NJR entered into a $350 million Bridge Facility, which was used primarily to finance the Leaf River
acquisition. The Bridge Facility accrued interest at the LIBOR rate for a 1-month interest period plus 0.875 percent during the
first 180 days, and 1.075 percent after 180 days, which was dependent on the credit rating of NJNG from Fitch and Moody’s.
The occurrence of an event of default under the Bridge Facility would have resulted in all loans and other obligations of NJR
becoming immediately due and payable and the Bridge Facility being terminated. Loans under the Bridge Facility were
required to be prepaid to the extent of new cash proceeds received upon the issuance of equity of NJR, the incurrence of
indebtedness by NJR or its subsidiaries, the disposition of assets by NJR or its subsidiaries or upon other specified events, in
each case subject to certain exceptions set forth in the Bridge Facility. The net proceeds from the December 2019 equity
issuance were used to pay down the Bridge Facility. On April 23, 2020, the Bridge Facility was amended to clarify that the
April 24, 2020 $250 million revolving credit facility was not considered a debt issuance that requires prepayment of the Bridge
Facility. On July 23, 2020, the outstanding borrowings were repaid in full.
On April 24, 2020, NJR entered into a 364-day, $250 million revolving credit facility with an interest rate based on
LIBOR plus 1.625 percent. After six months, all outstanding amounts under the credit facility would convert to a term loan and
would be due on April 23, 2021. In connection with this credit facility, all outstanding borrowings under NJR’s December 13,
Page 57
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
2019, $150 million revolving line of credit facility were repaid. On October 24, 2020, there was no balance outstanding on the
$250 million credit facility. As a result, the credit facility was considered terminated.
Neither NJNG nor its assets are obligated or pledged to support the NJR Credit Facility.
NJNG
As noted above, based on its average borrowings during fiscal 2020, NJNG’s average interest rate was 1.61 percent,
resulting in interest expense of approximately $265,000.
As of September 30, 2020, NJNG had two letters of credit outstanding for $731,000, which reduced 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.
Short-Term Debt Covenants
Borrowings under the NJR Credit Facility and NJNG Credit Facility are conditioned upon compliance with a maximum
leverage ratio (consolidated total indebtedness to consolidated total capitalization as defined in the applicable agreements), of
not more than .65 to 1.00 at any time. These revolving credit facilities contain customary representations and warranties for
transactions of this type. They also contain customary events of default and certain covenants that will limit NJR’s or NJNG’s
ability, beyond agreed upon thresholds, to, among other things:
incur additional debt;
incur liens and encumbrances;
•
•
• make dispositions of assets;
•
• merge, consolidate, transfer, sell or lease all or substantially all of the borrowers’ or guarantors’ assets.
enter into transactions with affiliates; and
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
As of September 30, 2020, NJNG's long-term debt consisted of $1.1 billion in fixed-rate debt issuances secured by the
Mortgage Indenture, with maturities ranging from 2024 to 2060, and $63.7 million in finance leases with various maturities
ranging from 2021 to 2026.
Page 58
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, 2020, NJR had the following outstanding:
•
•
•
•
•
•
•
•
•
•
$50 million of 3.25 percent senior notes due September 17, 2022;
$50 million of 3.20 percent senior notes due August 18, 2023;
$100 million of 3.48 percent senior notes due November 7, 2024;
$100 million of 3.54 percent senior notes due August 18, 2026;
$100 million of 3.96 percent senior notes due June 8, 2028;
$150 million of 3.29 percent senior notes due July 17, 2029;
$130 million of 3.50 percent senior notes due July 23, 2030;
$120 million of 3.13 percent senior notes due September 1, 2031;
$130 million of 3.60 percent senior notes due July 23, 2032; and
$80 million of 3.25 percent senior notes due September 1, 2033.
Neither NJNG nor its assets are obligated or pledged to support NJR’s long-term debt.
On May 14, 2020, NJR entered into a Note Purchase Agreement for $260 million of its senior notes, of which $130
million are at a fixed interest rate of 3.5 percent, maturing in 2030, and $130 million are at a fixed interest rate of 3.6 percent,
maturing in 2032. On July 23, 2020, NJR issued all $260 million of the senior notes. The senior notes are unsecured and
guaranteed by certain unregulated subsidiaries of NJR.
On September 1, 2020, NJR entered into and issued a Note Purchase Agreement for $200 million of its senior notes, of
which $120 million are at a fixed interest rate of 3.13 percent, maturing in 2031, and $80 million are at a fixed interest rate of
3.25 percent, maturing in 2033. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR.
NJNG
As of September 30, 2020, NJNG’s long-term debt consisted of $1.1 billion in fixed-rate debt issuances secured by the
Mortgage Indenture, with maturities ranging from 2024 to 2060, and $63.7 million in finance leases with various maturities
ranging from 2021 to 2026.
On May 14, 2020, NJNG entered into a Note Purchase Agreement for $125 million of its senior notes, of which $100
million were at an interest rate of 3.13 percent, maturing in 2050, and $25 million were at an interest rate of 3.33 percent,
maturing in 2060. On June 30, 2020, NJNG issued $50 million of 3.13 percent senior notes due June 30, 2050. On July 23,
2020, NJNG issued the remaining $50 million of 3.13 percent senior notes due July 23, 2050 and $25 million of 3.33 percent
senior notes due July 23, 2060. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under
NJNG’s Mortgage Indenture.
On September 1, 2020, NJNG entered into and issued a Note Purchase Agreement for $75 million of its senior notes, of
which $25 million were at an interest rate of 2.87 percent, maturing in 2050, and $50 million were at an interest rate of 2.97
percent, maturing in 2060. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s
Mortgage Indenture.
NJR is not obligated directly or contingently with respect to the NJNG notes or the FMBs.
Long-Term Debt Covenants and Default Provisions
The NJR and NJNG long-term debt instruments contain customary representations and warranties for 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 liens and encumbrances;
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);
•
• make loans and investments;
• make dispositions of assets;
• make dividends or restricted payments;
•
• merge, consolidate, transfer, sell or lease substantially all of the borrower’s assets.
enter into transactions with affiliates; and
Page 59
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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:
•
•
•
•
•
thereof; or
•
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
certain events that are or could be the basis of a bankruptcy, reorganization, insolvency or receivership proceeding.
Upon the occurrence and continuance of such an Event of Default, the Mortgage Indenture, subject to any provisions of
law applicable thereto, provides that the Trustee may take possession and conduct the business of NJNG, may sell the trust
estate or proceed to foreclose the lien of the Mortgage Indenture. The interest rate on defaulted principal and interest, to the
extent permitted by law, on the FMB issued under the Mortgage Indenture is the rate stated in the applicable supplement or, if
no such rate is stated, six percent per annum.
Sale Leaseback
NJNG
NJNG received $4 million, $9.9 million and $7.8 million in fiscal 2020, 2019 and 2018, respectively, in connection with
the sale leaseback of its natural gas meters. During fiscal 2020, 2019 and 2018, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $1.2 million, $1.1 million and $2.2 million, respectively. NJNG
continues to evaluate this sale leaseback program based on current market conditions. As noted, natural gas meters are excepted
from the lien on NJNG property under the Mortgage Indenture.
Clean Energy Ventures
During fiscal 2020, Clean Energy Ventures received proceeds of $42.9 million in connection with the sale leaseback of
three commercial solar projects. Clean Energy Ventures did not receive proceeds related to the sale leaseback of commercial
solar assets during fiscal 2019. Clean Energy Ventures entered into transactions to sell certain of its commercial solar assets
concurrent with agreements to lease the assets back over five to 15-year terms. These sale leasebacks are financing obligations
secured by the solar assets, related future cash flows from SREC and energy sales and a continuing guaranty by NJR. 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.
Page 60
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual Obligations
The following table is a summary of contractual cash obligations and financial commitments and their applicable
payment due dates as of September 30, 2020:
(Thousands)
Long-term debt (1)
Finance lease obligations (1)
Solar asset financing obligations (1)
Operating leases (1)
Short-term debt
New Jersey Clean Energy Program (1)
Construction obligations
Remediation expenditures (2)
Natural gas supply purchase obligations-NJNG
Demand fee commitments-NJNG
Natural gas supply purchase obligations-Energy Services
Demand fee commitments-Energy Services
Total contractual cash obligations
Total
Up to
1 Year
1-3
Years
3-5
Years
After
5 Years
$ 3,358,967 $
76,617
108,013
5,453
125,350
15,569
19,341
150,590
4,377
1,156,597
152,870
286,668
73,138 $ 244,411 $ 352,193 $ 2,689,225
2,324
54,992
47,268
12,928
73
1,589
—
125,350
—
15,569
—
19,341
59,813
35,609
—
4,377
555,995
—
37,469
$ 5,460,412 $ 717,142 $ 718,685 $ 632,418 $ 3,392,167
8,675
10,626
25,929 21,888
1,064
2,727
—
—
—
—
—
—
36,928 18,240
—
124,660 291,617 184,325
—
1,600
151,270
98,319 104,847 46,033
—
(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 15. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
NJR does not expect to be required to make additional contributions to fund the pension plans over the next three fiscal
years based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on
changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered
dependents. In addition, as in the past, 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 2020 and 2019. 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 $10 million annually
over each of the next five years. Additional contributions may vary based on market conditions and various assumptions.
As of September 30, 2020, there were NJR guarantees covering approximately $258 million of natural gas purchases and
Energy Services demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
During fiscal 2020, committed and spent capital expenditures totaled $333.9 million. During fiscal 2021 and 2022,
NJNG’s total capital expenditures are projected to be $443.4 million and $370.3 million, respectively. 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, 2020, NJNG’s future MGP
expenditures are estimated to be $150.6 million. For a more detailed description of MGP see Note 15. 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. We estimate the value of solar-related projects placed in service during fiscal 2021 to be between $155
million and $175 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 sourcing projects that meet our investment
criteria, 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 or
unforeseen events and the ability to access capital or allocation of capital to other investments or business opportunities.
Page 61
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
During fiscal 2020, capital expenditures related to our storage and transportation investment in the Adelphia Gateway
project were $180.1 million, which includes the purchase price of $166 million that was paid upon the close of the acquisition
of the related assets in January 2020. We estimate expenditures related to the Adelphia Gateway project to be between $136
million and $156 million in fiscal 2021. Our Storage and Transportation segment had a total of $2.1 million of expenditures
related to our investment in the PennEast pipeline project. Expenditures on the PennEast pipeline are expected to total between
$7 million and $8 million during fiscal 2021.
Energy Services does not currently anticipate any significant capital expenditures in fiscal 2021 and 2022.
Off-Balance-Sheet Arrangements
Our off-balance-sheet arrangements consist of guarantees covering approximately $258 million of natural gas purchases,
SREC sales and demand fee commitments, and nine outstanding letters of credit totaling $11 million, as previously mentioned.
See Note 15. Commitments and Contingent Liabilities and Note 9. Debt for more information.
Cash Flows
Operating Activities
Cash flows from operating activities during fiscal 2020 totaled $213.5 million compared with $194.1 million during fiscal
2019. 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 natural 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 $19.3 million in operating cash flows during fiscal 2020, compared with fiscal 2019, was due primarily to
increased margin at our Natural Gas Distribution segment related to increased base rates.
Investing Activities
Cash flows used in investing activities totaled $994 million during fiscal 2020, compared with $287.4 million during
fiscal 2019. The increase of $706.6 million was due primarily to the acquisition of Leaf River and Adelphia Gateway and
proceeds from the sale of our wind assets in February 2019, that did not recur in fiscal 2020.
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 natural gas management and marketing activities at Energy Services and clean
energy investments at Clean Energy Ventures.
Page 62
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Cash flows from financing activities during fiscal 2020 totaled $895.9 million, compared with $95.6 million during fiscal
2019. The increase of $800.3 million was due primarily to the issuance of $460 million and $200 million of long-term debt at
NJR and NJNG, respectively, and increased short-term debt activity at NJR primarily related to the acquisition of Leaf River
and Adelphia Gateway, as well as proceeds of $42.9 million from solar sale leasebacks at Clean Energy Ventures and proceeds
from equity offering of $212.9 million.
NJNG received $4 million, $9.9 million and $7.8 million for fiscal 2020, 2019 and 2018, respectively, in connection with
the sale leaseback of its natural gas meters. During fiscal 2020, 2019 and 2018, NJNG exercised early purchase options with
respect to meter leases by making final principal payments of $1.2 million, $1.1 million and $2.2 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, Moody’s and Fitch, as of
September 30, 2020:
Corporate Rating
Commercial Paper
Senior Secured
Ratings Outlook
Moody’s
N/A
P-2
A1
Stable
Fitch
A-
F-2
A+
Stable
The Fitch ratings and outlook were reaffirmed on March 18, 2020. NJNG's Moody’s and Fitch ratings are investment-
grade ratings. NJR is not a rated entity.
On March 18, 2020, Moody’s revised NJNG's secured rating from Aa3 to A1 and its commercial paper rating from P-1 to
P-2 resulting from higher debt levels to fund the Company’s elevated capital program. The outlook was increased to stable from
negative. This action does not currently affect any of NJNG’s long-term borrowing rates or credit facility pricing.
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 unregulated 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 two of our operating subsidiaries.
NJNG is a regulated utility that uses futures, options and swaps to provide relative price stability, and its recovery of natural gas
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New Jersey Resources Corporation
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
costs is governed by the BPU. Energy Services uses futures, options, swaps and physical contracts to economically hedge
purchases and sales of natural gas.
The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases
and sales:
(Thousands)
Natural Gas Distribution
Energy Services
Total
Balance
September 30,
2019
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2020
$
(188)
(11,640) (1)
$ (11,828)
$
(7,765)
$
(7,742)
$
(211)
59,129
43,092
4,397
$
51,364
$ 35,350
$ 4,186
(1) Includes the addition of $459,000 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, 2020.
The following is a summary of fair market value of financial derivatives as of September 30, 2020, 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
2021
2022
2023 - 2025 After 2025
Total
Fair Value
$
445 $
3,048
$ 3,493 $
40
870
910
$
15
$ —
$
500
(232)
3,686
$
(217)
$ —
$ 4,186
The following is a summary of financial derivatives by type at September 30, 2020:
Natural Gas Distribution
Energy Services
Total
(1) Million British thermal units
Volume
Bcf
Futures
23.7
Price per
MMBtu (1)
$0.83 - $4.27
Futures
(27.5)
$0.43 - $5.89
Swaps
(1.8)
$2.72 - $3.20
Amounts included
in Derivatives
(Thousands)
$
(211)
3,939
458
$ 4,186
The following table reflects the changes in the fair market value of physical commodity contracts:
(Thousands)
Natural Gas Distribution - Prices based on other external data
Energy Services - Prices based on other external data
Total
Foreign Currency Market Risks
Balance
September 30,
2019
$
(178)
(31,624)
$ (31,802)
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
253
(8,407)
(8,154)
73
(15,308)
(15,235)
Balance
September 30,
2020
$
2
(24,723)
$ (24,721)
The following table reflects the changes in the fair market value of financial derivatives related to foreign currency
hedges:
(Thousands)
Energy Services
Balance
September 30,
2019
Increase
(Decrease) in Fair
Market Value
Less
Amounts
Settled
Balance
September 30,
2020
$
(285)
(23)
(285)
$
(23)
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New Jersey Resources Corporation
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
There were no changes in methods of valuations during the fiscal year ended September 30, 2020.
The following is a summary of fair market value of financial derivatives related to foreign currency hedges as of
September 30, 2020, by method of valuation and by maturity for each fiscal year period:
(Thousands)
2021
2022
2023 - 2025 After 2025
Total
Fair Value
Prices based on other external data
$
(68)
45
—
$
(23)
Our market price risk is predominately linked with changes in the price of natural gas at the Henry Hub, the delivery
point for the NYMEX natural gas futures contracts. Based on price sensitivity analysis, an illustrative 10 percent movement in
the natural gas futures contract price, for example, increases (decreases) the reported derivative fair value of all open,
unadjusted Henry Hub natural gas futures and fixed price swap positions by approximately $8.9 million. This analysis does not
include potential changes to reported credit adjustments embedded in the $(12.6) million reported fair value.
Derivative Fair Value Sensitivity Analysis
(Thousands)
Henry Hub Futures and Fixed Price Swaps
Percent increase in NYMEX natural gas futures prices
0%
5%
10%
15%
20%
Estimated change in derivative fair value
$
— $
(4,439) $
(8,877) $ (13,316) $ (17,754)
Ending derivative fair value
$ (12,576) $ (17,015) $ (21,453) $ (25,892) $ (30,330)
Percent decrease in NYMEX natural gas futures prices
0%
(5)%
(10)%
(15)%
(20)%
Estimated change in derivative fair value
$
— $
4,439 $
8,877 $ 13,316 $ 17,754
Ending derivative fair value
$ (12,576) $
(8,137) $
(3,699) $
740 $
5,178
Wholesale Credit Risk
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, 2020. 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.
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New Jersey Resources Corporation
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Energy Services’ and Clean Energy Ventures’ counterparty credit exposure as of September 30, 2020, 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, 2020, is as follows:
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Gross Credit
Exposure
Net Credit
Exposure
$ 129,910
8,363
24,608
11,373
$ 174,254
$ 114,922
919
18,923
4,465
$ 139,229
Gross Credit
Exposure
Net Credit
Exposure
$
2,195
$
2,060
164
39
1,098
3,496
$
—
8
—
$
2,068
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.
For more information regarding the interest rate risk related to our short-term debt, please see the Liquidity and Capital
Resources - Debt section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Effects of Inflation
Although inflation rates have been relatively low to moderate in recent years, including the three most recent fiscal years,
any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of our utility
subsidiary. We attempt to minimize the effects of inflation through cost control, productivity improvements and regulatory
actions, when appropriate.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of New Jersey Resources Corporation is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Securities and Exchange Act of 1934, as
amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the
Company’s Management and Board of Directors regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes policies and
procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial statements.
Under the supervision and with the participation of the Company’s management, including its principal executive officer
and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over
financial reporting as of September 30, 2020. 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, 2020, 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, 2020, which appears herein.
November 30, 2020
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareowners 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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in
the period ended September 30, 2020, 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, 2020, 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 30, 2020, 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Regulation — Impact of Rate-Regulation on Various Account Balances and Disclosures — Refer to Notes 2 and 4 to the
financial statements
Critical Audit Matter Description
New Jersey Natural Gas Company (“NJNG”), a subsidiary of the Company, is a regulated gas distribution company that
serves customers in central and northern New Jersey. NJNG is subject to regulation by the New Jersey Board of Public Utilities
(the “BPU”), which has jurisdiction with respect to the rates of gas distribution companies in New Jersey. Management has
determined NJNG meets the requirements under accounting principles generally accepted in the United States of America to
prepare its financial statements in accordance with the ASC 980, Regulated Operations.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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. Regulatory decisions can
have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be
recovered by rates. Decisions to be made by the BPU in the future will impact the accounting for regulated operations,
including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that
may be required.
Accounting for the economics of rate-regulation impacts multiple financial statement line items and disclosures, such as
regulated property, plant, and equipment, regulatory assets and liabilities, operating revenues and depreciation expense. While
NJNG has indicated it expects to recover costs from customers through regulated rates, there is a risk that the BPU will not
approve full recovery of such costs or full recovery of all amounts invested in the utility business and a reasonable return on
that investment. We identified the impact of rate-regulation as a critical audit matter due to the significant judgments made by
management to support its assertions about the impact of regulatory orders on the financial statements, including assessing the
probability of both recovery in rates of incurred costs and refunds to customers. Given that management’s accounting
judgments are based on assumptions about the outcome of future decisions by the BPU, auditing these judgments requires
specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty around the impact of regulatory orders on the financial statements, including the
probability of recovery in rates of incurred costs and a refund to customers included the following, among others:
• We tested the effectiveness of controls over the relevant regulatory account balances and disclosures, including
management’s controls over the monitoring and evaluation of regulatory developments that may affect the probability of
recovering costs in future rates or of a future reduction in rates.
• We read relevant regulatory orders issued by the BPU for NJNG and other public utilities in New Jersey, regulatory
statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to
assess the probability of recovery in future rates or of a future reduction in rates based on precedence of the BPU’s
treatment of similar costs under similar circumstances. We also read the November 13, 2019 BPU order adopting the
stipulation of settlement for NJNG’s March 2019 base rate case as well as the publicly available filings made by NJNG and
its related attachments. We evaluated the external information and compared that to management’s assertions regarding the
probability of recovery or refund of regulatory asset and liability balances for completeness.
• We obtained an analysis from management regarding the probability of recovery for regulatory assets or refund or future
reduction in rates for regulatory liabilities in order to assess management’s assertion that amounts are probable of recovery
or refund or a future reduction in rates.
• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and
regulatory developments.
Investments in Equity Investees — Steckman Ridge — Refer to Notes 2 and 7 to the financial statements
Critical Audit Matter Description
The Company, through its subsidiary Steckman Ridge Storage Company, holds a 50 percent equity method investment in
Steckman Ridge, a natural gas storage facility located in Bedford County, Pennsylvania. In the fourth quarter of fiscal 2020, a
major customer contract expired and was not renewed.
The Company evaluated its investment for an other-than-temporary impairment by comparing the estimated fair value of
the investment to the carrying value and determined that an impairment charge was not necessary. The Company estimated the
fair value of the investment using a discounted cash flow method. Management made estimates and assumptions related to the
price and capacity of future firm natural gas storage contracting, operations and maintenance costs, the nature and timing of
major maintenance and capital investment, and the discount rates.
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New Jersey Resources Corporation
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
We identified the evaluation of other-than-temporary impairment for the Steckman Ridge investment as a critical audit
matter because of the significant estimates and assumptions management made to estimate the fair value of its investment. This
required a high degree of auditor judgment and an increased extent of effort, including the need to involve our internal
specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions
related to the price and capacity of future firm natural gas storage contracting and the discount rate used in the discounted future
cash flow method.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the price and capacity of future firm natural gas storage contracting and the discount rate
used by management to estimate the fair value of the Steckman Ridge investment to evaluate impairment included the
following, among others:
• We tested the effectiveness of controls over management’s evaluation of the Steckman Ridge investment for impairment
including those related to the price and capacity of future firm natural gas storage contracting and the discount rates.
• We evaluated the reasonableness of the price and capacity of future firm natural gas storage contracting by:
– Making inquiries with operations and executive management teams regarding the viability of recontracting and
optimizing the capacity associated with the expired contract.
– Comparing management’s volume assumptions to comparable contractual agreements where applicable, and to
information regarding demand in the region.
– Comparing management’s rate assumptions to comparable contractual agreements where applicable and evaluating
management’s future price assumptions against relevant market price information.
– Reading internal communications to management and the Board of Directors and other Steckman Ridge member
communications to search for contradictory information.
• We evaluated the selection of the discount rate with the assistance of our fair value specialists, by:
–
Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the
calculation.
– Developing a range of independent estimates and comparing those to the discount rate selected by management.
Investments in Equity Investees — PennEast — Refer to Notes 2 and 7 to the financial statements
Critical Audit Matter Description
The Company, through its subsidiary NJR Midstream Company, is a 20 percent investor in PennEast Pipeline Company,
LLC (“PennEast”), a partnership whose purpose is to construct and operate a 120-mile natural gas pipeline that will extend
from northeast Pennsylvania to western New Jersey. In the fourth quarter of fiscal 2019, PennEast received certain adverse
court rulings, which remain in effect as of the fiscal 2020 balance sheet date.
The Company evaluated its investment for other-than-temporary impairment by comparing the estimated fair value of the
investment to the carrying value and determined that an impairment charge was not necessary. The Company estimated the fair
value of its investment using probability-weighted scenarios of discounted future cash flows. Management made significant
estimates and assumptions related to development options and legal outcomes, construction costs, timing of capital investments
and in-service dates, revenues (including forecasted volumes and rates), and discount rates. The discounted cash flow scenarios
contemplate the impact of key assumptions of potential future court decisions and potential future management decisions and
requires management to make significant estimates regarding the likelihood of various scenarios and assumptions. Higher
probabilities were assumed related to those scenarios where the project is completed.
We identified the evaluation of other-than-temporary impairment for the PennEast investment as a critical audit matter
because of the significant estimates and assumptions management makes to estimate the fair value of its investment. This
required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value
specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions
related to the probabilities associated with the development options and legal outcomes, the forecasted amount and timing of
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
future revenues, and the selection of the discount rate used in the probability-weighted scenarios of discounted future cash
flows.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the probabilities associated with the development options and legal outcomes, the
forecasted amount and timing of future revenues, and the selection of the discount rate used by management in the probability-
weighted scenarios of discounted future cash flows used in the evaluation of impairment for the PennEast investment included
the following, among others:
• We tested the effectiveness of controls over management’s evaluation of the PennEast investment for impairment including
those related to the probabilities associated with the development options and legal outcomes, the forecasting of future
revenues, and the selection of the discount rate.
• We evaluated the reasonableness of the probabilities related to the development options and legal outcomes by making
inquiries with legal counsel regarding the likely outcomes of future court rulings, and with engineering, operations, and the
executive management team regarding the viability of development options. We compared the results of these legal and
management inquiries to internal communications to management, the Board of Directors, and PennEast member partners
to search for contradictory information. We also read external information included in press releases, earnings releases,
regulatory filings, and other PennEast member communications to search for contradictory information.
• We evaluated the reasonableness of the forecasted amount and timing of future revenues (including forecasted volumes and
rates) by:
– Comparing management’s volume assumptions to contractual agreements where applicable, and to information
regarding demand and capacity volumes in the region for the remaining volumes.
– Comparing management’s rate assumptions to contractual agreements where applicable and evaluating management’s
future price assumptions against relevant market price curves.
– Reading internal communications to management and the Board of Directors and external information included in
press releases, earnings releases and other PennEast member communications to search for contradictory information.
–
• We evaluated the selection of the discount rate with the assistance of our fair value specialists, by:
–
Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the
calculation.
– Developing a range of independent estimates and comparing those to the discount rate selected by management.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
November 30, 2020
We have served as the Company's auditor since 1951.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareowners 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, 2020, 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, 2020, 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 as of and for the year ended September 30, 2020, of the Company and
our report dated November 30, 2020, expressed an unqualified opinion on those financial statements.
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 30, 2020
Page 72
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share data)
Fiscal years ended September 30,
OPERATING REVENUES
Utility
Nonutility
Total operating revenues
OPERATING EXPENSES
Natural gas purchases:
Utility
Nonutility
Related parties
Operation and maintenance
Regulatory rider expenses
Depreciation and amortization
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
Equity in earnings of affiliates
NET INCOME
EARNINGS PER COMMON SHARE
Basic
Diluted
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic
Diluted
2020
2019
2018
$ 729,923 $ 710,793 $ 731,865
1,223,745 1,881,252 2,183,244
1,953,668 2,592,045 2,915,109
275,831
320,256
6,083
278,143
34,529
119,894
7,948
268,141
33,937
91,730
276,005
1,022,805 1,716,098 1,990,832
8,505
315,215
38,969
85,701
1,737,285 2,438,110 2,715,227
199,882
13,047
46,286
166,643
216,383
23,878
67,597
172,664
153,935
11,273
47,082
118,126
(6,944)
14,311
(53,785)
13,008
$ 193,919 $ 169,505 $ 233,436
(37,751)
13,628
$2.05
$2.04
$1.90
$1.89
$2.66
$2.64
94,798
95,107
89,242
89,616
87,689
88,315
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
Fiscal years ended September 30,
Net income
Other comprehensive (loss) income, net of tax:
Unrealized (loss) on investments in equity securities, net of tax of $0, $0 and $6,973,
respectively
Reclassifications of losses to net income on investments in equity securities, net of
tax of $0, $0 and $(858), respectively
Reclassifications of losses to net income on derivatives designated as hedging
instruments, net of tax of $(32), $0 and $0, respectively
Loss on derivatives designated as hedging instruments, net of tax of $3,203, $0 and
$0, respectively
Adjustment to postemployment benefit obligation, net of tax of $567, $6,106, and
$(573), respectively
Other comprehensive (loss)
Comprehensive income
See Notes to Consolidated Financial Statements
Page 73
2020
2019
$ 193,919 $ 169,505 $ 233,436
2018
—
—
108
(10,505)
—
(19,245)
—
11,647
—
—
—
—
(2,131)
(12,528)
1,520
(6,078)
$ 181,391 $ 153,774 $ 227,358
(15,731)
(15,731)
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
2018
2020
2019
Net income
Adjustments to reconcile net income to cash flows from operating activities
Unrealized gain on derivative instruments
Gain on sale of available for sale securities
Gain on sale of businesses
Depreciation and amortization
Noncash lease expense
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
Equivalent value of ITCs recognized on equipment financing
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
Storage and transportation assets and other
Cost of removal
Investments in equity investees
Distributions from equity investees in excess of equity in earnings
Acquisition of assets, net of cash acquired of $5.1 million
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 FROM (USED IN) FINANCING ACTIVITIES
Proceeds from long-term debt
Payments of long-term debt
Proceeds from term loan
Payments of term loan
Proceeds from (payments of)short-term debt, net
Proceeds from sale leaseback transaction - solar
Proceeds from sale leaseback transaction - natural gas meters
Payments of common stock dividends
Proceeds from waiver discount issuance of common stock
Proceeds from issuance of common stock
Proceeds from equity offering
Tax withholding payments related to net settled stock compensation
Cash flows from (used in) financing activities
Change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables
Inventories
Recovery of natural gas costs
Natural gas purchases payable
Natural gas purchases payable - related parties
Prepaid expenses
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 74
$
193,919
$
169,505
$
233,436
(9,644)
—
—
119,894
3,851
4,924
(17,053)
2,238
(9,092)
—
(6,482)
(7,651)
(5,848)
(245)
(9,032)
647
(8,096)
(44,129)
5,280
213,481
(290,040)
(133,841)
(24,228)
(22,059)
(2,117)
1,907
(523,647)
—
—
(994,025)
660,000
(20,286)
350,000
(350,000)
99,900
42,927
4,000
(117,804)
—
18,080
212,900
(3,813)
895,904
115,360
4,063
119,423
5,065
(3,254)
17,479
(41,326)
1
2,548
(2,376)
20,390
(6,097)
(1,182)
656
(8,096)
66,146
7,594
19,434
—
2,881
(1,567)
(645)
91,730
—
8,424
(6,492)
2,387
(59,013)
—
(6,482)
(13,878)
(4,156)
(258)
(8,157)
1,290
(27,759)
8,193
38,125
194,128
(304,809)
(157,828)
(23,100)
(40,195)
(4,102)
2,428
—
205,745
34,484
(287,377)
467,900
(218,638)
—
—
(126,500)
—
9,895
(104,059)
57,391
16,717
—
(7,104)
95,602
2,353
1,710
4,063
63,795
14,265
(15,733)
(74,031)
(360)
(1,193)
2,271
2,256
(22,004)
(209)
3,184
(27,759)
50,371
12,647
30,725
—
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)
27,916
6,616
(373,090)
225,000
(165,486)
—
—
(114,050)
71,538
7,820
(95,835)
41,677
17,136
—
(13,755)
(25,955)
(759)
2,469
1,710
(7,524)
15,464
30,439
51,187
(1)
2,037
1,254
40,422
(30,974)
368
(5,668)
97,004
44,821
5,577
30,559
14,579
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
Natural gas in storage, at average cost
Materials and supplies, at average cost
Prepaid expenses
Prepaid and accrued taxes
Derivatives, at fair value
Restricted broker margin accounts
Other current assets
Total current assets
NONCURRENT ASSETS
Investments in equity investees
Regulatory assets
Operating lease assets
Derivatives, at fair value
Intangible assets
Software costs
Other noncurrent assets
Total noncurrent assets
Total assets
See Notes to Consolidated Financial Statements
Page 75
2020
2019
$ 2,800,052 $ 2,625,730
379,846
1,430,723
176,556
237,011
861,904
62,492
4,787,177
3,787,137
(601,635)
(585,160)
(202,507)
(156,033)
3,983,035
3,045,944
117,012
2,676
134,173
139,263
9,226
(7,242)
36,530
6,510
(6,148)
32,871
167,504
169,803
20,406
6,639
24,301
23,310
69,444
14,475
8,333
22,602
25,103
73,723
21,029
622,332
22,395
511,606
208,375
527,459
131,769
3,349
10,060
4,707
78,716
200,268
496,637
—
7,426
14,611
1,702
94,791
964,435
815,435
$ 5,569,802 $ 4,372,985
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,
2020 — 95,949,183; September 30, 2019 — 89,998,788
Premium on common stock
Accumulated other comprehensive loss, net of tax
Treasury stock at cost and other; shares September 30, 2020 — 148,310;
September 30, 2019 — 660,734
Retained earnings
Common stock equity
Long-term debt
Total capitalization
CURRENT LIABILITIES
Current maturities of long-term debt
Short-term debt
Natural gas purchases payable
Natural 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
Operating lease liabilities
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
Operating lease liabilities
Asset retirement obligation
Other noncurrent liabilities
Total noncurrent liabilities
Commitments and contingent liabilities (Note 15)
Total capitalization and liabilities
See Notes to Consolidated Financial Statements
Page 76
2020
2019
$
240,243 $
226,649
491,982
291,331
(44,315)
(31,787)
8,485
(10,436)
1,148,297
1,075,960
1,844,692
1,551,717
2,259,466
1,537,177
4,104,158
3,088,894
27,236
125,350
21,419
25,450
95,945
137,271
791
790
141,500
129,724
31,902
2,717
26,188
15,570
33,865
6,724
28,122
3,394
—
15,468
57,623
—
25,934
27,116
533,722
446,377
190,610
3,332
1,035
13,352
150,590
237,221
196,450
95,030
33,723
10,579
190,663
3,653
1,554
18,821
131,080
246,517
202,435
—
31,046
11,945
931,922
837,714
$ 5,569,802 $ 4,372,985
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, 2017
86,556 $ 222,258 $ 219,696
$
(3,256)
$ (70,039) $ 867,984 $ 1,236,643
—
—
—
—
—
—
—
(6,078)
— 233,436
233,436
—
—
(6,078)
Cash dividend declared ($1.11 per share)
Treasury stock and other
Reclassifications of certain income tax effects
to retained earnings
—
(251)
—
—
—
—
—
(14)
—
Balance at September 30, 2018
88,293 226,196 274,748
Net income
Other comprehensive loss
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Waiver discount
Net income
Other comprehensive loss
Common stock issued:
Incentive compensation plan
Dividend reinvestment plan (1)
Waiver discount
Cash dividend declared ($1.19 per share)
Treasury stock and other
Adoption of ASU 2016-01 (2)
Adoption of ASU 2017-05 (2)
Adoption of ASU 2014-09/ASC 606 (2)
Balance at September 30, 2019
Net income
Other comprehensive loss
Common stock issued:
Common stock offering
Incentive compensation plan
Dividend reinvestment plan (1)
Cash dividend declared ($1.27 per share)
Treasury stock and other
561
413
1,403
15,169
—
755
1,014
2,535
39,142
—
—
182
351
1,181
—
(8)
—
—
—
—
—
453
—
—
—
—
—
—
—
—
—
3,334
2,718
10,531
—
—
—
—
—
—
—
—
—
—
—
16,339
—
—
—
—
16,572
17,094
41,677
—
(97,579)
(97,579)
(22,773)
—
(22,787)
(3,276)
(12,610)
—
(15,731)
—
3,276
—
(76,473) 1,007,117 1,418,978
— 169,505
169,505
—
—
(15,731)
—
—
—
—
—
(3,446)
—
—
—
13,945
46,860
—
—
—
3,787
16,663
57,391
— (106,342)
(106,342)
5,232
—
5,232
—
—
—
3,446
4,970
(2,736)
—
4,970
(2,736)
89,999 226,649 291,331
(31,787)
(10,436) 1,075,960 1,551,717
—
—
—
—
—
—
—
(12,528)
— 193,919
193,919
—
—
(12,528)
5,333
13,333 199,567
105
520
—
(8)
261
—
—
—
3,511
2,833
—
(5,260)
—
—
—
—
—
—
—
15,324
—
212,900
—
—
3,772
18,157
— (121,582)
(121,582)
3,597
—
(1,663)
Balance at September 30, 2020
95,949 $ 240,243 $ 491,982
$ (44,315)
$
8,485 $ 1,148,297 $ 1,844,692
(1) Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.
(2) 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 77
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
1. NATURE OF THE BUSINESS
New Jersey Resources Corporation provides regulated natural gas distribution and transmission and storage services and
operates certain unregulated businesses primarily through the following:
New Jersey Natural Gas Company provides natural gas utility service to approximately 558,000 retail customers
throughout Monmouth, Ocean, Morris, Middlesex and Burlington counties in 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.
NJR Energy Services Company comprises the Energy Services segment. Energy Services maintains and transacts around
a portfolio of natural gas transportation and storage capacity contracts and provides physical wholesale energy, retail energy
and energy management services in the U.S. and Canada.
NJR Midstream Holdings Corporation, which comprises the Storage and Transportation segment, formerly the Midstream
segment, invests in energy-related ventures through its subsidiaries. The Company holds a 50 percent ownership interest in
Steckman Ridge, located in Pennsylvania and 20 percent ownership interest in PennEast, which are accounted for under the
equity method of accounting. The Company also operates natural gas storage and transmission assets through the wholly-owned
subsidiaries of Leaf River, which was acquired on October 11, 2019 and FERC regulated Adelphia Gateway, which was
acquired on January 13, 2020. See Note 19. Acquisitions and Dispositions for more information regarding these acquisitions.
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 Corp., which owns commercial real estate. NJR Home Services
Company and Commercial Realty & Resources Corp. 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, 2020, 2019 and 2018.
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, equity method
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. ARO 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.
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, a reserve is established if a loss is probable and can be reasonably
estimated. 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, a reserve is established at 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.
Page 78
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease
Control and Prevention and has spread globally, including throughout the U.S.. The Company’s Consolidated Financial
Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities at
the balance sheet date and reported amounts of revenue and expenses during the reporting periods presented. The Company
considered the impacts of COVID-19 on the assumptions and estimates used and determined that there have been no material
adverse impacts on the Company’s results of operations as of September 30, 2020.
Acquisitions
The Company follows the guidance in ASC 805, Business Combinations, for determining the appropriate accounting
treatment for acquisitions. ASU No. 2017-01, Clarifying the Definition of a Business, provides an initial fair value screen to
determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets. If
the initial screening test is not met, the set is considered a business based on whether there are inputs and substantive processes
in place. Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or an
asset acquisition, the accounting treatment is derived.
If the acquisition is deemed to be a business, the acquisition method of accounting is applied. Identifiable assets acquired
and liabilities assumed at the acquisition date are recorded at fair value. If the transaction is deemed to be an asset purchase, the
cost accumulation and allocation model is used whereby the assets and liabilities are recorded based on the purchase price and
allocated to the individual assets and liabilities based on relative fair values.
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. The valuation of an acquired business is based on available
information at the acquisition date and assumptions that are believed to be reasonable. However, a change in facts and
circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than
one year from the acquisition date. See Note 19. Acquisitions and Dispositions for further information.
Revenues
Revenues from the sale of natural gas to NJNG customers are recognized in the period that natural gas is delivered and
consumed by customers, including an estimate for unbilled revenue. 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 natural gas and the most current tariff rates.
Clean Energy Ventures recognizes revenue for SRECs when transferred to counterparties. SRECs are physically delivered
through the transfer of certificates as per contractual settlement schedules. The Clean Energy Act of 2018 established guidelines
for the closure of the SREC registration program to new applicants in New Jersey. The SREC program officially closed to new
qualified solar projects on April 30, 2020.
In December 2019, the BPU established the TREC as the successor to the SREC program. TRECs provide a fixed
compensation base multiplied by an assigned project factor in order to determine their value. The project factor is determined
by the type and location of the project, as defined. All TRECs generated are required to be purchased monthly by a TREC
program administrator as appointed by the BPU.
In June 2020, Clean Energy Ventures began generating TRECs for qualified new residential and commercial solar
projects placed into service following the close of the SREC program. TREC revenue is recognized when generated and
transferred monthly based upon metered solar electricity activity.
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.
Page 79
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Our Storage and Transportation segment generates revenues from firm storage contracts and transportation contracts,
related usage fees and hub services for the use of storage space, injections and withdrawals from their natural gas storage
facility and the delivery of natural gas to customers. Demand fees are recognized as revenue over the term of the related
agreement while usage fees and hub services revenues are recognized as services are performed.
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. See Note 3. Revenue for further information.
Natural 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.
Natural gas purchases at Energy Services are composed of natural 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 natural gas purchases as they occur.
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 natural gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30:
(Millions)
Energy Services
Natural Gas Distribution
Total
2020
2018
2019
$ 121.8 $ 120.4 $ 153.0
92.5
$ 253.7 $ 239.5 $ 245.5
131.9
119.1
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 natural gas. The demand charges are expensed based on NJNG’s BGSS sales and recovered as part of its natural 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, amortization of software costs for
unregulated entities, 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 members of NJR’s
Board of Directors. 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 10. Stock-Based Compensation for further information.
Page 80
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Sales Tax Accounting
As a result of the adoption of ASC 606, Revenue from Contracts with Customers, as of October 1, 2018, the Company
excludes from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax
on a net basis in operating revenues on the Consolidated Statements of Operations. Prior to October 1, 2018, sales tax was
presented in both operating revenues and operating expenses.
Income Taxes
The Company computes income taxes using the asset and liability method, whereby deferred income taxes are generally
determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates
in effect in the years in which the differences are expected to reverse. See Note 13. Income Taxes. In addition, the Company
evaluates its tax positions to determine the appropriate accounting and recognition of future obligations associated with
unrecognized tax benefits.
The Company invests in property that qualifies for federal ITCs and utilizes the ITCs, as allowed, based on the cost and
life of the assets. ITCs at NJNG are deferred and amortized as a reduction to the tax provision over the average lives of the
related equipment in accordance with regulatory treatment. ITCs at the unregulated subsidiaries of NJR are recognized as a
reduction to income tax expense when the property is placed in service. Changes to the federal statutes related to ITCs, which
has the effect of reducing or eliminating the credits, could have a negative impact on earnings and cash flows.
Projects placed in service through December 31, 2019, qualified for a 30-percent federal ITC. The credit declines to 26
percent for property under construction during 2020, 22 percent for property under construction during 2021 and 10 percent for
any property that is under construction before 2022. The Company has taken steps to preserve the ITC at the higher rate for
certain solar projects that are completed after the scheduled reduction in rates, in accordance with IRS guidance on safe harbor
determination.
Investments in Equity Investees
The Company accounts for its investments in Steckman Ridge and PennEast using the equity method of accounting
where it is not the primary beneficiary, as defined under ASC 810, Consolidation, its respective ownership interests are 50
percent or less and/or it has significant influence over operating and management decisions. The Company’s share of earnings
is recognized as equity in earnings of affiliates on the Consolidated Statements of Operations.
Equity method investments are reviewed for impairment when changes in facts and circumstances indicate that the
current fair value may be less than the asset’s carrying amount. If the Company determines the decline in the value of its equity
method investment is other than temporary, an impairment charge is recorded in an amount equal to the excess of the carrying
value of the asset over its fair value.
Property Plant and Equipment
Property, plant and equipment is stated at original cost. Costs include direct labor, materials and third-party construction
contractor costs, capitalized interest and certain indirect costs related to equipment and employees engaged in construction.
Utility plant and nonutility plant for Adelphia Gateway also includes AFUDC. 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 our nonutility 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 2.65 percent of average depreciable property in fiscal 2020, 2.25 percent in fiscal 2019 and
2.29 percent in fiscal 2018. The Company recorded $120 million, $91.7 million and $85.7 million in depreciation expense
during fiscal 2020, 2019 and 2018, respectively.
During fiscal 2018 and 2019, the estimated useful lives of commercial solar assets ranged from 15 to 25 years. During the
fourth quarter of fiscal 2020, the Company reassessed the estimated useful lives of its commercial solar asset fleet. Based upon
this review, the Company concluded that the actual lives of certain commercial solar assets were longer than the estimated
useful lives used for depreciation purposes. As a result, effective July 1, 2020, the Company changed its estimates of the useful
lives of its solar assets to a range of 15 to 35 years. The effects of this change were considered immaterial to the Consolidated
Financial Statements.
Page 81
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Property, plant and equipment was comprised of the following as of September 30:
(Thousands)
Property Classifications
Distribution facilities
Transmission facilities
Storage facilities
Solar property
Storage and transportation property
All other property
Total property, plant and equipment
Accumulated depreciation and amortization
Property, plant and equipment, net
Estimated
Estimated Useful
Lives
38 to 74 years
35 to 56 years
34 to 47 years
15 to 35 years
5 to 50 years
5 to 35 years
2020
2,688,885 $
332,947
79,922
997,141
428,491
259,791
4,787,177
(804,142)
3,983,035 $
2019
2,419,381
330,912
79,916
879,597
28,445
48,886
3,787,137
(741,193)
3,045,944
$
$
Within storage and transportation property, base gas is required to maintain the necessary pressure and to allow for
efficient operation of the Leaf River storage facility. The base gas is determined to be recoverable and is considered part of the
facility and thus presented as a component in property, plant and equipment. This natural gas is not depreciated, as it is
expected to be recovered and sold. As of September 30, 2020, the base gas had a cost basis of $5.7 million.
Capitalized and Deferred Interest
NJNG’s base rates include the ability to recover AFUDC on its construction work in progress. For all NJNG construction
projects, an incremental cost of equity is recoverable during periods when NJNG’s short-term debt balances are lower than its
construction work in progress. For more information on AFUDC treatment with respect to certain accelerated infrastructure
projects, see Note 4. Regulation - Infrastructure Programs.
Capitalized amounts associated with the debt and equity components of NJNG’s AFUDC are recorded in utility plant on
the Consolidated Balance Sheets. Corresponding amounts for the debt component are recognized in interest expense and in
other income for the equity component on the Consolidated Statements of Operations.
Adelphia Gateway’s base rates include the ability to recover AFUDC on its construction work in progress. Beginning in
the fourth quarter of fiscal 2020, capitalized amounts associated with Adelphia Gateway’s AFUDC are recorded in nonutility
plant on the Consolidated Balance Sheets. Corresponding amounts are recorded in other income on the Consolidated Statements
of Operations.
Capitalized and deferred interest include the following for the fiscal years ended September 30:
($ in thousands)
AFUDC:
Debt
Equity
Total
Weighted average interest rate
2020
NJNG
Adelphia
Gateway
2019
NJNG
2018
NJNG
$
$
5,134
14,599
19,733
$
$
1,394
2,454
3,848
$
$
3,710
6,492
10,202
$
$
1,979
5,531
7,510
6.79 %
8.28 %
6.35 %
5.94 %
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. 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 1.97 percent, 3.30 percent and 3.41 percent for
the fiscal years ended September 30, 2020, 2019 and 2018, respectively. Accordingly, other income included $511,000,
$760,000 and $411,000 in the fiscal years ended September 30, 2020, 2019 and 2018, respectively.
Clean Energy Ventures capitalizes interest on the allocation of the costs of debt borrowed for the financing of solar
investments. Capitalized amounts are included in nonutility plant and equipment on the Consolidated Balance Sheets.
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 related to escrow balances for utility plant projects, which is recorded in other noncurrent assets on
the Consolidated Balance Sheets.
Page 82
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
ASU No. 2016-18, an amendment to ASC 230, Statement of Cash Flows, required 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.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Consolidated
Balance Sheets to the total amounts in the Statements of Cash Flows, as of September 30:
(Thousands)
Balance Sheet
Cash and cash equivalents
Restricted cash in other noncurrent assets
Statements of Cash Flow
Cash, cash equivalents and restricted cash
Loans Receivable
2020
2019
2018
$
$
$
117,012 $
2,411 $
2,676 $
1,387 $
1,458
252
119,423 $
4,063 $
1,710
NJNG currently provides loans, with terms ranging from 2 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
fair value on the Consolidated Balance Sheets. The Company recorded $13.7 million and $12.4 million in other current assets
and $35.3 million and $38.8 million in other noncurrent assets as of September 30, 2020 and 2019, 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, 2020 and 2019, the Company has not recorded any impairments 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 4. Regulation for a more detailed description of NJNG’s regulatory assets and liabilities.
In January 2020, NJR acquired Adelphia Gateway an existing 84-mile pipeline in southeastern Pennsylvania, which
maintains its accounts in accordance with the FERC Uniform System of Accounts and in accordance with the ASC 980,
Regulated Operations. Accordingly, Adelphia Gateway capitalizes or defers certain costs that are expected to be recovered
from its customers as regulatory assets and recognizes certain obligations representing probable future expenditures as
regulatory liabilities on the Consolidated Balance Sheets. See Note 4. Regulation for a more detailed description of Adelphia
Gateway’s regulatory assets and liabilities.
Natural Gas in Storage
Natural 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 natural gas in storage, at average cost by
company, as of September 30:
($ in thousands)
Natural Gas Distribution
Energy Services
Storage and Transportation
Total
Derivative Instruments
2020
2019
Natural Gas in Storage Bcf Natural Gas in Storage Bcf
$
$
110,037 27.2
57,352 34.3
115 0.02
167,504 61.52
$ 117,413 27.0
52,390 25.6
— —
$ 169,803 52.6
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 natural gas purchases and changes in
Page 83
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
the fair value of their physical forward contracts in natural 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 for which physical delivery is probable and the quantities delivered are expected to be used or sold over a reasonable
period of time in the normal course of business. 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 PPAs at Clean Energy Ventures. When
applied, it does not account for these contracts until the contract settles and the related underlying natural gas or power is
delivered. Gains and/or losses on NJNG’s derivatives used to economically hedge its regulated natural gas supply obligations,
as well as its exposure to interest rate variability, are recoverable through its BGSS, a component of its tariff. Accordingly, the
offset to the change in fair value of these derivatives is recorded as a regulatory asset or liability on the Consolidated Balance
Sheets. See Note 5. Derivative Instruments for additional details regarding natural gas trading and hedging activities.
Fair values of exchange-traded instruments, including futures 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.
During fiscal 2020, the Company entered into treasury lock transactions to fix the benchmark treasury rate associated
with debt issuances for NJNG and NJR that occurred during the fiscal year. Settlement of the NJNG treasury locks resulted in a
loss, which was recorded as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized in
earnings over the term of the debt as a component of interest expense on the Consolidated Statements of Operations. NJR
designated its treasury lock contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the hedges
were recorded in OCI. Settlement of the treasury locks resulted in a loss, which was recorded within OCI and will be amortized
in earnings over the life of the debt as a component of interest expense on the Consolidated Statements of Operations. Amounts
recognized in interest expense for NJNG and NJR related to the amortization of the loss on treasury lock transactions totaled
$50,000 and $108,000, respectively, as of September 30, 2020.
Software Costs
The Company capitalizes certain costs, such as software design and configuration, coding, testing and installation, that
are incurred to purchase or create and implement computer software for internal use. Capitalized costs include external costs of
materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related costs for
employees who are directly associated with and devote time to the internal-use software project. Maintenance costs are
expensed as incurred. Upgrades and enhancements are capitalized if it is probable that such expenditures will result in
additional functionality. Amortization is recorded on the straight-line basis over the estimated useful lives of the respective
software.
The following table presents the software costs included in the Consolidated Financial Statements, as of September 30:
(Thousands)
Balance Sheets
Utility plant, at cost
Construction work in progress
Nonutility plant and equipment, at cost
Accumulated depreciation and amortization, utility plant
Accumulated depreciation and amortization, nonutility plant and equipment
Software costs
Statements of Operations
Operation and maintenance (1)
Depreciation and amortization
(1)
During fiscal 2020, $63,000 was amortized into O&M.
Page 84
2020
2019
$
$
$
$
$
$
$
$
13,452 $
— $
316 $
(279) $
(5) $
4,707 $
6,720 $
284 $
—
4,778
—
—
—
1,702
9,062
—
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Investments in Equity Securities
Investments in equity securities were carried at fair value on the Consolidated Balance Sheets. For the fiscal year ended
September 30, 2018, total unrealized gains and losses associated with equity securities were included as a part of accumulated
other comprehensive income, a component of common stock equity, and reclassifications of realized gains or losses out of other
comprehensive income into earnings were recorded in other income, net on the Consolidated Statements of Operations, based
on average cost. On October 1, 2018, the Company adopted ASU No. 2016-01, an amendment to ASC 825, Financial
Instruments. As a result, both realized and unrealized gains and losses were recorded in other income, net on the Consolidated
Statements of Operations, based on average cost.
At September 30, 2018, the Company's investments in equity securities were comprised of an investment in DM
Common Units, which had a fair value of $32.9 million. On January 28, 2019, Dominion and DM finalized an agreement and
plan of merger and each outstanding DM Common Unit was converted into 0.2492 shares of Dominion common stock. This
resulted in the conversion of the Company's 1.84 million DM Common Units into approximately 458,000 Dominion common
shares. On March 6, 2019, the Company sold its investment in Dominion and received proceeds of approximately $34.5
million. As a result of the sale, the Company recorded total realized gains of $1.6 million in other income, net on the
Consolidated Statements of Operations.
Intangible Assets
Finite-lived intangible assets are stated at cost less accumulated amortization. The Company amortizes intangible assets
based upon the pattern in which the economic benefits are consumed over the life of the asset unless a pattern cannot be reliably
determined, in which case the Company uses a straight-line amortization method. As of September 30, 2020, intangible assets
consist primarily of acquired wholesale natural gas energy contracts totaling $10 million. The wholesale natural gas contracts
are being amortized based upon expected cash flows over the respective terms of the agreements.
The estimated future amortization expense as of September 30, is as follows:
(Thousands)
2021
2022
2023
2024
Long-lived Assets
$
$
$
$
5,101
2,611
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. Factors that the Company analyzes in
determining whether an impairment in its long-lived assets exists include: a significant decrease in the market price of a long-
lived asset; a significant adverse change in the extent in which a long-lived asset is being used in its physical condition; legal
proceedings or other contributing factors; significant business climate changes; accumulations of costs in significant excess of
the amounts expected; a current-period operating or cash flow loss combined with a history of such events; and current
expectations that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its
estimated useful life. During fiscal 2020 and 2019, there were no events or circumstances that indicated that the carrying value
of long-lived assets or finite-lived intangibles were 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 9. Debt for the total unamortized debt issuance costs that are recorded as a reduction to long-term
debt on the Consolidated Balance Sheets.
Page 85
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 or repurchase the asset at the end of the term. Proceeds from sale leaseback transactions are
accounted for as financing arrangements and are included in long-term debt on the Consolidated Balance Sheets. During fiscal
2020 and 2019, NJNG received $4 million and $9.9 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 does not qualify as a sale as the Company
retains control of the underlying assets and, as such, the Company uses the financing method to account for the
transaction. Under the financing method, the Company recognizes the proceeds received from the buyer-lessor that constitute a
payment to acquire the solar energy asset as a financing arrangement, which is recorded as a component of debt on the
Consolidated Balance Sheets.
During fiscal 2020 and 2018, Clean Energy Ventures received proceeds of $42.9 million and $71.5 million, respectively,
in connection with the failed sale leaseback of commercial solar assets. The proceeds received were recognized as a financing
obligation on the Consolidated Balance Sheets. Clean Energy Ventures did not enter into any sale leaseback transactions for its
commercial solar assets during fiscal 2019. Clean Energy Ventures simultaneously entered into agreements to lease the assets
back over a term of five- to 15-years. The Company continues 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 transfer to the buyer; however, the payments are structured so that Clean Energy Ventures is compensated for the
transfer of the related tax attributes. Accordingly, Clean Energy Ventures recognizes the equivalent value of the tax attributes 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.
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 15. 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 did not make any discretionary contributions to the pension plans in fiscal 2020, 2019
and 2018, respectively.
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 $8.4 million, $7.9 million and $6.2 million in aggregate to these plans in
Page 86
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
fiscal 2020, 2019 and 2018, respectively, which is recorded in postemployment employee benefit liability on the Consolidated
Balance Sheets. See Note 11. Employee Benefit Plans, for a more detailed description of the Company’s pension and
postemployment plans.
Asset Retirement Obligations
The Company recognizes ARO related to the costs associated with cutting and capping NJNG’s main and service natural
gas distribution mains, which is required by New Jersey law when taking such natural gas distribution mains out of service. The
Company also recognizes ARO associated with Clean Energy Ventures’ solar assets when there are decommissioning
provisions in lease agreements that require removal of the asset at the end of the lease term.
ARO 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 ARO are
various assumptions including the ultimate settlement date, expected cash outflows, inflation rates, credit-adjusted risk-free
rates and consideration of potential outcomes where settlement of the ARO can be conditioned upon events. In the latter case,
the Company develops possible retirement scenarios and assigns probabilities based on management’s reasonable judgment and
knowledge of industry practice. Accordingly, ARO 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 at September 30, 2018
Other comprehensive income, net of tax
Other comprehensive (loss), before reclassifications, net of
tax of $0, $0, $6,557 and $6,557, respectively
Amounts reclassified from accumulated other
comprehensive (loss), net of tax of $0, $0, $(451) and
$(451), respectively
Net current-period other comprehensive income, net of tax
of $0, $0, $6,106 and $6,106, respectively
Reclassifications of certain income tax effects to retained
earnings (2)
Balance at September 30, 2019
Other comprehensive income, net of tax
Investments in
Equity
Securities
3,446
$
Cash Flow
Hedges
—
$
Postemployment
Benefit
Obligation
(16,056)
$
Total
$ (12,610)
—
—
—
(3,446)
—
$
$
—
—
—
—
—
(16,978)
(16,978)
1,247 (1)
1,247
(15,731)
(15,731)
—
(31,787)
(3,446)
$ (31,787)
$
Other comprehensive (loss) income, before reclassifications,
net of tax of $0, $3,203, $1,235, $4,438, respectively
Amounts reclassified from accumulated other
comprehensive loss, net of tax of $0, $(32), $(668), $(700),
respectively
Net current-period other comprehensive income, net of tax
of $0, $3,171, $567, $3,738, respectively
Balance at September 30, 2020
$
—
—
—
—
(10,505)
(4,882)
(15,387)
108
2,751 (1)
2,859
(10,397)
$ (10,397)
$
(2,131)
(33,918)
(12,528)
$ (44,315)
(1)
Included in the computation of net periodic pension cost, a component of O&M expense on the Consolidated Statements of Operations. For more details,
see Note 11. Employee Benefit Plans.
(2) Due to the adoption of ASU No. 2016-01, an amendment to ASC 825, Financial Instruments. See Note 2. Summary of Significant Accounting Policies -
Recently Adopted Updates to the Accounting Standards Codification section for more details.
Page 87
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 natural gas purchases on the Consolidated Statements of
Operations. Gains and losses recognized for the fiscal years ended September 30, 2020, 2019 and 2018, are considered
immaterial.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. Amounts related to
energy and other taxes have been reclassified to O&M on the Consolidated Statements of Operations. Software costs previously
recorded in other non-current assets have been reclassified to utility plant and software costs, and prepaid expenses previously
recorded in other current assets have been reclassified on the Consolidated Balance Sheets. Certain amounts related to software
costs previously reported in cash flows from operating activities have been reclassified to cash flows used in investing activities
and prepaid expenses were reclassified within working capital on the Consolidated Statements of Cash Flows.
Recently Adopted Updates to the Accounting Standards Codification
Leases
In February 2016, the FASB issued ASU No. 2016-02, an amendment to ASC 842, Leases, which, along with other
ASU's containing minor amendments and technical corrections, 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 an original
term greater than one year are recorded on the balance sheet with a lessee recognizing a lease liability reflecting its obligation
under the lease agreement and a right-of-use asset representing its right to use the leased asset over the lease term. The
subsequent measurement of the lease depends on whether the lease is classified as an operating lease (resulting in the
recognition of a straight-line lease cost) or a finance lease (resulting in the recognition of interest and asset amortization
expense). Additional disclosures are required to provide transparency as to the amount, timing and uncertainty of cash flows
arising from leasing activities.
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 as of October 1,
2019. The Company adopted this practical expedient. In July 2018, the FASB issued ASU No. 2018-11, which provides an
optional transition method to ASC 842 that allows the Company to apply the new lease accounting requirements as of the
effective date of the new standard, with the comparative periods remaining under the legacy ASC 840 requirements with a
cumulative effect adjustment, if any, being made to the opening balance of retained earnings in the period of adoption. The
Company elected this transition method and did not have any cumulative impact to the opening balance of retained earnings.
The Company elected various practical expedients permitted by ASC 842. This includes the package of practical
expedients whereby the Company was not required to reassess all of its leases identified, lease classifications and initial direct
costs associated with leases. The Company also elected to not separate nonlease components from lease components for certain
classes of leases, such as office buildings, solar land leases and office equipment, and elected to exclude short-term leases from
the recognition requirements of ASC 842 for all classes of assets. The Company adopted ASC 842 and all related amendments
on October 1, 2019, using the modified retrospective transition method.
The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment
and real property leases, including land and office facility leases and office equipment and the sale leaseback of its natural gas
meters. The total right-of-use assets and operating lease liabilities recorded upon adoption were $67.1 million. Upon the
acquisition of Leaf River, on October 11, 2019, the Company adopted ASC 842 for Leaf River which resulted in the
recognition of an additional right-of-use asset and lease liability of $21.6 million.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, an amendment to ASC 815, Derivatives and Hedging, which, along
with other ASU's containing minor amendments and technical corrections, 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.
Page 88
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 Company adopted this guidance on October 1, 2019. As
October 1, 2019, the Company did not apply hedge accounting to its risk management activities, therefore the amendments did
not have an impact on its financial position, results of operations or cash flows.
In October 2018, the FASB issued ASU No. 2018-16, an amendment to ASC 815, Derivatives and Hedging, which
permits the use of the Overnight Index Swap rate based on the Secured Overnight Financing Rate as an additional acceptable
U.S. benchmark interest rate for hedge accounting purposes. The Company adopted this guidance on October 1, 2019. As the
Company did not apply hedge accounting to any of its risk management activities as of October 1, 2019, the amendments did
not have an impact on its financial position, results of operations or cash flows.
Stock Compensation
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 Company adopted this guidance on October 1, 2019. There was no impact to the Company's financial position,
results of operations or cash flows.
Financial Instruments
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This
accounting standard provides clarification of guidance for financial instruments and makes narrow scope amendments related to
various issues. The Company adopted this standard effective upon issuance. There was no impact to the Company's financial
position, results of operations or cash flows as a result of its adoption.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, an amendment to ASC 848, Reference Rate Reform, which provides
relief for companies preparing for discontinuation of interest rates such as LIBOR. The amendments in this update provide
optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by
reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging
relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The
amendments in this update are elective and are effective upon the ASU issuance through December 31, 2022. There was no
impact to the Company's financial position, results of operations or cash flows as a result of its adoption.
Other Recent Updates to the Accounting Standards Codification
Financial Instruments
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 Company assessed the impact of the guidance on NJR's reserve methodologies and credit policies and procedures
for any assets that could be impacted, noting the majority of NJR's financial assets are short-term in nature, such as trade
receivables and unbilled revenues.
The Company completed its evaluation of ASU No. 2016-13 and subsequent amendments related to this topic and
adopted this new guidance beginning October 1, 2020, using the modified retrospective method. The adoption did not result in a
cumulative effect adjustment to retained earnings and did not have a material impact to our consolidated financial statements.
If implementation resulted in a material impact to amounts associated with NJNG accounts receivable and unbilled
revenue within the scope of the new standard and that were considered incremental costs caused by COVID-19, the Company
could elect to defer those costs as a regulatory asset in accordance with the July 2, 2020 BPU order which authorized New
Jersey utilities to create a regulatory asset for incremental COVID-19 related costs. See Note 4. Regulation for further detail.
Page 89
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
impact of the adoption of this ASU but does not expect that its pending adoption will have a material effect on its consolidated
financial statements. The Company does not have either Level 3 fair value measurements or transfers between Level 1 or Level
2 in its current portfolios, and therefore, does not expect this ASU to have an impact on the Company's financial statements and
disclosures.
Compensation - Retirement Benefits
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, 2021, with early adoption permitted. Upon adoption, the amended presentation and disclosure guidance 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 but it is not expecting this ASU to materially affect the financial statements and
disclosures.
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, an amendment to ASC 740, Income Taxes, which is intended to
simplify the accounting for income taxes and changes the accounting for certain income tax transactions, among other minor
improvements. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. Upon
adoption, the amendments will be applied on a prospective basis. The Company is currently evaluating the amendments to
understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption.
Investments - Equity Method and Derivatives and Hedging
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic
321, Topic 323, and Topic 815. The update states that an entity is required to evaluate observable transactions that necessitate
applying or discontinuing the equity method of accounting, when applying the measurement alternative in Topic 321. This
evaluation occurs prior to applying or upon ceasing the equity method. The update also states that when applying paragraph
815-10-15-141(a) for forward contracts and purchased options, an entity is not required to assess whether the underlying
securities will be accounted for under the equity method in accordance with Topic 323 or fair value method under Topic 825
upon settlement or exercise. The guidance is effective for the Company beginning October 1, 2021, with early adoption
permitted. The Company is currently evaluating the impact of the adoption of this ASU but does not expect that its pending
adoption will have a material effect on its consolidated financial statements.
3. REVENUE
Revenue is recognized when a performance obligation is satisfied by transferring control of a product or service to a
customer. Revenue is measured based on consideration specified in a contract with a customer using the output method of
progress. The Company elected to apply the invoice practical expedient for recognizing revenue, whereby the amounts invoiced
to customers represent the value to the customer and the Company’s performance completion as of the invoice date. Therefore
we do not disclose related unsatisfied performance obligations. The Company also elected the practical expedient to exclude
from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax net in
operating revenues on the Consolidated Statements of Operations.
Page 90
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Below is a listing of performance obligations that arise from contracts with customers, along with details on the
satisfaction of each performance obligation, the significant payment terms and the nature of the goods and services being
transferred, by reporting segment and other business operations:
Revenue Recognized Over Time:
Segment
Natural Gas
Distribution
Performance
Obligation
Natural gas utility
sales
Clean Energy
Ventures
Commercial solar
and wind
electricity
Clean Energy
Ventures
Residential solar
electricity
Clean Energy
Ventures
Energy
Services
Transition
Renewable
Energy
Certificates
Wholesale natural
gas services
Storage and
Transportation
Natural gas
services
Description
NJNG's performance obligation is to provide natural gas to residential, commercial and
industrial customers as demanded, based on regulated tariff rates, which are established
by the BPU. Revenues from the sale of natural gas are recognized in the period that
natural gas is delivered and consumed by customers, including an estimate for quantities
consumed but not billed during the period. Payment is due each month for the previous
month's deliveries. Natural gas sales to individual customers are based on meter readings,
which are performed on a systematic basis throughout the billing period. The unbilled
revenue estimates are based on estimated customer usage by customer type, weather
effects and the most current tariff rates. NJNG is entitled to be compensated for
performance completed until service is terminated.
Customers may elect to purchase the natural gas commodity from NJNG or may contract
separately to purchase natural gas directly from third-party suppliers. As NJNG is acting
as an agent on behalf of the third-party supplier, revenue is recorded for the delivery of
natural gas to the customer.
Clean Energy Ventures operates wholly-owned solar projects that recognize revenue as
electricity is generated and transferred to the customer. The performance obligation is to
provide electricity
the
interconnection agreement and is satisfied upon transfer of electricity generated. All wind
assets were sold as of February 7, 2019.
in accordance with contract
the customer
terms or
to
Revenue is recognized as invoiced and the payment is due each month for the previous
month's services.
Clean Energy Ventures provides access to residential rooftop and ground-mount solar
equipment to customers who then pay the Company a monthly fee. The performance
obligation is to provide electricity to the customer based on generation from the
underlying residential solar asset and is satisfied upon transfer of electricity generated.
Revenue is derived from the contract terms and is recognized as invoiced, with the
payment due each month for the previous month's services.
Clean Energy Ventures generates RECs, which are created for every MWh of electricity
produced by a solar generator. The performance obligation of Clean Energy Ventures is to
generate electricity and TRECs, which are purchased monthly by a REC Administrator.
Revenue is recognized upon generation.
The performance obligation of Energy Services is to provide the customer transportation,
storage and asset management services on an as-needed basis. Energy Services generates
revenue through management fees, demand charges, reservation fees and transportation
charges centered around the buying and selling of the natural gas commodity, representing
one series of distinct performance obligations.
Revenue is recognized based upon the underlying natural gas quantities physically
delivered and the customer obtaining control. Energy Services invoices customers on a
monthly basis in line with the terms of the contract and based on the services provided.
Payment is due each month for the previous month's invoiced services.
The performance obligation of our Storage and Transportation segment is to provide the
customer with storage and transportation services. Storage and Transportation generates
revenues from firm storage contracts and transportation contracts, related usage fees for
the use of storage space, injection and withdrawal at the storage facility and the delivery
of natural gas to customers. Revenue is recognized over time as our customers receive the
benefits of our service as it is performed on their behalf using an output method based on
actual deliveries.
Demand fees are recognized as revenue over the term of the related agreement.
Home
Services and
Other
Service contracts Home Services enters into service contracts with homeowners to provide maintenance and
replacement services of applicable heating, cooling or ventilation equipment. All services
provided relate to a distinct performance obligation which is to provide services for the
specific equipment over the term of the contract.
Revenue is recognized on a straight-line basis over the term of the contract and payment is
due upon receipt of the invoice.
Page 91
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Revenue Recognized at a Point in Time:
Storage and
Transportation
Natural gas
services
The performance obligation of our Storage and Transportation segment is to provide the
customer with storage and transportation services. Storage and Transportation generates
revenues from hub services for the use of storage space, injection and withdrawal from the
storage facility. Hub services include park and loan transactions and wheeling.
Home
Services and
Other
Installations
Hub services revenues are recognized as services are performed.
Home Services installs appliances, including but not limited to, furnaces, air conditioning
units, boilers and generators, for customers. The distinct performance obligation is the
installation of the contracted appliance, which is satisfied at the point in time the item is
installed.
The transaction price for each installation differs accordingly. Revenue is recognized at a
point in time upon completion of the installation, which is when the customer is billed.
Disaggregated revenues from contracts with customers by product line and by reporting segment and other business
operations during fiscal 2020 are as follows:
(Thousands)
2020
Natural gas utility sales
Wholesale natural gas services
Service contracts
Installations and maintenance
Renewable Energy Certificates
Electricity sales
Eliminations (1)
Revenues from contracts with
customers
Alternative revenue programs (2)
Derivative Instruments
Eliminations (1)
Revenues out of scope
Total operating revenues
2019
Natural gas utility sales
Wholesale natural gas services
Service contracts
Installations and maintenance
Electricity sales
Eliminations (1)
Revenues from contracts with
customers
Alternative revenue programs (2)
Derivative Instruments
Eliminations (1)
Revenues out of scope
Natural Gas
Distribution
Clean
Energy
Ventures
Energy
Services
Storage and
Transportation
Home
Services
and Other
Total
$
$
$
695,858
—
—
—
—
—
—
695,858
15,750
18,315
—
34,065
729,923
680,151
—
—
—
—
—
680,151
10,364
20,278
—
30,642
710,793
—
—
—
—
1,384
20,099
—
21,483
—
81,134
—
81,134
102,617
—
—
—
—
22,121
—
22,121
—
75,978
—
75,978
98,099
—
24,511
—
—
—
—
—
24,511
—
1,005,908
(1,116)
1,004,792
1,029,303
—
31,459
—
—
—
—
31,459
—
1,711,332
(8,238)
1,703,094
1,734,553
(3)
(3)
—
44,728
—
—
—
—
(2,713)
42,015
—
—
—
—
42,015
—
—
—
—
—
—
—
—
—
—
—
—
— $ 695,858
69,239
—
32,455
32,455
18,562
18,562
1,384
—
20,099
—
(3,920)
(1,207)
833,677
49,810
15,750
—
— 1,105,357
—
(1,116)
— 1,119,991
49,810 $ 1,953,668
— $ 680,151
31,459
—
31,499
31,499
19,403
19,403
22,121
—
(2,302)
(2,302)
782,331
48,600
—
10,364
— 1,807,588
—
(8,238)
— 1,809,714
48,600 $ 2,592,045
Total operating revenues
$
(1)
(2)
(3)
Consists of transactions between subsidiaries that are eliminated in consolidation.
Includes CIP revenue.
Includes SREC revenue.
Page 92
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business
operations during the fiscal years ended September 30, are as follows:
(Thousands)
2020
Residential
Commercial and industrial
Firm transportation
Interruptible and off-tariff
Revenues out of scope
Total operating revenues
2019
Residential
Commercial and industrial
Firm transportation
Interruptible and off-tariff
Revenues out of scope
Total operating revenues
Natural Gas
Distribution
Clean
Energy
Ventures
Energy
Services
Storage and
Transportation
Home
Services
and Other
Total
$
$
$
$
490,233
129,946
69,357
6,322
34,065
729,923
440,787
171,357
61,370
6,637
30,642
710,793
10,233
11,250
—
—
81,134
102,617
9,003
13,118
—
—
75,978
98,099
—
24,511
—
—
1,004,792
1,029,303
—
31,459
—
—
1,703,094
1,734,553
—
42,015
—
—
—
42,015
—
—
—
—
—
—
48,867 $
943
—
—
—
549,333
208,665
69,357
6,322
1,119,991
49,810 $ 1,953,668
47,655 $
945
—
—
—
497,445
216,879
61,370
6,637
1,809,714
48,600 $ 2,592,045
Customer Accounts Receivable/Credit Balances and Deposits
The timing of revenue recognition, customer billings and cash collections resulting in accounts receivables, billed and
unbilled, and customers’ credit balances and deposits on the Consolidated Balance Sheets during fiscal 2020 are as follows:
(Thousands)
Balance as of October 1, 2019
(Decrease) Increase
Balance as of September 30, 2020
Customer Accounts Receivable
Billed
Unbilled
Customers' Credit
Balances and
Deposits
$
$
139,263 $
(5,090)
134,173 $
6,510 $
2,716
9,226 $
27,116
(1,182)
25,934
The following table provides information about receivables and revenue earned on contracts in progress in excess of
billings, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits,
respectively, on the Consolidated Balance Sheets as of September 30:
Natural Gas
Distribution
(Thousands)
2020
Customer accounts receivable
Clean Energy
Ventures
Energy
Services
Storage and
Transportation
Home Services
and Other
Total
Billed
Unbilled
$
Customers' credit
balances and deposits
Total
2019
Customer accounts receivable
$
Billed
Unbilled
Customers' credit
balances and deposits
Total
$
$
52,134
7,842
(25,934)
34,042
36,302
6,510
(27,114)
15,698
5,282
1,384
—
6,666
3,233
—
—
3,233
70,457
—
—
70,457
97,301
—
—
97,301
Page 93
3,905
—
—
3,905
—
—
—
—
2,395 $
—
134,173
9,226
—
2,395 $
(25,934)
117,465
2,427 $
—
139,263
6,510
(2)
2,425 $
(27,116)
118,657
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
4. REGULATION
The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape. NJNG is required,
pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural
gas suppliers. Customers can choose the supplier of their natural gas commodity in NJNG’s service territory.
As required by EDECA, NJNG’s rates are segregated into two primary components: the commodity portion, which
represents the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the natural gas to
NJNG’s service territory; and the delivery portion, which represents the transportation of the commodity portion through
NJNG’s natural 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 1, 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 rates include a
weighted average cost of capital of 6.95 percent and a return on common equity of 9.6 percent. In addition, NJNG is permitted
to request approval of certain rate or program changes. All rate and program changes are subject to proper notification and BPU
review and approval.
Page 94
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
Conservation Incentive Program
Underrecovered natural gas costs
Derivatives at fair value, net
Other current regulatory assets
Total current regulatory assets
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries
Liability for future expenditures
Deferred income taxes
Derivatives at fair value, net
SAVEGREEN
Postemployment and other benefit costs
Deferred storm damage costs
Cost of removal
Other noncurrent regulatory assets
Total noncurrent regulatory assets
Regulatory liability-current
Overrecovered natural gas costs
Derivatives at fair value, net
Total current regulatory liabilities
Regulatory liabilities-noncurrent
Tax Act impact (1)
Derivatives at fair value, net
New Jersey Clean Energy Program
Other noncurrent regulatory liabilities
Total noncurrent regulatory liabilities
2020
2019
15,570 $
19,120
—
—
1,682
36,372 $
36,516 $
150,590
28,241
1
21,281
188,170
6,515
75,080
20,068
526,462 $
25,914 $
274
26,188 $
15,468
3,371
9,506
4,526
—
32,871
38,351
131,080
19,631
486
10,201
212,461
8,687
65,660
10,080
496,637
—
—
—
195,425 $
352
—
509
196,286 $
200,417
—
197
1,821
202,435
$
$
$
$
$
$
$
$
(1)
Reflects the re-measurement and subsequent amortization of NJNG's net deferred tax liabilities as a result of the change in federal tax rates enacted in
the Tax Act.
Regulatory assets at Adelphia Gateway, not included in the table above, total $158,000 and $997,000 in current and
noncurrent, respectively, and is comprised primarily of the tax benefit associated with the equity component of AFUDC as of
September 30, 2020. Recovery of regulatory assets is subject to FERC approval.
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 2021. NJNG recovers the costs
associated with its portion of the NJCEP obligation through its NJCEP rider, with interest.
Over and Underrecovered Natural Gas Costs
NJNG recovers its cost of natural gas through the BGSS rate component of its customers’ bills. NJNG’s cost of natural 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 natural 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 natural 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 95
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 5. 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 15. 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, with 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 11.
Employee Benefit Plans.
Deferred Storm Damage Costs
Portions of NJNG’s distribution system incurred significant damage as a result of Post-Tropical Cyclone 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. 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 96
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, 2020, NJNG recorded $1.8 million of PIM in other
regulatory assets, which is being recovered through base rates over a seven-year amortization period effective October 2016.
The following is a description of certain regulatory proceedings during fiscal 2019 and 2020:
In March 2019, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $128.2 million,
including a change in the Company’s overall rate of return on rate base to 7.87 percent. NJNG is also seeking permission to
request recovery for SRL in a future filing, upon completion of the project. On July 2, 2019, the Company filed an update with
actual information through May 31, 2019, which reflected a revenue increase of $129.8 million. In September 2019, the
Company filed a second update with actual information through August 31, 2019, which reflected a revenue increase of $134.3
million. On November 13, 2019, the BPU issued an order adopting a stipulation of settlement approving a $62.2 million
increase to base rates, which were effective on November 15, 2019. The increase includes an overall rate of return on rate base
of 6.95 percent, return on common equity of 9.6 percent, a common equity ratio of 54 percent and a depreciation rate of 2.78
percent.
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:
•
2018 BGSS/CIP filing — In April 2019, the BPU approved NJNG’s annual petition on a final basis 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 resulted in a
$30.9 million annual recovery decrease effective October 2018.
• On December 28, 2018, NJNG notified the BPU that it will increase the BGSS rate, effective February 1, 2019,
resulting in an estimated $10.9 million increase to the revenues credited to BGSS from February through
September 30, 2019.
•
•
2019 BGSS/CIP filing — On March 27, 2020, the BPU approved, on a final basis, NJNG’s annual petition to modify
its BGSS, balancing charge and CIP rates. The rate changes resulted in a $17.6 million decrease to the annual
revenues credited to BGSS and a $15.6 million annual increase related to its balancing charge, as well as changes to
CIP rates, which resulted in a $10.6 million annual recovery increase, effective October 1, 2019.
2020 BGSS/CIP filing — On September 9, 2020, the BPU approved NJNG’s annual petition to modify its BGSS,
balancing charge and CIP rates for residential and small commercial customers. The rate changes will result in a $20.4
million decrease to the annual revenues credited to BGSS, a $3.8 million annual decrease related to its balancing
charge, as well as changes to CIP rates, which will result in a $16.5 million annual recovery increase, effective
October 1, 2020.
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.
Page 97
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 upgrades to promote
energy efficiency 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, 2020, the BPU approved total SAVEGREEN investments of
approximately $354.3 million, including $135 million that was approved in September 2018, for a continuation of existing EE
programs and the implementation of new programs through December 2021.
On September 25, 2020, NJNG filed a petition with the BPU for an additional three-year SAVEGREEN program
consisting of approximately $127 million of direct investment, $113 million in financing options, and approximately $23
million in operation and maintenance expenses, to be effective July 1, 2021. SAVEGREEN investments and costs are filed with
the BPU on an annual basis. NJNG’s annual EE filings are summarized as follows:
•
•
•
2018 EE filing — On December 18, 2018, the BPU approved a decrease in NJNG's EE recovery rate reflecting actual
costs incurred through September 30, 2018, which resulted in an annual recovery of approximately $8.8 million,
effective January 1, 2019.
2019 EE filing — On October 25, 2019, the BPU approved an increase in NJNG's EE recovery rate, which resulted in
an annual recovery of approximately $11.3 million, effective November 1, 2019.
2020 EE filing — On May 29, 2020, NJNG filed a petition with the BPU to minimally decrease its EE recovery rate.
Throughout the course of the proceeding, the Company updated the filing for additional actual information. Based on
the updated information, the BPU approved the request to maintain its existing rate, which will result in an annual
recovery of approximately $11.4 million, effective November 1, 2020.
Societal Benefits Charge
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:
•
•
•
•
2018 SBC filing — In September 2018, the BPU approved NJNG’s annual USF compliance filing to increase the
statewide USF rate, which resulted in a $1 million annual increase, effective October 1, 2018. In March 2019, the
BPU approved NJNG’s annual SBC application requesting recovery of remediation expenses incurred through
June 30, 2018, an increase in the RAC of approximately $1.4 million annually, and an increase to the NJCEP factor,
which resulted in an annual increase of approximately $1.9 million, effective April 1, 2019.
2019 SBC filing — On June 24, 2019, NJNG filed its annual USF compliance filing proposing an increase to the
statewide USF rate, which will result in the annual recovery increasing by $1.2 million, effective October 1, 2019. On
September 27, 2019, NJNG filed its annual SBC application requesting to recover remediation expenses including an
increase in the RAC, of approximately $1.4 million annually and an increase to the NJCEP factor, which resulted in an
annual increase of approximately $3.3 million, effective April 1, 2020. On March 16, 2020, a stipulation was signed in
NJNG's annual SBC application which included an increase in the RAC rate of $1.2 million annually and a decrease to
the NJCEP factor of $600,000. The BPU approved the stipulation on September 9, 2020, effective October 1, 2020.
2020 USF filing — On June 25, 2020, NJNG filed its annual USF compliance filing proposing a decrease to the
statewide USF rate, decreasing the annual recovery by approximately $400,000. On September 23, 2020, the BPU
approved the decrease, effective October 1, 2020.
2020 SBC filing — On September 29, 2020, NJNG filed its annual SBC application requesting to recover remediation
expenses including an increase in the RAC, of approximately $1.3 million annually and an increase to the NJCEP
factor, which will result in an annual increase of approximately $6 million, effective April 1, 2021.
Page 98
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Infrastructure Programs
NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and
transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs. NJNG
continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG’s natural gas
distribution system, including SAFE and NJ RISE.
SAFE/NJ RISE
The SAFE program replaces portions of NJNG’s natural gas distribution unprotected steel, cast iron infrastructure and
associated services to improve the safety and reliability of the natural gas distribution system. SAFE I was approved to invest
up to $130 million, exclusive of AFUDC, over a four-year period. 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 was required to file a
base rate case no later than November 2019 and satisfied this requirement with its March 29, 2019 base rate case filing.
NJ RISE consists of six capital investment projects estimated to cost $102.5 million over a five-year period, excluding
AFUDC, for natural 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. Requests for recovery of future NJ RISE capital costs will occur in conjunction with SAFE II.
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. On September 27, 2019, the BPU approved NJNG’s annual petition requesting a base rate increase of $7.8
million, effective October 1, 2019.
On March 30, 2020, NJNG filed a petition with the BPU requesting a base rate increase of approximately $7.4 million for
the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $57.9 million made through
June 30, 2020. On July 24, 2020, the Company updated this filing for actual information through June 30, 2020 and the revised
rate increase requested is $7.1 million based on $55.1 million of actual capital investments. On September 9, 2020, the BPU
approved the increase, effective October 1, 2020.
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. All approvals required for the completion of the project have been
received and construction began in December 2018.
Infrastructure Investment Program
On February 28, 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP
consists of two components, transmission and distribution investments and information technology replacement and
enhancements. The total investment for the IIP is approximately $507 million. Upon approval from the BPU, investments will
be recovered through annual filings to adjust base rates. On October 28, 2020, the BPU approved the Company’s transmission
and distribution component of the IIP for $150 million over five years, effective November 1, 2020. The recovery of
information technology replacement and enhancements, that was included in the original IIP filing, will be included as part of
base rate filings as projects are placed in service.
Other Filings
COVID-19
On July 2, 2020, the BPU issued an order which authorized New Jersey utilities to create a regulatory asset by deferring
incremental COVID-19 related costs and required a related quarterly report be filed for the COVID-19-related costs and savings
incurred. Utilities must file petition by later of December 31, 2021, or within 60 days of the close of the regulatory asset period
and rate recovery can be addressed in the filing or the utility may request consideration be deferred to future rate case. Any
potential rate recovery and the appropriate period of recovery, will be addressed through that filing, or may request a deferral of
rate recovery for a future base rate case.
Page 99
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
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.
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 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 customer refunds of the $31 million. These credits were returned to customer accounts in June
2018. As of September 30, 2020, the regulatory liability included excess deferred income taxes of $195 million, which requires
amortization over the remaining life of the utility plant consistent with IRS normalization principles.
5. DERIVATIVE INSTRUMENTS
The Company is subject primarily 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 is exposed to foreign currency and interest rate risk and may utilize foreign currency derivatives to hedge
Canadian dollar denominated natural gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations
in interest rates. All of these types of contracts are accounted for as derivatives, unless the Company elects NPNS, which is
done on a contract-by-contract election. Accordingly, all of the financial and certain of the Company's physical derivative
instruments are recorded at fair value on the Consolidated Balance Sheets. For a more detailed discussion of the Company’s fair
value measurement policies and level disclosures associated with the Company’s derivative instruments, see Note 6. Fair Value.
Energy Services
Energy Services chooses not to designate its financial commodity and physical forward commodity derivatives as
accounting hedges or to elect NPNS. The changes in the fair value of these derivatives are recorded as a component of natural
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 natural 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 natural 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 rates 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 natural 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 natural 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.
Page 100
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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. Energy
Services 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.
Natural Gas Distribution
NJNG’s physical and financial commodity derivatives, except for those designated as NPNS, are recognized at fair value
on the Consolidated Balance Sheets. 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. Effective January 1, 2016, the Company
prospectively applies the NPNS scope exception on a case-by-case basis to certain qualifying physical commodity contracts.
Contracts that are designated as NPNS are recognized in regulatory assets or liabilities on the Consolidated Balances Sheets
upon settlement. The average cost of natural gas is charged to expense in the current-period earnings based on the BGSS factor
times the therm sales.
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 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
was recorded as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized in earnings over
the term of the $125 million, 4.01 percent notes that were issued on May 11, 2018.
During fiscal 2020, NJNG entered into treasury lock transactions to fix the benchmark treasury rate associated with a $75
million debt tranche that was issued in September 2020. Settlement of the treasury locks resulted in a $6.6 million loss, which
was recorded as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized in earnings over
the term of the debt as a component of interest expense on the Consolidated Statements of Operations, which totaled $50,000,
as of September 30, 2020.
Clean Energy Ventures
The Company elects NPNS accounting treatment on qualifying PPA contracts executed by Clean Energy Ventures that
meet the definition of a derivative. Contracts designated as NPNS are accounted for on an accrual basis. Accordingly, electricity
sales are recognized in revenues throughout the term of the PPA as electricity is delivered. NPNS is a contract-by-contract
election and where it makes sense to do so, the Company can and may elect certain contracts to be normal.
Home Services and Other
On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on its $100 million variable rate term loan,
which fixed the variable rate at 2.84 percent. The swap terminated on August 16, 2019, which coincided with the maturity of
the debt. The change in the fair value and the settlement of the interest rate swap was recorded as a component of interest
expense on the Consolidated Statements of Operations.
During fiscal 2020, NJR entered into treasury lock transactions to fix the benchmark treasury rate associated with $260
million debt issuance that was finalized in July 2020 and a $200 million debt issuance that was finalized in September 2020.
NJR designated its treasury lock contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the
hedges were recorded in OCI. Settlement of the treasury locks resulted in a loss of $13.7 million, which was recorded within
OCI and will be amortized in earnings over the life of the debt as a component of interest expense on the Consolidated
Statements of Operations, which totaled $108,000, net of tax, as of September 30, 2020.
Page 101
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
Natural Gas Distribution:
Fair Value
2020
2019
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Physical commodity contracts
Derivatives - current
$
Financial commodity contracts
Derivatives - current
$
78
71
76
282
$
67
382
$
245
570
Energy Services:
Physical commodity contracts
Derivatives - current
Derivatives - noncurrent
6,454
1,264
20,438
12,003
6,847
1,710
27,540
12,641
Financial commodity contracts
Derivatives - current
16,671
12,965
17,806
29,057
Derivatives - noncurrent
2,037
1,346
5,716
6,105
Foreign currency contracts
Derivatives - current
Derivatives - noncurrent
36
48
104
3
1
—
211
75
Total fair value of derivatives
$ 26,659
$ 47,217
$ 32,529
$ 76,444
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 102
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but
elects not to, financial collateral, as well as the net amounts the Company could present on the Consolidated Balance Sheets but
elects not to.
(Thousands)
As of September 2020:
Derivative assets:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
Natural Gas Distribution
Physical commodity contracts
Financial commodity contracts
Total Natural Gas Distribution
Derivative liabilities:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
Natural Gas Distribution
Physical commodity contracts
Financial commodity contracts
Total Natural Gas Distribution
As of September 30, 2019:
Derivative assets:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
Natural Gas Distribution
Physical commodity contracts
Financial commodity contracts
Total Natural Gas Distribution
Derivative liabilities:
Energy Services
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Total Energy Services
Natural Gas Distribution
Physical commodity contracts
Financial commodity contracts
Total Natural Gas Distribution
Amounts
Presented on
Balance Sheets (1)
Offsetting
Derivative
Instruments (2)
Financial Collateral
Received/Pledged (3) Net Amounts (4)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,718
18,708
84
26,510
78
71
149
32,441
14,311
107
46,859
76
282
358
8,557
23,522
1
32,080
67
382
449
40,181
35,162
286
75,629
245
570
815
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(3,587)
(14,311)
(84)
(17,982)
(65)
(71)
(136)
(3,587)
(14,311)
(84)
(17,982)
(65)
(71)
(136)
(2,906)
(19,646)
(1)
(22,553)
(9)
(382)
(391)
(2,906)
(19,646)
(1)
(22,553)
(9)
(382)
(391)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(200)
—
—
(200)
—
—
—
—
—
—
—
—
—
—
(200)
—
—
(200)
—
—
—
(15,516)
—
(15,516)
—
(188)
(188)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,931
4,397
—
8,328
13
—
13
28,854
—
23
28,877
11
211
222
5,451
3,876
—
9,327
58
—
58
37,275
—
285
37,560
236
—
236
(1)
(2)
(3)
(4)
Derivative assets and liabilities are presented on a gross basis on the balance sheet as the Company does not elect balance sheet offsetting under ASC
210-20.
Includes transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with ISDA netting.
Financial collateral includes cash balances at FCMs, as well as cash received from or pledged to other counterparties.
Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.
Page 103
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 natural gas to be used for storage injection and its subsequent sale at a later date. The gains (losses) on the financial
transactions that are economic hedges of the cost of the purchased natural gas are recognized prior to the gains (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 (losses) on the financial derivative instruments and gains (losses) associated with the
actual sale of the natural gas that is being economically hedged, along with fair value changes in derivative instruments, creates
volatility in the results of Energy Services, although the Company’s intended economic results relating to the entire transaction
are unaffected.
The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations as of
September 30:
(Thousands)
Derivatives not designated as hedging instruments:
Energy Services:
Location of Gain (Loss) Recognized in
Income on Derivatives
Amount of Gain (Loss) Recognized in
Income on Derivatives
2019
2020
2018
Physical commodity contracts
Physical commodity contracts
Financial commodity contracts
Foreign currency contracts
Home Services and Other:
Interest rate contracts
Operating revenues
Natural gas purchases
Natural gas purchases
Natural gas purchases
Interest expense
Total unrealized and realized (losses) gains
$
—
$
1,163
(3,366)
58,949
(41)
$
(5,732)
(521)
(643)
(283)
$
(9,311)
(197)
(24,622)
(379)
56,705
$
(233)
(7,412)
334
$ (34,175)
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. At
settlement, the resulting gains and/or losses are payable to or recoverable from utility customers and are deferred in regulatory
assets or liabilities resulting in no impact to earnings.
The following table reflects the gains (losses) 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
2020
2019
2018
$ 2,077
(3,903)
—
$ (1,826)
$ 5,926
(7,700)
—
$ (1,774)
$ 1,232
1,844
8,467
$ 11,543
NJR designates its treasury lock contracts as cash flow hedges, therefore, changes in fair value of the effective portion of
the hedges are recorded in OCI and upon settlement of the contracts, realized gains and (losses) are reclassified from OCI to
interest expense on the Consolidated Statements of Operations.
The following table reflects the effect of derivative instruments designated as cash flow hedges in OCI as of
September 30:
(Thousands)
Derivatives in cash flow hedging relationships:
Interest rate contracts
Amount of Pre-tax
Gain (Loss)
Recognized in OCI
on Derivatives
2019
2020
Location of Gain (Loss)
Reclassified from OCI
into Income
Amount of Pre-tax
Gain (Loss)
Reclassified from
OCI into Income
2019
2020
$ (13,568) $
—
Interest expense
$
140 $
—
Page 104
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG and Energy Services had the following outstanding long (short) derivatives as of September 30:
Natural Gas Distribution
Energy Services
Transaction Type
Futures
Physical Commodity
Futures
Swaps
Options
Physical Commodity
Volume (Bcf)
2020
2019
23.7
6.0
(27.5)
(1.8)
—
5.0
27.6
11.6
(29.6)
(5.0)
1.0
44.5
Not included in the above table are Energy Services' net notional amount of foreign currency transactions of
approximately $5.1 million and $6.2 million and 960,000 and 796,000 SRECs that were open, as of September 30, 2020 and
2019, respectively.
Broker Margin
Futures exchanges have contract-specific margin requirements that require the posting of cash or cash equivalents relating
to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance
margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily marked-
to-market relative to maintenance margin requirements. The Company maintains separate broker margin accounts for 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
Wholesale Credit Risk
Balance Sheet Location
Restricted broker margin accounts
Restricted broker margin accounts
2020
2019
$
$
13,525 $
55,919 $
1,982
71,741
NJNG, Energy Services and Clean Energy Ventures are exposed to credit risk as a result of their sales/wholesale
marketing activities. As a result of the inherent volatility in the prices of natural gas commodities, derivatives, SRECs,
electricity and RECs, the market value of contractual positions with individual counterparties could exceed established credit
limits or collateral provided by those counterparties. If a counterparty fails to perform the obligations under its contract (e.g.,
fails to deliver or pay for natural gas, SRECs, electricity or RECs), then 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 Fitch or Moody’s. In these cases, the
counterparty’s or guarantor’s financial statements are reviewed, and similar methodologies and ratios used by Fitch and/or
Moody’s are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and
financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/
or financial derivative commodity contract that has settled for which payment has not yet been received.
Page 105
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as
of September 30, 2020. The amounts presented below have not been reduced by any collateral received or netting and exclude
accounts receivable for NJNG retail natural gas sales and services and Clean Energy Ventures residential solar installations.
(Thousands)
Investment grade
Noninvestment grade
Internally-rated investment grade
Internally-rated noninvestment grade
Total
Gross Credit
Exposure
$ 132,105
8,527
24,647
12,471
$ 177,750
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. 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, 2020 and 2019, were considered immaterial. These
amounts differ from the respective net derivative liabilities reflected on the Consolidated Balance Sheets because the
agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its
derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.
6. FAIR VALUE
Fair Value of Assets and Liabilities
The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial
paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of
those instruments. Non-current loan receivables are recorded based on what the Company expects to receive, which
approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to
approximate fair value.
As of September 30, the estimated fair value of long-term debt at NJNG and NJR, including current maturities, excluding
finance leases and debt issuance costs, is as follows (1):
(Thousands)
NJNG (2) (3)
Carrying value
Fair market value
NJR (4)
Carrying value
Fair market value
2020
2019
$ 1,092,845 $
$ 1,271,715 $
892,845
984,129
$ 1,010,000 $
$ 1,146,033 $
550,000
584,735
(1)
(2)
(3)
(4)
See Note 9. Debt for a reconciliation to long-term and short-term debt.
Excludes finance leases of $74.2 million and $35.4 million as of September 30, 2020 and September 30, 2019, respectively.
Excludes NJNG's debt issuance costs of $9.2 million and $9 million as of September 30, 2020 and September 30, 2019, respectively.
Excludes NJR's debt issuance costs of $3.4 million and $2 million as of September 30, 2020 and September 30, 2019, respectively.
Page 106
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Clean Energy Ventures enters into transactions to sell certain commercial solar assets and lease the assets back for a term
specified in the lease. These transactions are considered financing obligations for accounting purposes and are recorded within
long-term debt on the Consolidated Balance Sheets. The estimated fair value of solar asset financing obligations as of
September 30, 2020 and September 30, 2019 was $149.2 million and $98.6 million, respectively.
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, 2020, NJR discloses its debt within Level 2 of the fair value hierarchy.
Fair Value Hierarchy
The Company applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include
financial derivatives and physical commodity contracts qualifying as derivatives, available for sale securities and other financial
assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and
the lowest priority to inputs that are based on unobservable market data and includes the following:
Level 1
Level 2
Unadjusted quoted prices for identical assets or liabilities in active markets. The Company’s Level 1 assets and
liabilities include exchange traded natural gas futures and options contracts, listed equities and money market
funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX, CME and
ICE that the Company refers to internally 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.
Page 107
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company also has 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.
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(Thousands)
As of September 2020:
Assets
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Money market funds
Other
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, 2019:
Assets
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Other (1)
Total assets at fair value
Liabilities
Physical commodity contracts
Financial commodity contracts
Financial commodity contracts - foreign exchange
Total liabilities at fair value
(1)
Includes money market funds.
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
—
18,279
—
112,291
1,840
$ 132,410
$
—
14,593
—
$ 14,593
$
—
20,028
—
1,706
$ 21,734
$
—
35,732
—
$ 35,732
$ 7,796
500
84
—
—
$ 8,380
$ 32,517
—
107
$ 32,624
$ 8,624
3,876
1
—
$ 12,501
$ 40,426
—
286
$ 40,712
$ —
—
—
—
—
$ —
$ —
—
—
$ —
$ —
—
—
—
$ —
$ —
—
—
$ —
Total
$
7,796
18,779
84
112,291
1,840
$ 140,790
$ 32,517
14,593
107
$ 47,217
$
8,624
23,904
1
1,706
$ 34,235
$ 40,426
35,732
286
$ 76,444
See Note 5. Derivative Instruments for additional details.
7. INVESTMENTS IN EQUITY INVESTEES
As of September 30, the Company’s investments in equity method investees includes the following:
(Thousands)
Steckman Ridge (1)
PennEast (2)
Total
2020
112,378 $
95,997
208,375 $
$
$
2019
114,428
85,840
200,268
(1)
(2)
Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2020 and 2019, which accrue interest at a variable rate that
resets quarterly and are due October 1, 2023.
Includes a deferred tax component related to AFUDC equity of $4.6 million and $4.1 million for September 30, 2020 and September 30, 2019,
respectively.
Page 108
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Steckman Ridge
The Company holds a 50 percent equity method investment in Steckman Ridge, a jointly owned and controlled natural
gas storage facility located in Bedford County, Pennsylvania. Due to the anticipated expiration of a customer contract, the
Company evaluated its investment in Steckman Ridge for other-than-temporary impairment and determined an impairment
charge was not necessary.
The fair value of the Company’s investment in Steckman Ridge was determined using a discounted cash flow method and
utilized management’s best estimates and assumptions related to expected future results, including the price and capacity of
firm natural gas storage contracting, operations and maintenance costs, the nature and timing of major maintenance and capital
investment, and discount rates. Fair value determinations require considerable judgment and are sensitive to changes in
underlying assumptions and other factors. As a result, it is reasonably possible that unfavorable developments, such as the
failure to execute storage contracts and other services for available capacity at anticipated price levels could result in an other-
than temporary impairment charge in the Consolidated Financial Statements.
PennEast
The Company, through its subsidiary NJR Midstream Company, is a 20 percent investor in PennEast, a partnership
whose purpose is to construct and operate a 120-mile natural gas pipeline that will extend from northeast Pennsylvania to
western New Jersey. PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on
January 19, 2018.
On September 10, 2019, the Third Circuit issued an order overturning the U.S. District Court for the District of New
Jersey’s order granting PennEast condemnation and immediate access in accordance with the Natural Gas Act to certain
properties in which the State of New Jersey holds an interest. A Petition for Rehearing was denied by the Third Circuit on
November 5, 2019.
On October 8, 2019, the NJDEP issued a letter indicating that it deemed PennEast’s freshwater wetlands permit
application to be administratively incomplete and closed the matter without prejudice. On October 11, 2019, PennEast
submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast's
objections were rejected by the NJDEP on November 18, 2019.
On October 4, 2019, PennEast filed a petition for Declaratory Order with FERC requesting an interpretation of the
eminent domain authority of a FERC certificate holder under the Natural Gas Act. The Declaratory Order was granted on
January 30, 2020.
On January 30, 2020, PennEast filed an amendment with FERC to construct the PennEast pipeline in two phases. Phase
one consists of construction of a 68-mile pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County
that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in
Pennsylvania and New Jersey. Construction could begin following approval by FERC of the phased approach and receipt of
any remaining governmental and regulatory permits.
On February 18, 2020, PennEast filed a writ of certiorari with the Supreme Court of the U.S. to review the September 10,
2019 Third Circuit decision.
On June 29, 2020, the Supreme Court requested that the Solicitor General of the U.S. file a brief that expresses the views
on the question of the use of eminent domain to acquire state owned lands for pipeline construction.
The Company evaluated its investment in PennEast for other-than-temporary impairment and determined an impairment
charge was not necessary. The Company estimated the fair value of its investment in PennEast using probability-weighted
scenarios of discounted future cash flows. Management made significant estimates and assumptions related to development
options and legal outcomes, construction costs, timing of capital investments and in-service dates, revenues and discount rates.
Higher probabilities were assumed related to those scenarios where the project is completed. The discounted cash flow
scenarios contemplated the impact of key assumptions of future court decisions and future management decisions and requires
management to make significant estimates regarding the likelihood of various scenarios and assumptions. It is reasonably
possible that future unfavorable developments, such as a reduced likelihood of success from development options and legal
outcomes, estimated increases in construction costs, increases in the discount rate, or further significant delays, could result in
Page 109
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
an impairment of our equity method investment. Also, the use of alternate judgments and assumptions could result in a different
calculation of fair value, which could ultimately result in the recognition of an other-than-temporary impairment charge in the
Consolidated Financial Statements.
8. EARNINGS PER SHARE
The following table presents the calculation of the Company’s basic and diluted earnings per share for the fiscal years
ended September 30:
(Thousands, except per share amounts)
Net income, as reported
Basic earnings per share
Weighted average shares of common stock outstanding-basic
Basic earnings per common share
Diluted earnings per share
Weighted average shares of common stock outstanding-basic
Incremental shares (1)
Weighted average shares of common stock outstanding-diluted
Diluted earnings per common share (2)
(1)
(2)
2020
2019
2018
$ 193,919 $ 169,505 $ 233,436
94,798
89,242
87,689
$2.05
$1.90
$2.66
94,798
89,242
87,689
309
374
626
95,107
89,616
88,315
$2.04
$1.89
$2.64
Incremental shares consist primarily of unvested stock awards and performance units.
There were anti-dilutive shares of 74,000 excluded from the calculation of diluted earnings per share related to the equity forward sale agreement for
fiscal 2020. There were no anti-dilutive shares excluded from the calculation of diluted earnings per share for fiscal 2019 and 2018.
9. DEBT
NJNG and NJR finance working capital requirements and capital expenditures through the issuance of various long-term
debt and other financing arrangements, including unsecured credit and private placement debt shelf facilities. Amounts
available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters
of credit.
Page 110
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 OO
Series PP
Series QQ
Series RR
Series SS
Series TT
Series UU
Series VV
Series WW
Series XX
Series YY
Series ZZ
Series AAA
Series BBB
Series CCC
Series DDD
Series EEE
Series FFF
Series GGG
Series HHH
First mortgage bonds:
3.00%
3.15%
3.58%
4.61%
2.82%
3.66%
3.63%
4.01%
3.50%
3.38%
2.45%
3.76%
3.86%
2.75%
3.00%
3.13%
3.13%
3.33%
2.87%
2.97%
Finance lease obligation-buildings
Finance lease obligation-meters
Less: Debt issuance costs
Less: Current maturities of long-term debt
Total NJNG long-term debt
NJR
3.25%
3.20%
3.48%
3.54%
3.96%
3.29%
3.60%
3.50%
3.25%
3.13%
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
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Unsecured senior notes
Total NJR long-term debt
Clean Energy Ventures
Maturity date:
August 1, 2041
April 15, 2028
March 13, 2024
March 13, 2044
April 15, 2025
April 15, 2045
June 21, 2046
May 11, 2048
April 1, 2042
April 1, 2038
April 1, 2059
July 17, 2049
July 17, 2059
August 1, 2039
August 1, 2043
June 30, 2050
July 23, 2050
July 23, 2060
September 1, 2050
September 1, 2060
June 30, 2037
Various dates
September 17, 2022
August 18, 2023
November 7, 2024
August 18, 2026
June 8, 2028
July 17, 2029
July 23, 2032
July 23, 2030
September 1, 2033
September 1, 2031
Solar asset financing obligation
Less: Current maturities of long-term debt
Total Clean Energy Ventures long-term debt
Various dates
Total long-term debt
Page 111
2020
2019
46,500
50,000
70,000
55,000
50,000
100,000
125,000
125,000
10,300
10,500
15,000
100,000
85,000
9,545
41,000
50,000
50,000
25,000
25,000
50,000
47,597
26,562
(9,195)
(10,416)
1,147,393
50,000
50,000
100,000
100,000
100,000
150,000
130,000
130,000
80,000
120,000
(3,424)
—
1,006,576
46,500
50,000
70,000
55,000
50,000
100,000
125,000
125,000
10,300
10,500
15,000
100,000
85,000
9,545
41,000
—
—
—
—
—
5,637
29,744
(9,027)
(10,420)
908,779
50,000
50,000
100,000
100,000
100,000
150,000
—
—
—
—
(2,004)
—
547,996
122,317
(16,820)
105,497
91,401
(10,999)
80,402
$ 2,259,466 $ 1,537,177
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Annual long-term debt redemption requirements, excluding finance leases, debt issuance costs and solar asset financing
obligations, as of September 30, are as follows:
(Thousands)
2021
2022
2023
2024
2025
Thereafter
NJNG
First Mortgage Bonds
NJR
NJNG
—
— $
$
—
50,000 $
$
—
$
50,000 $
70,000
$ 100,000 $
$
50,000
— $
$ 810,000 $ 972,845
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 does not restrict 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, 2020, NJNG’s equity to total capitalization ratio is 53.1 percent and has the ability to
issue up to $1.1 billion of FMB under the terms of the Mortgage Indenture.
On April 18, 2019, NJNG completed the remarketing of three FMBs, in the amount of $35.8 million, with a weighted
average interest rate of 3.02 percent. The bonds have maturity dates ranging from April 2038 to April 2059. The bonds were
previously purchased in lieu of redemption and were being held by the Company.
On July 17, 2019, NJNG entered into a Note Purchase Agreement, under which NJNG issued $100 million of 3.76
percent senior notes due July 17, 2049 and $85 million of 3.86 percent senior notes due July 17, 2059. The senior notes are
secured by an equal principal amount of NJNG's FMBs issued under NJNG's Mortgage Indenture.
On August 1, 2019, NJNG completed a remarketing of three existing variable rate FMBs, with a total principal amount of
$97 million, which fixed the interest rates of the bonds. NJNG remarketed $46.5 million at 3 percent due August 1, 2041, $41
million at 3 percent due August 2043 and $9.5 million at 2.75 percent due August 1, 2039. 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.
On May 14, 2020, NJNG entered into a Note Purchase Agreement for $125 million of its senior notes, of which $100
million were at an interest rate of 3.13 percent, maturing in 2050, and $25 million were at an interest rate of 3.33 percent,
maturing in 2060. On June 30, 2020, NJNG issued $50 million of 3.13 percent senior notes due June 30, 2050. On July 23,
2020, NJNG issued the remaining $50 million of 3.13 percent senior notes due July 23, 2050 and $25 million of 3.33 percent
senior notes due July 23, 2060. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under
NJNG’s Mortgage Indenture.
On September 1, 2020, NJNG entered into and issued a Note Purchase Agreement for $75 million of its senior notes, of
which $25 million were at an interest rate of 2.87 percent, maturing in 2050, and $50 million were at an interest rate of 2.97
percent, maturing in 2060. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s
Mortgage Indenture.
Page 112
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Sale Leasebacks
NJNG has entered into a sale leaseback for its headquarters building, which has a 16-year term that expires in June 30,
2037. The present value of the agreement’s lease payments is reflected as a finance lease liability, which are included in utility
plant and long-term debt, respectively, on the Consolidated Balance Sheets.
NJNG received $4 million, $9.9 million and $7.8 million for fiscal 2020, 2019 and 2018, respectively, in connection with
the sale leaseback of its natural gas meters. NJNG records a finance lease liability 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 2020, 2019 and 2018, NJNG
exercised early purchase options with respect to meter leases by making final principal payments of $1.2 million, $1.1 million
and $2.2 million, respectively.
Contractual commitments for finance lease payments, as of the fiscal years ended September 30, are as follows:
(Thousands)
2021
2022
2023
2024
2025
Thereafter
Subtotal
Less: Interest component
Total
NJR
senior note
54,992
6,004
4,622
5,279
3,396
2,324
76,617
(2,458)
74,159
$
$
On July 17, 2019, NJR entered into a Note Purchase Agreement for $150 million of 3.29 percent senior notes due on
July 17, 2029. NJR issued $50 million of these senior notes on July 17, 2019 and issued the remaining $100 million of these
senior notes on August 15, 2019.
On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on its $100 million variable rate term loan,
which fixed the variable rate at 2.84 percent. The swap terminated on August 16, 2019, which coincided with the maturity of
the debt. NJR had no long-term variable-rate debt outstanding as of September 30, 2020 and 2019.
On May 14, 2020, NJR entered into a Note Purchase Agreement for $260 million of its senior notes, of which $130
million are at a fixed interest rate of 3.5 percent, maturing in 2030, and $130 million are at a fixed interest rate of 3.6 percent,
maturing in 2032. On July 23, 2020, NJR issued all $260 million of the senior notes. The senior notes are unsecured and
guaranteed by certain unregulated subsidiaries of NJR.
On September 1, 2020, NJR entered into and issued a Note Purchase Agreement for $200 million of its senior notes, of
which $120 million are at a fixed interest rate of 3.13 percent, maturing in 2031, and $80 million are at a fixed interest rate of
3.25 percent, maturing in 2033. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR.
Clean Energy Ventures
Clean Energy Ventures received proceeds of $42.9 million and $71.5 million in fiscal 2020 and 2018, respectively, in
connection with the sale leaseback of commercial solar assets. Clean Energy Ventures did not receive proceeds related to the
sale leaseback of commercial solar assets during fiscal 2019. Clean Energy Ventures enters into transactions to sell the
commercial solar assets concurrent with agreements to lease the assets back over a period of five to 15 years. These sale
leasebacks arrangements did not qualify for sale treatment and, therefore, are accounted for as a financing arrangement, 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 contract term.
Page 113
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Contractual commitments for the solar financing obligation payments, as of the fiscal years ended September 30, are as
follows:
(Thousands)
2021
2022
2023
2024
2025
Thereafter
Subtotal
Less: Interest component
Total
Short-term Debt
Lease Payments
12,928
$
12,926
13,003
12,904
8,985
47,268
108,014
(23,052)
84,962
$
A summary of NJR’s and NJNG’s short-term bank facilities as of September 30, are as follows:
(Thousands)
NJR
Bank revolving credit facilities (1)
Notes outstanding at end of period
Weighted average interest rate at end of period
Amount available at end of period (2)
Bank revolving credit facilities (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)
2020
2019
$
$
$
$
$
$
$
$
$
425,000
125,350
1.49 %
289,356
250,000
—
— %
250,000
250,000
—
— %
249,269
$
$
$
$
$
$
$
$
$
425,000
25,450
3.04 %
394,800
—
—
— %
—
250,000
—
— %
249,269
Expiration
Dates
December 2023
April 2021
December 2023
(1)
(2)
(3)
(4)
Committed credit facilities, which require commitment fees of 0.075 percent on the unused amounts.
Letters of credit outstanding total $10.3 million and $4.8 million as of September 30, 2020 and 2019, respectively, which reduces amount available by
the same amount.
Committed credit facilities, which require commitment fees of 0.075 percent on the unused amounts.
Letters of credit outstanding total $731,000 as of September 30, 2020 and 2019, which reduces amount available by the same amount.
Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any
outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or
debt shelf facilities.
On October 9, 2019, NJR entered into a $350 million Bridge Facility, which was used primarily to finance the Leaf River
acquisition. The Bridge Facility accrued interest at the LIBOR rate for a 1-month interest period plus 0.875 percent during the
first 180 days, and 1.075 percent after 180 days. Loans under the Bridge Facility were required to be prepaid to the extent of
new cash proceeds received upon the issuance of equity of NJR, the incurrence of indebtedness by NJR or its subsidiaries, the
disposition of assets by NJR or its subsidiaries or upon other specified events, in each case subject to certain exceptions set
forth in the Bridge Facility. As of September 30, 2020, the loan was repaid in full.
NJR
On April 24, 2020, NJR entered into a 364-day $250 million revolving credit facility with an interest rate based on
LIBOR plus 1.625 percent. After six months, all outstanding amounts under the credit facility would convert to a term loan and
would be due on April 23, 2021. In connection with entry into this credit facility, as of September 30, 2020, all outstanding
borrowings under NJR's December 13, 2019, $150 million revolving line of credit facility were repaid. On October 24, 2020,
there was no balance outstanding on the $250 million credit facility. As a result, the credit facility was considered terminated.
Page 114
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 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 5, 2018, NJR entered into an Amended and Restated Credit Agreement governing a $425 million NJR
Credit Facility. The NJR Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension
beyond that date. 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 increments of $50 million increments up to a maximum of $250 million. Certain of
NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility. 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.
As of September 30, 2020, NJR had seven letters of credit outstanding totaling $10.3 million on behalf of Energy Services
and 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 natural gas sales and expire on dates ranging from December 2020 to September 2021.
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
NJNG
On December 5, 2018, NJNG entered into an Amended and Restated Credit Agreement governing a $250 million, NJNG
Credit Facility. The NJNG Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension
beyond that date. The NJNG Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the
issuance of letters of credit. The NJNG Credit Facility also includes an accordion feature, which would allow NJNG, 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 NJNG Credit Facility in minimum increments of $50 million up to a maximum of $100 million.
As of September 30, 2020, 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 11, 2021. 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 they will be renewed as necessary.
10. STOCK-BASED COMPENSATION
In January 2017, the NJR 2017 Stock Award and Incentive Plan replaced the NJR 2007 Stock Award and Incentive Plan.
Shares have been issued in the form of performance share units, restricted stock units, deferred retention stock units and
unrestricted common stock to non-employee directors. As of September 30, 2020, 3,189,550 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
2020
2019
2018
$ 1,943 $ 5,804 $ 3,526
2,191
2,492
1,500
7,128
9,796 12,845
(3,734)
(2,848)
$ 4,636 $ 6,948 $ 9,111
2,868
1,725
6,536
(1,900)
(1)
Excludes additional tax benefit related to delivered shares of $647,000, $1.3 million and $3 million as of September 30, 2020, 2019 and 2018,
respectively.
Page 115
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Performance Share Units
In fiscal 2020, the Company granted to certain officers 33,123 performance shares, which are market condition awards
that vest on September 30, 2022, subject to the Company meeting certain conditions. In fiscal 2020, the Company also granted
to certain officers 48,941 performance shares, of which 30,473 vest on September 30, 2022 and 18,468 vest annually over a
three-year period beginning in September 2020, both of which are subject to the Company meeting certain performance
conditions.
In fiscal 2019, the Company granted to certain officers 36,392 performance shares, which are market condition awards
that vest on September 30, 2021, subject to the Company meeting certain conditions. In fiscal 2019, the Company also granted
to certain officers 63,870 performance shares, of which 33,844 vest on September 30, 2021 and 30,026 vest annually over a
three-year period beginning in September 2019, both of which are subject to the Company meeting certain performance
conditions.
In fiscal 2018, the Company granted to certain officers 31,836 performance shares, which are market condition awards
that vested on September 30, 2020, subject to the Company meeting certain conditions. In fiscal 2018, the Company also
granted to certain officers 59,341 performance shares, of which 29,608 vested in September 30, 2020 and 29,733 vest annually
over a three-year period beginning in September 2018, both of which were subject to the Company meeting certain
performance conditions. The vesting of these awards are shown in the table below.
There is approximately $2.4 million of deferred compensation related to unvested performance shares that is expected to
be recognized over the weighted average period of 1.7 years.
The following table summarizes the performance share activity under the stock award and incentive plans for the past
three fiscal years:
Non-vested and outstanding at September 30, 2017
Granted
Vested (2)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2018
Granted
Vested (3)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2019
Granted
Vested (4)
Cancelled/forfeited
Non-vested and outstanding at September 30, 2020
Weighted Average
Grant Date
Fair Value
$30.12
$44.67
$29.49
$31.45
$39.67
$47.98
$38.52
$44.34
$46.53
$40.61
$44.27
$44.38
$44.22
Shares (1)
156,587
91,177
(100,146)
(2,442)
145,176
100,262
(103,009)
(11,920)
130,509
82,064
(55,025)
(1,817)
155,731
Total Fair Value
of Vested Shares
(in Thousands)
—
—
$ 4,714
—
—
—
$ 4,622
—
—
—
$ 2,083
—
—
(1)
(2)
(3)
(4)
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 13, 2018, the number of common shares related to performance
shares earned 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.
As certified by the Company’s Leadership and Compensation Committee on November 12, 2019, the number of common shares earned related to TSR
performance was 119 percent or 43,641 shares, the number of common shares earned related to NFE performance was 117 percent or 26,413 shares,
and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 24,468 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 9, 2020, there were no common shares earned related to TSR
performance, the number of common shares earned related to NFE performance was 114 percent or 28,513 shares and the number of common shares
earned related to Performance Based Restricted Stock was 100 percent or 11,139 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
Page 116
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 Units
In fiscal 2020, the Company granted 42,478 shares of restricted stock units that vest annually over a three-year period
beginning October 2020. In fiscal 2019, the Company granted 29,222 shares of restricted stock that vest annually over a three-
year period beginning in October 2019. In fiscal 2019, the Company also granted 6,062 shares of restricted stock that vest
annually over a three-year period beginning April 2020. In fiscal 2018, the Company granted 27,949 shares of restricted stock
that vest annually over a three-year period beginning in October 2018. There is approximately $1 million of deferred
compensation related to unvested restricted stock shares that is expected to be recognized over the weighted average period of
1.8 years.
The following table summarizes the restricted stock activity under the stock award and incentive plans for the past three
fiscal years:
Non-vested and outstanding at September 30, 2017
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2018
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2019
Granted
Vested
Cancelled/forfeited
Non-vested and outstanding at September 30, 2020
Deferred Retention Stock Units
Weighted Average
Grant Date
Fair Value
$32.40
$45.00
$31.23
$33.54
$41.24
$48.24
$39.26
$42.96
$46.18
$40.61
$44.71
$43.62
$43.52
Shares
51,154
27,949
(33,815)
(1,120)
44,168
35,284
(20,748)
(548)
58,156
42,478
(25,973)
(1,175)
73,486
Total Fair Value
of Vested Shares
(in Thousands)
—
—
$ 1,438
—
—
—
$ 935
—
—
—
$ 1,073
—
—
Deferred retention stock awards are granted upon approval by the Board of Directors, which generally occurs subsequent
to the fiscal year end. 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 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, 2017
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2018
Granted/Vested
Delivered
Forfeited
Outstanding at September 30, 2019
Granted/Vested
Delivered
Outstanding at September 30, 2020
Weighted Average
Grant Date
Fair Value
$29.54
$45.00
$29.42
$35.56
$32.99
$47.95
$30.32
$44.41
$44.67
$40.72
$35.25
$46.32
Shares
672,578
24,167
(452,694)
(1,969)
242,082
167,407
(158,733)
(7,195)
243,561
42,358
(57,673)
228,246
Total Fair Value
of Vested Shares
(in Thousands)
—
—
$ 19,581
—
—
$ 7,145
—
—
—
$ 2,423
—
Page 117
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Non-Employee Director Stock
Effective January 2020, non-employee director compensation includes an annual equity retainer that is awarded at the
time of the Company’s annual meeting of shareowners. The shares vest upon the earlier of the first anniversary of the grant date
or the date of the Company’s next annual meeting of shareowners following the grant date and are subsequently amortized to
expense over a 12-month period. During fiscal years 2019 and 2018, the equity portion of non-employee director compensation
was awarded in shares of NJR common stock. The shares vested immediately and were 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
2020
27,696 (1)
$42.88
2019
2018
26,165
$44.80
26,524
$39.85
(1)
$311,000 of expense remains as of September 30, 2020, to be recognized through December 31, 2020.
11. EMPLOYEE BENEFIT PLANS
Pension and Other Postemployment Benefit Plans
The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented
and non-represented 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 2020 and 2019, the Company had no minimum
funding requirements. The Company made no discretionary contributions to the pension plans in fiscal 2020 or 2019. 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 $8.4 million and $7.9 million, in fiscal 2020 and 2019,
respectively, and estimates that it will contribute between $5 million and $10 million over each of the next five years.
Additional contributions may be required based on market conditions and changes to assumptions.
The Affordable Care Act was enacted in March 2010 and created an excise tax applicable to high-cost health plans,
commonly known as the Cadillac Tax. Employers who sponsor health plans that have an annual cost that exceeded an amount
defined by the law would pay a 40 percent tax on the excess plan costs beginning in 2022. The 2020 federal spending package
permanently eliminated the Affordable Care Act-mandated Cadillac tax on high-cost employer-sponsored health coverage. Due
to the repeal, the Company's OPEB liability was revalued for these changes. The Company applied a practical expedient to
remeasure the plan assets and obligations as of December 31, 2019, which was the nearest calendar month-end date. The impact
of the revaluation of the OPEB liability was recorded as of January 1, 2020 and is incorporated within actuarial assumptions at
September 30, 2020.
Page 118
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the
Consolidated Balance Sheets as of September 30:
(Thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions (2)
Actuarial loss (gain)
Benefits paid, net of retiree subsidies received
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid, net of plan participants’ contributions (2)
Fair value of plan assets at end of year
Funded status
Amounts recognized on Consolidated Balance Sheets
Postemployment employee (liability)
Current
Noncurrent
Total
Pension (1)
OPEB
2020
2019
2020
2019
$ 360,477 $ 298,575 $ 260,003 $ 196,785
4,404
8,324
210
54,700
(4,420)
$ 397,164 $ 360,477 $ 245,862 $ 260,003
7,381
12,173
43
52,549
(10,244)
4,854
7,026
194
(23,226)
(2,989)
8,223
10,587
25
29,738
(11,886)
30,632
596
(11,894)
$ 288,634 $ 279,410 $
19,194
231
(10,201)
$ 307,968 $ 288,634 $
$
77,980
2,499
7,926
(4,479)
83,926
(71,843) $ (149,456) $ (176,077)
83,925 $
6,872
8,436
(2,827)
96,406 $
(89,196) $
$
$
(531) $
(88,665)
(89,196) $
(800)
(900) $
(603) $
(71,240)
(175,277)
(148,556)
(71,843) $ (149,456) $ (176,077)
(1)
(2)
Includes the Company’s PEP.
Prior to July 1, 1998, employees were eligible to elect an additional participant contribution to enhance their benefits and contributions made during the
periods were insignificant.
The actuarial loss on the Company’s pension is primarily due to a decrease in the discount rate used to measure the
benefit obligation. The actuarial gain related to the OPEB plans is primarily due to the remeasurement of the plan assets and
obligations due to the removal of the Cadillac tax, partially offset by a decrease 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, 2018
Amounts arising during the period:
Net actuarial loss
Amounts amortized to net periodic costs:
Net actuarial (loss)
Prior service credit
Balance at September 30, 2019
Amounts arising during the period:
Net actuarial loss (gain)
Amounts amortized to net periodic costs:
Net actuarial (loss)
Prior service (cost) credit
Balance at September 30, 2020
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$ 66,233 $ 68,685
$ 14,633 $
7,659
38,137
48,452
14,271
9,264
(4,662)
(102)
(5,820)
312
$ 99,606 $ 111,629
(648)
(1,103)
—
53
$ 27,801 $ 16,328
11,953
(21,974)
7,731
(1,614)
(7,893)
(102)
(6,536)
182
$ 103,564 $ 83,301
(907)
(2,528)
—
16
$ 33,004 $ 13,823
Page 119
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
2020
2019
2020
2019
2020
2019
2020
2019
$ 103,197 $ 99,139 $ 83,600 $ 112,109 $ 33,004 $ 27,801 $ 13,847 $ 16,367
(39)
$ 103,564 $ 99,606 $ 83,301 $ 111,629 $ 33,004 $ 27,801 $ 13,823 $ 16,328
(299)
(480)
367
467
(24)
—
—
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
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 2021 are as follows:
(Thousands)
Net actuarial loss
Prior service cost (credit)
Total
Regulatory Assets
OPEB
Pension
Accumulated Other
Comprehensive
Income (Loss)
Pension
OPEB
$
$
8,269 $
102
8,371 $
6,846
(166)
6,680
$
$
3,178 $
—
3,178 $
1,064
(13)
1,051
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
2020
2019
$ 397,164 $ 360,477
$ 352,320 $ 319,527
$ 307,968 $ 288,634
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
2020
Pension
2019
2018
2020
OPEB
2019
$
8,223 $
7,381 $
8,139 $
4,854 $
4,404 $
10,587
12,173
10,493
7,026
8,324
2018
4,607
6,365
(20,579)
(19,054)
(19,639)
(6,510)
(5,515)
(5,352)
Prior service cost (credit) amortization
102
102
106
10,424
5,765
7,537
7,442
(197)
6,466
(365)
Net periodic benefit cost
Special termination benefit
8,757 $
6,367 $
6,636 $
12,615 $
13,314
—
—
3,730
—
—
4,660
(365)
9,915
490
Net periodic benefit cost recognized as expense $
8,757 $
6,367 $
10,366 $
12,615 $
13,314 $
10,405
Page 120
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:
2020
Pension
2019
2018
2020
OPEB
2019
2018
Benefit costs:
Discount rate
Expected asset return
Compensation increase
Obligations:
3.37/3.35% (1)
7.25
4.36/4.35% (1)
7.00 %
3.00/3.50% (1) 3.25/3.50% (1)
4.04/4.03% (1)
7.50 %
3.25/3.50% (1)
3.48/3.44% (1)
4.38/4.37% (1)
7.00 %
3.00/3.50% (1) 3.25/3.50% (1) 3.25/3.50% (1)
4.12/4.08% (1)
7.50 %
7.25
Discount rate
Compensation increase
2.95/2.92% (1) 3.37/3.35% (1) 4.36/4.35%
3.00/3.50% (1) 3.00/3.50% (1) 3.25/3.50% (1)
3.08/3.03% (1) 3.48/3.44% (1) 4.38/4.37% (1)
3.00/3.50% (1) 3.00/3.50% (1) 3.25/3.50% (1)
(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. The Company measures its service and interest costs
using a disaggregated, or spot rate, 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, which aligns 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
2020
7.6%
4.5%
2026
2019
7.6%
4.5%
2026
2018
7.9%
4.5%
2024
$ 49,106
$ 2,799
$ 49,061
$ 2,923
$ 36,260
$ 2,482
$ (38,844)
$ (2,151)
$ (38,747)
$ (2,250)
$ (28,743)
$ (1,937)
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
2021
Target
Assets at
September 30,
Allocation
34 %
2020
38 %
17
38
11
18
39
5
2019
37 %
17
42
4
100 %
100 %
100 %
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 U.S. The adoption of the new mortality
Page 121
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
projection scale, MP-2019 and the Pri-2012 mortality study, 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)
2021
2022
2023
2024
2025
2026 - 2030
Pension
OPEB
6,179
$ 12,799 $
6,837
$ 13,765 $
7,420
$ 14,512 $
7,988
$ 15,345 $
$ 16,267 $
8,625
$ 95,969 $ 52,480
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)
2021
2022
2023
2024
2025
2026 - 2030
Estimated Subsidy
Payment
$
$
$
$
$
$
292
316
349
384
420
2,789
Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:
(Thousands)
As of September 2020:
Assets
Money market funds
Registered Investment Companies:
Equity Funds:
Large Cap Index
Extended Market Index
International Stock
Fixed Income Funds:
Emerging Markets
Core Fixed Income
Opportunistic Income
Ultra Short Duration
High Yield Bond Fund
Long Duration Fund
Total assets at in the fair value hierarchy
Investments measured at net asset value
$
Common collective trusts
Total assets at fair value
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Pension
Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
OPEB
Total
$
—
$
—
$
15
$
15
95,542
21,085
56,912
16,008
—
—
—
26,303
77,036
292,886
$
29,908
6,470
17,390
4,958
11,146
7,128
7,057
8,223
—
92,295
15,082
307,968
$
$
29,908
6,470
17,390
4,958
11,146
7,128
7,057
8,223
—
92,295
4,111
96,406
95,542
21,085
56,912
16,008
—
—
—
26,303
77,036
292,886
Page 122
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
(Thousands)
As of September 30, 2019:
Assets
Money market funds
Registered Investment Companies:
Equity Funds:
Large Cap Index
Extended Market Index
International Stock
Fixed Income Funds:
Emerging Markets
Core Fixed Income
Opportunistic Income
Ultra Short Duration
High Yield Bond Fund
Long Duration Fund
Total assets at in the fair value hierarchy
Investments measured at net asset value
$
Common collective trusts
Total assets at fair value
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Pension
Total
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
OPEB
Total
$
—
$
—
$
21
$
21
89,374
16,548
49,929
15,794
—
—
—
24,328
80,041
276,014
89,374
16,548
49,929
15,794
—
—
—
24,328
80,041
276,014
$
25,474
5,036
14,564
4,764
10,570
6,365
6,340
7,350
—
80,484
12,620
288,634
$
$
25,474
5,036
14,564
4,764
10,570
6,365
6,340
7,350
—
80,484
3,442
83,926
The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2020 and 2019, and there have been no changes
in valuation methodologies as of September 30, 2020. The Plan held assets that are valued using net asset value as a practical
expedient, which are excluded from the fair value hierarchy.
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.
Common collective trusts — The NAV for common collective trusts is provided by the trustee and is used as a practical
expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund less liabilities.
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. The Company matches 80 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 3.5 percent and 4.5 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 $4.5 million in fiscal
2020, $3.9 million in fiscal 2019 and $3.9 million in fiscal 2018. The amount contributed for the employer special contribution
of the Savings Plan was $1.6 million in fiscal 2020, $1.3 million in fiscal 2019 and $959,000 in fiscal 2018.
Page 123
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
12. ASSET RETIREMENT OBLIGATIONS
The Company recognizes ARO 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 ARO related to the costs associated with cutting and capping its
main and service natural gas distribution pipelines of NJNG, which is required by New Jersey law when taking such natural gas
distribution pipeline out of service. The Company also recognizes ARO related to Clean Energy Ventures’ solar 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 ARO for the fiscal years ended September 30:
(Thousands)
Balance at October 1
Accretion
Additions
Change in estimated useful life
Change in assumptions
Retirements
Other
Balance at period end
2020
2019
NJNG
NJRCEV
NJNG
NJRCEV
$
$
26,944 $
1,476
—
—
1,104
(244)
—
29,280 $
4,102
196
1,306
(1,160)
—
—
—
4,444
$
$
25,640 $
1,427
135
—
—
(258)
—
26,944 $
3,048
150
904
—
—
—
—
4,102
Accretion for the next five years, for the fiscal years ended September 30, is estimated to be as follows:
(Thousands)
2021
2022
2023
2024
2025
Total
13. INCOME TAXES
Estimated
Accretion
1,717
$
1,789
1,869
1,948
2,029
9,352
$
The income tax benefit 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
2020
2019
2018
$
(2,164) $
6,763
10,933 $
3,530
(2,848)
4,563
31,577
(900)
(42,220)
(6,944) $
7,988
5,833
(66,035)
(37,751) $
(40,785)
6,731
(21,446)
(53,785)
$
Page 124
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
As of September 30, the temporary differences, which give rise to deferred tax assets (liabilities), consist of the
following:
(Thousands)
Deferred tax assets
Investment tax credits (1)
Federal net operating losses (2)
State net operating losses
Fair value of derivatives
Postemployment benefits
Incentive compensation
Amortization of intangibles
Overrecovered natural gas costs
Other
Total deferred tax assets
Less: Valuation allowance
Total deferred tax assets net of valuation allowance
Deferred tax liabilities
Property related items
Remediation costs
Investments in equity investees
Underrecovered natural gas costs
Conservation incentive plan
Other
Total deferred tax liabilities
Total net deferred tax liabilities
2020
2019
$
$
$
$
$
$
194,840
24,091
33,233
13,979
8,544
7,071
5,892
7,244
2,370
297,264
(17,639)
279,625
(419,075)
(10,207)
(23,395)
—
(5,345)
(6,639)
(464,661)
(185,036)
$
$
$
$
$
$
156,153
24,173
25,302
9,673
9,192
7,231
4,991
—
7,139
243,854
(4,035)
239,819
(379,673)
(10,720)
(21,730)
(2,657)
(942)
(4,776)
(420,498)
(180,679)
(1)
(2)
Includes $898,000 and $2 million for NJNG for fiscal 2020 and 2019, respectively, which is being amortized over the life of the related assets.
See discussion of federal net operating loss utilization in the Other Tax Items section of this note.
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:
Investment/production tax credits
Cost of removal of assets placed in service prior to 1981
AFUDC equity
State income taxes, net of federal benefit
NJ Unitary method change
Basis adjustment of solar assets due to ITC
Valuation allowance
Tax Act - utility excess deferred income taxes amortized (1)
Tax Act - nonutility excess deferred income taxes (1)
Tax Act - utility excess deferred income taxes refunded to customers (1)
Other
Income tax benefit
Effective income tax rate (2) (3)
2020
$ 39,265
2019
$ 27,668
2018
$ 44,014
(42,220)
(5,362)
(4,933)
8,657
(15,345)
4,399
13,604
(3,573)
—
—
(1,436)
$ (6,944)
(66,035)
(6,349)
(2,313)
7,707
—
6,500
—
(3,573)
—
—
(1,356)
(21,446)
(5,829)
(2,117)
7,092
—
1,080
—
(1,786)
(59,627)
(14,323)
(843)
$ (37,751) $ (53,785)
(3.7) %
(28.7) %
(29.9) %
(1)
(2)
(3)
For a more detailed description, see The Tax Act section of this note.
The U.S. federal statutory rate was 21 percent for both fiscal 2020 and 2019 and 24.5 percent for fiscal 2018.
The effective tax rate without the impact of the Tax Act would have been 12.4 percent for fiscal 2018.
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, Louisiana, Maryland, New Jersey, North Carolina,
Pennsylvania, Texas, Mississippi and Virginia. 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.
Page 125
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 open to examination or are currently under examination by the IRS. For all periods subsequent to those ended
September 30, 2016, 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,
2015 are statutorily open to examination.
In May 2019, the Company received a favorable ruling from the IRS regarding a change to its tax method of accounting
for the capitalization of certain costs associated with self-constructed property placed in service during fiscal years prior to
September 30, 2015. The self-constructed property to which these costs relate is considered qualified energy property as
defined under the Internal Revenue Code. As such, the Company is eligible to claim a 30 percent ITC on the increase in the
depreciable cost basis of the property through the filing of an amended tax return in the year of change. As a result of the
favorable IRS ruling, the Company recorded a benefit from income taxes of approximately $10 million from the additional ITC
recognized, net of deferred taxes.
NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations
associated with unrecognized tax benefits. A tax benefit claimed, or expected to be claimed, on a tax return may be recognized
if it is more likely than not that the position will be upheld upon examination by the applicable taxing authority. Interest and
penalties related to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest, and
penalties are recognized within other noncurrent liabilities on the Consolidated Balance Sheets.
As of September 30, 2020, the Company evaluated certain tax benefits that have been recorded in the financial statements
and concluded that a portion of the tax benefits are uncertain at this time. As a result, the Company recorded a reserve that is
included in accrued taxes on the Consolidated Balance Sheets. The tax benefits relate to fiscal tax years open to examination by
the IRS and may be subject to subsequent adjustment. The reserve for uncertain tax benefits for the fiscal year ended
September 30, is as follows:
(Thousands)
Balance at October 1,
Additions based on tax positions related to the current fiscal period
Balance at period end
2020
2019
$
$
4,930 $
—
4,930 $
—
4,930
4,930
CARES Act
On March 27, 2020, the President of the U.S. signed the CARES Act, which is aimed at providing emergency assistance
and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S.
economy. The CARES Act, among other things, includes several business tax provisions which include, but are not limited to
modifications of federal net operating loss carrybacks and deductibility, changes to prior year refundable alternative minimum
tax liabilities, increase of limitations on business interest deductions from 30 percent to 50 percent of earnings before interest,
taxes, depreciation, and amortization, technical corrections of the classification of qualified improvement property making them
eligible for bonus depreciation, increase of the limits on charitable contribution deductions from 10 percent to 25 percent of
adjusted taxable income, modifications of the treatment of federal loans, loan guarantees, and other investments, suspension of
industry specific excise taxes, deferral of the company portion of OASDI, and implementation of a refundable employee
retention tax credit.
The CARES Act provides for the delay in the required deposit of the employer portion of the OASDI payroll tax from the
date of enactment through the end of 2020. Of the taxes that the Company can defer, 50 percent of the deferred taxes are
required to be deposited by the end of 2021 and the remaining 50 percent are required to be deposited by the end of 2022.
Additionally, The CARES Act provides a refundable tax credit, the employee retention tax credit, to certain employers who are
ordered by a competent governmental authority to suspend or reduce business operations due to concern about the spread of
COVID-19 or suffered a significant decline in the business during a calendar quarter during 2020 compared to the same
calendar quarter during the previous year. As of September 30, 2020, the Company deferred $3.1 million related to the
employer portion of the OASDI tax. The Company is currently investigating the applicability of the Employee Retention Tax
credit.
Page 126
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Tax Items
As of September 30, 2020 and 2019, the Company has federal income tax net operating losses of approximately $134
million. Federal net operating losses can generally 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 $22.8 million as of September 30, 2020 and 2019, 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 $24.1 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, 2020 and 2019, the Company has tax credit carryforwards of approximately $195.2
million and $154.2 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 $24.1 million. These recaptured tax credits
are in addition to the $195.2 million and will be carried forward to offset future taxable income. The Company expects to utilize
this entire carryforward prior to expiration, which would begin in fiscal 2034.
As of September 30, 2020 and 2019, the Company has state income tax net operating losses of approximately $487.7
million and $340 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 after 2035. The Company expects to utilize this entire carryforward, other than as described
below.
On February 7, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets. As a result of the sale, it is
more likely than not that certain state net operating loss carryforwards will not be realizable prior to their expiration and
recorded a valuation allowance related to state net operating loss carryforwards in Montana, Iowa and Kansas.
As a result of changes to filing requirements in the State of New Jersey that require tax returns filed for periods ending on
or after July 31, 2019, be filed on a combined basis when part of an affiliated group, the Company recorded a benefit from
income taxes, resulting from the re-measurement of deferred income tax attributes. The Company also evaluated its New Jersey
state net operating loss carryforwards on a post-apportionment basis and determined it is more likely than not that a portion of
these net operating loss carryforwards may not be realizable prior to their expiration. As a result, the Company recorded a
valuation allowance associated with New Jersey state net operating loss carryforwards.
As of September 30, 2020 and 2019, the Company had a valuation allowance of $17.6 million and $4 million related to
state net operating loss carryforwards.
The Consolidated Appropriations Act extended the 30 percent ITC for solar property that is under construction on or
before December 31, 2019. Projects placed in service after December 31, 2019, may also qualify for a 30 percent federal ITC if
five percent or more of the total costs of a solar property are incurred before the end of the applicable year and there are
continuous efforts to advance towards completion of the project, based on the IRS guidance around ITC safe harbor
determination. 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.
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 applied a federal
statutory tax rate of 24.5 percent during fiscal 2018 and as of October 1, 2018, used the enacted rate of 21 percent. As a result
of the changes associated with the Tax Act during fiscal 2019, the Company recognized a tax benefit of $59.6 million.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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, 2020, the regulatory liability included excess deferred income taxes of $195 million, which requires amortization over the
remaining life of the utility plant consistent with IRS normalization principles.
14. LEASES
Lessee Accounting
The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control
the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right
to direct the use of the asset and accounts for leases in accordance with ASC 842, Leases. Right-of-use assets represent the
Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make
lease payments arising from the lease. Right-of-use assets and leased liabilities are recognized at the lease commencement date
based on the present value of lease payments over the lease term, including payments at commencement that depend on an
index or rate. The Company’s land leases and office equipment leases in which the Company is the lessee do not have a readily
determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement
date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available,
unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company
uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which
it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases.
For more information on the adoption of ASC 842, Leases, see Note 2. Summary of Significant Accounting Policies.
The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases,
equipment and real property, including land and office facilities, office equipment and the sale leaseback of its natural gas
meters.
Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment
component that relates to the change in the inflation metrics that are not known past the current payment period. These variable
components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use
asset and lease liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The
capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.
The Company’s solar land lease terms are primarily between 15 and 35 years, which includes options to extend the terms
for multiple additional 5 to 10 years each. The Company’s office leases vary in duration, ranging from 1 to 25 years and may or
may not include extension or early purchase options. The majority of the Company’s meter leases are for terms of 7 years with
purchase options available prior to the end of the 7 year term. Equipment leases include general office equipment that also vary
in duration, most are for a term of 5 years. The Company's storage and capacity leases have assumed terms of 50 years to
coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms
may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability
calculation when it is reasonably certain that those options will be exercised. The expense related to the leases subject to the
short-term lease recognition exemption are recognized on a straight-line basis, with such amounts disclosed in the financial
statement notes below.
The Company has lease agreements with lease and nonlease components and has elected the practical expedient to
combine lease and nonlease components for certain classes of leases, such as office buildings, solar land leases and office
equipment. Variable payments are not significant to the Company. The Company’s lease agreements do not contain any
Page 128
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
material residual value guarantees, material restrictions or material covenants. There are no material lease transactions with
related parties.
The following table presents the Company's lease costs included in the Consolidated Statements of Operations for the
fiscal year ended September 30:
(Thousands)
Finance lease cost
Income Statement Location
2020
Amortization of right-of-use assets Depreciation and amortization
Interest on lease liabilities
Interest expense, net of capitalized interest
Total finance lease cost
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Operation and maintenance, net of capitalized costs
Operation and maintenance
Operation and maintenance
$
$
$
5,007
1,511
6,518
6,404
1,041
1,025
14,988
The following table presents supplemental cash flow information related to leases for the fiscal year ended September 30:
(Thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
2020
$
$
$
8,804
1,189
6,985
Assets obtained or modified through amendments in exchange for operating lease liabilities during fiscal 2020 were $76.6
million. Assets obtained or modified through amendments in exchange for finance lease liabilities during fiscal 2020, were
$49.7 million.
The following table presents the balance and classifications of our right of use assets and lease liabilities included in the
Consolidated Balance Sheets for the fiscal year ended September 30:
(Thousands)
Assets
Noncurrent
Operating lease assets
Finance lease assets
Total lease assets
Liabilities
Current
Operating lease liabilities
Finance lease liabilities
Noncurrent
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
Balance Sheet Location
2020
Operating lease assets
Utility plant
Operating lease liabilities
Current maturities of long-term debt
Operating lease liabilities
Long-term debt
$
$
$
$
131,769
71,085
202,854
6,724
10,416
95,030
63,743
175,913
As of September 30, 2020, the weighted average remaining lease term for the operating and finance leases is 25.5 and
11.5 years, respectively. The weighted average discount rate used in the valuation of the operating and finance lease liabilities
and right-of-use assets over the remaining lease term is 3.18 percent and 2.5 percent, respectively.
Page 129
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table presents the Company's maturities of lease liabilities as of September 30, 2020:
(Thousands)
2021
2022
2023
2024
2025
Thereafter
Total future lease payments
Less: Liability accretion
Total lease liability
Operating Leases Finance Leases
$
6,706 $
6,634
6,590
6,210
5,646
122,085
153,871
(52,117)
101,754 $
54,992
6,004
4,622
5,279
3,396
2,324
76,617
(2,458)
74,159
$
The following table reflects the Company's future minimum lease payments due under non-cancelable operating leases for
continuing operations as of September 30, 2019, under ASC 840 and is being presented for comparative purposes. These
commitments relate principally to commercial solar land leases, equipment and real property leases, including land and office
facility leases, natural gas meters and office equipment.
(Thousands)
2020
2021
2022
2023
2024
Thereafter
Operating Leases Finance Leases
$
$
$
$
$
$
4,411 $
4,698 $
4,609 $
4,579 $
4,199 $
54,405 $
11,707
6,603
7,494
3,995
4,652
4,173
On August 14, 2020, the Company entered into a partial termination agreement of its lease contracts associated with its
natural gas cavern storage. As a result of the partial termination, the Company paid $28.5 million to the lease owners receiving
in return a 50 year non-compete agreement. The Company treated these Leaf River lease arrangements as one combined
contract and its termination was recognized as remeasurement of the remaining lease assets that will be amortized over the
remaining part of the lease lives.
15. COMMITMENTS AND CONTINGENT LIABILITIES
Cash Commitments
NJNG has entered into long-term contracts, expiring at various dates through October 2036, for the supply, transportation
and storage of natural gas. These contracts include annual fixed charges of approximately $124.7 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.
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Commitments as of September 30, 2020, 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
2021
2022
2023
2024
2025
Thereafter
$ 151,270 $
21,857
76,462
— $
2,488
17,110
$ 249,589 $ 68,079 $ 38,368 $ 26,435 $ 19,598 $
— $
3,748
22,687
— $
8,632
29,736
1,600 $
13,028
53,451
—
942
36,527
37,469
$
— $
— $
4,377 $
36,096
20,303
32,122
88,564 131,578 107,614
—
3,530
552,465
$ 129,037 $ 163,700 $ 127,917 $ 97,886 $ 86,439 $ 555,995
$ 378,626 $ 231,779 $ 166,285 $ 124,321 $ 106,037 $ 593,464
— $
6,830
79,609
— $
12,768
85,118
As of September 30, 2020, the Company’s future minimum lease payments under various operating leases will not be
more than $1.4 million annually for the next five years and $73,000 in the aggregate for all years thereafter.
Guarantees
As of September 30, 2020, there were NJR guarantees covering approximately $258 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 certain former 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 NJDEP regulations.
NJNG periodically, and at least annually, performs an environmental review of former MGP sites located in Atlantic
Highlands, Berkeley, Long Branch, Manchester, Toms River, and Freehold, New Jersey, collectively, the "former MGP sites",
including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the most recent
review that total future expenditures at the former MGP sites for which it is responsible, including potential liabilities for
further and continued natural resource damages, may be brought by the NJDEP for alleged injury to groundwater or other
natural resources concerning these sites. As we have not yet completed the remedial investigation of the site, the total amount of
potential costs of all remedial actions at the MGP site in Freehold, New Jersey, cannot be reasonably estimated at this time.
The estimated total future expenditures for all former MGP sites will range from approximately $143.1 million to $181.7
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, the Company accrues at the lower end of the range. Accordingly, NJNG recorded an MGP remediation
liability and a corresponding regulatory asset on the Consolidated Balance Sheets of $150.6 million as of September 30, 2020
and $131.1 million as of September 30, 2019, based on the most likely amount. The remediation liability at September 30, 2020
includes adjustments for actual expenditures during fiscal 2020. 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.
In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership
and if former MGP operations were active at the location. As of September 30, 2019, costs associated with preliminary
assessment activities were considered immaterial and included as a component of NJNG’s annual SBC application to recover
remediation expenses. The preliminary assessment and site investigation activities are ongoing at the Aberdeen, NJ site
location. The estimated costs to complete the preliminary assessment and site investigation phase is included in the MGP
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New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
remediation liability and corresponding regulatory asset on the Consolidated Balance Sheet at September 30, 2020. NJNG will
continue to gather information to determine whether the obligation exists to undertake remedial action.
NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC
approved by the BPU. On September 9, 2020,the BPU approved NJNG's an increase in the RAC, which increased the annual
recovery from $8.5 million to $9.7 million and is effective October 1, 2020. As of September 30, 2020, $36.5 million of
previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory
assets on the Consolidated Balance Sheets. NJNG 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
accruals 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 accrued.
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.
16. COMMON STOCK EQUITY
On December 4, 2019, the Company completed an equity offering of 6,545,454 common shares, consisting of 5,333,334
common shares issued directly by the Company and 1,212,120 common shares issuable pursuant to forward sales agreements
with investment banks. The issuance of 5,333,334 resulted in proceeds of approximately $212.9 million, net of issuance costs,
and was reflected in shareholders' equity and as a financing activity on the statement of cash flows.
Under the forward sale agreements, a total of 1,212,120 common shares were borrowed from third parties and sold to the
underwriters. Each forward sale agreement allowed the Company, at its election and prior to September 30, 2020, to physically
settle the forward sale agreement by issuing common shares in exchange for net proceeds at the then-applicable forward sale
price specified by the agreement, which was initially $40.0125 per share, or, alternatively, to settle the forward sale agreement
in whole or in part through the delivery or receipt of shares or cash. The forward sale price is subject to adjustment daily based
on a floating interest rate factor and will decrease in respect of certain fixed amounts specified in the agreement, such as
anticipated dividends.
On September 18, 2020, the Company amended our forward sale agreements to extend the maturity date of such forward
sales agreements from September 30, 2020 to September 10, 2021. As of September 30, 2020, if the Company elected to net
settle the forward sale agreement, the Company would receive approximately $14.3 million under a cash settlement or would
receive 543,150 common shares under a net share settlement.
Issuances of shares under the forward sale agreements are classified as equity transactions. Accordingly, no amounts
relating to the forward sale agreements have or will be recorded in the financial statements until settlements take place. Prior to
any settlements, the only impact to the financial statements is the inclusion of incremental shares within the calculation of
diluted EPS using the treasury stock method until settlement of the forward sale agreements. Under this method, the number of
the Company common shares used in calculating diluted EPS is deemed to be increased by the excess, if any, of the number of
shares that would be issued upon physical settlement of the forward sale agreements less the number of shares that would be
purchased by the Company in the market (based on the average market price during the same reporting period) using the
proceeds receivable upon settlement (based on the adjusted forward sale price at the end of that reporting period). Share dilution
occurs when the average market price of the Company's common shares is higher than the adjusted forward sale price. See Note
8. Earnings Per Share for the impact of the forward sale agreements on the calculation of diluted earnings per share.
Page 132
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
17. 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 Storage and Transportation segment consists of the
Company’s investments in natural gas storage and transportation 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
Storage and Transportation
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)
Storage and Transportation
Subtotal
Home Services and Other
Eliminations
Total
Interest income (3)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Storage and Transportation
Subtotal
Home Services and Other
Eliminations
Total
2020
2019
2018
$ 729,923 $ 710,793 $ 731,865
102,617
98,099
71,375
1,029,303 1,734,553 2,064,477
48,327
1,116
8,238
42,015
2,713
—
—
1,907,687 2,551,683 2,916,044
—
—
49,810
1,207
(5,036)
47,392
2,665
(50,992)
$ 1,953,668 $ 2,592,045 $ 2,915,109
48,600
2,302
(10,540)
$
71,883 $
37,855
123
9,293
119,154
1,032
(292)
$ 119,894 $
$
$
538 $
240
99
3,510
4,387
8,633
(10,061)
2,959 $
57,980 $
32,997
118
6
91,101
914
(285)
91,730 $
994 $
—
78
4,000
5,072
1,942
(5,391)
1,623 $
53,208
31,877
76
6
85,167
780
(246)
85,701
614
—
240
3,374
4,228
1,476
(5,090)
614
Includes sales to Canada for the Energy Services segment, which are immaterial.
(1)
(2) The amortization of acquired wholesale energy contracts is excluded above and is included in natural gas purchases - nonutility on the Consolidated
Statements of Operations.
Included in other income, net on the Consolidated Statements of Operations.
(3)
Page 133
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
(Thousands)
Fiscal Years Ended September 30,
Interest expense, net of capitalized interest
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Storage and Transportation
Subtotal
Home Services and Other
Eliminations
Total
Income tax provision (benefit)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Storage and Transportation
Subtotal
Home Services and Other
Eliminations
Total
Equity in earnings of affiliates
Storage and Transportation
Eliminations
Total
Net financial earnings (loss)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Storage and Transportation
Subtotal
Home Services and Other
Eliminations
Total
Capital expenditures
Natural Gas Distribution
Clean Energy Ventures
Storage and Transportation
Subtotal
Home Services and Other
Total
Investments in equity investees
Storage and Transportation
Total
Page 134
2020
2019
2018
$
30,975 $
26,134 $
25,299
20,253
14,846
18,320
3,276
13,124
5,205
2,185
3,945
1,667
67,628
48,370
49,231
10,327
1,535
7
(10,358)
(2,823)
(2,952)
$
67,597 $
47,082 $
46,286
$
27,021 $
9,434 $
(1,910)
(32,404)
(48,921)
(79,932)
(3,615)
(1,573)
24,996
4,247
2,254
(8,548)
(4,751)
(38,806)
(65,394)
(2,478)
1,428
11,944
285
(373)
(335)
$
(6,944) $
(37,751) $
(53,785)
$
15,903 $
15,832 $
16,165
(1,592)
(2,204)
(3,157)
$
14,311 $
13,628 $
13,008
$ 126,902 $
78,062 $
84,048
53,023
77,473
(7,873)
2,918
18,311
190,363
14,689
173,142
75,849
60,378
24,367
244,642
5,784
98
1,911
(93)
(3,829)
(327)
$ 196,245 $ 174,960 $ 240,486
$ 290,040 $ 345,004 $ 254,523
133,841
157,828
123,421
20,998
20,616
5,431
444,879
523,448
383,375
3,230
2,484
1,213
$ 448,109 $ 525,932 $ 384,588
$
$
2,117 $
4,102 $
16,151
2,117 $
4,102 $
16,151
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company’s
reporting segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE
to consolidated net income is as follows:
(Thousands)
Consolidated net financial earnings
Less:
Unrealized (gain) loss on derivative instruments and related transactions
Tax effect
Effects of economic hedging related to natural gas inventory
Tax effect
Consolidated net income
2020
2019
2018
$ 196,245 $ 174,960 $ 240,486
(9,644)
2,296
12,690
2,881
26,770
(711)
(4,512)
4,309
(22,570)
(3,016)
(1,024)
7,362
$ 193,919 $ 169,505 $ 233,436
The Company uses derivative instruments as economic hedges of purchases and sales of physical natural 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 natural gas related to physical natural gas flow are recognized when the natural gas is delivered
to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and
physical natural gas flows. Timing differences occur in two ways:
•
•
Unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical natural 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 natural 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 natural 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 natural 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
Storage and Transportation
Subtotal
Home Services and Other
Intercompany assets (2)
Total
2020
2019
2018
$ 3,531,477 $ 3,064,309 $ 2,663,054
1,015,073
864,323
865,018
244,836
290,847
396,852
844,799
240,955
242,069
5,636,185 4,460,434 4,166,993
138,375
104,411
114,732
(204,758)
(191,860)
(138,061)
$ 5,569,802 $ 4,372,985 $ 4,143,664
(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.
Page 135
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
18. RELATED PARTY TRANSACTIONS
Effective April 1, 2020, NJNG entered into a 5-year agreement for 3 Bcf of firm storage capacity with Steckman Ridge,
which expires on March 31, 2025. 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 as a component of regulatory assets.
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, 2020, Energy Services has entered into transactions with
Steckman Ridge for varying terms, all of which expire by October 31, 2020.
NJNG has entered into a 15-year transportation precedent agreement for committed capacity of 180,000 Dths per day and
NJRES entered into a 5-year, 50,000 Dths per day transportation precedent agreement with PennEast, both to commence when
PennEast is placed in service.
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
2020
2019
2018
$
$
5,900 $
183
6,083 $
5,814 $
2,134
7,948 $
5,730
2,775
8,505
The following table summarizes demand fees payable to Steckman Ridge as of September 30:
(Thousands)
Natural Gas Distribution
Energy Services
Total
2020
2019
$
$
775 $
16
791 $
775
15
790
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. As of September 30, 2020, NJNG and Energy Services had three asset management agreements with expiration dates
ranging from October 31, 2020 through October 31, 2021.
NJNG entered into a transportation precedent agreement with Adelphia Gateway for committed capacity of 130,000 Dths
per day, which expires in October 2026.
Energy Services has a 5-year agreement for 3 Bcf of firm storage capacity with Leaf River, which is eliminated in
consolidation and expires in March 2024.
19. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Adelphia Gateway
On January 13, 2020, Adelphia Gateway, an indirect wholly-owned subsidiary of NJR, acquired all of Talen’s
membership interests in IEC, an existing 84-mile pipeline in southeastern Pennsylvania, including related assets and rights of
way, for a base purchase price of $166 million. In November 2017, the Company made an initial payment of $10 million
towards the base purchase price, which was included in other noncurrent assets on the Consolidated Balance Sheets. The
remaining purchase price of $156 million was paid upon the close of the acquisition of the related assets. As additional
consideration, Adelphia Gateway will pay Talen specified amounts of up to $23 million contingent upon the achievement of
certain regulatory approvals and binding natural gas capacity commitments. On December 20, 2019, FERC issued Adelphia
Gateway’s Certificate of Public Convenience and Necessity. Adelphia Gateway has agreed to provide firm natural gas
transportation service for 10 years following the closing to two power generators owned by affiliates of Talen that are currently
served by the pipeline.
Page 136
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company evaluated the acquisition under the guidance of ASU 2017-01, Clarifying the Definition of a Business and
concluded that the acquisition did not meet the definition of a business, as almost all of the fair value relates to the pipeline
assets acquired. As a result, the purchase was accounted for as an asset acquisition.
The following table summarizes the consideration transferred and purchase price allocation based upon the relative fair
value of the assets acquired and liabilities to be assumed:
(Thousands)
Purchase price
Net working capital adjustment
Transaction costs
Total costs capitalized
Identifiable assets acquired
Property, plant and equipment
Other
Net working capital
Net assets acquired
Estimated
Fair Value
$
$
$
$
166,000
(449)
9,456
175,007
174,438
1,018
(449)
175,007
The Company utilized a discounted cash flow valuation technique to measure the fair value of the property, plant, and
equipment based upon the present value of their future economic benefits reflecting current market expectations. The
assumptions used in the discounted cash flow valuation are not observable in active markets and thus represent non-recurring
Level 3 fair value measurements.
Property, plant and equipment consist primarily of pipeline related assets, land, buildings and other structures and
software. Depreciation is computed on a straight-line basis over the estimated useful life of the assets, ranging from five to 30
years, based on various classes of depreciable property. Other assets consist primarily of an assembled workforce and base gas.
Asset retirement obligations 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 Company records any asset retirement obligations in the period in which
information permitting a reasonable estimate of such obligation becomes available. The Company is unable to predict when, or
if, the pipelines would become completely obsolete and require decommissioning. As such, upon acquisition, there were no
liabilities recorded for asset retirement obligations, as both the timing and future estimates of decommissioning the pipeline was
indeterminable.
Leaf River
On October 11, 2019, NJR Pipeline Company, an indirect wholly-owned subsidiary of NJR, acquired 100 percent of the
issued and outstanding limited liability company interests of Leaf River Energy Center LLC for $367.5 million. The purchase
price was subject to certain contractual conditions, including customary purchase price adjustments related to the amount of net
working capital and transaction expenses. Leaf River owns and operates a 32.2 million Dth salt dome natural gas storage
facility, located in southeastern Mississippi.
The Company evaluated the acquisition under the guidance of ASU 2017-01, Clarifying the Definition of a Business and
concluded that the acquisition did not meet the definition of a business, as almost all of the fair value relates to the natural gas
storage assets acquired. As a result, the purchase was accounted for as an asset acquisition.
Page 137
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the consideration transferred and purchase price allocation based upon the relative fair
value of the assets acquired and liabilities to be assumed:
(Thousands)
Purchase price
Net working capital adjustment
Transaction costs
Total costs capitalized
Identifiable assets acquired
Property, plant and equipment
Base gas
Other assets, net
Net working capital
Net assets acquired
Estimated
Fair Value
$
367,500
4,111
1,664
373,275
365,715
3,445
4
4,111
373,275
$
$
$
The total consideration transferred is comprised of the purchase price to the seller and the transaction costs incurred
during the acquisition. The Company utilized a discounted cash flow valuation technique to measure the fair value of the
property, plant, and equipment based upon the present value of their future economic benefits reflecting current market
expectations. Base gas is valued based upon the estimated replacement costs associated with the respective assets.
Base gas is needed to maintain the necessary pressure to allow efficient operation of the storage facility. The base gas is
determined to be recoverable and is considered a component of the facility and presented as a component in property, plant and
equipment. This natural gas is not depreciated, as it is expected to be recovered and sold.
Property, plant and equipment consist primarily of surface equipment and pipelines necessary to operate the facility.
Depreciation is computed on a straight-line basis over the estimated useful life of the assets, ranging from five to 50 years,
based on various classes of depreciable property.
Asset retirement obligations 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 Company records any asset retirement obligations in the period in which
information permitting a reasonable estimate of such obligation becomes available. The Company is unable to predict when, or
if, the storage facilities and related pipelines would become completely obsolete and require decommissioning. As such, upon
acquisition, there were no liabilities recorded for asset retirement obligations, as both the timing and future estimates of
decommissioning the storage facilities and related pipelines were indeterminable.
The assumptions used in the discounted cash flow valuation are not observable in active markets and thus represent non-
recurring Level 3 fair value measurements.
Dispositions
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.
On February 7, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets to a subsidiary of Skyline
Renewables LLC for a total purchase price of $208.6 million. The transaction generated a pre-tax gain of $645,000, which was
recognized as a reduction to O&M expense on the Consolidated Statements of Operations.
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
Page 138
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
generated a pre-tax gain of $3.7 million, which was recognized as a reduction to O&M on the Consolidated Statements of
Operations.
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of fiscal 2020 and 2019 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)
2020
Operating revenues
Operating income (loss)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
2019
Operating revenues
Operating income (loss) (2)
Net income (loss)
Earnings (loss) per share (1)
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 615,036 $ 639,614 $ 298,974 $ 400,044
39,862
$ 101,497 $
43,272
89,361 $
$
(20,191) $
(27,219) $
95,215 $
88,505 $
$0.97
$0.97
$0.93
$0.92
$(0.28)
$(0.28)
$0.45
$0.45
$ 811,767 $ 866,255 $ 434,942 $ 479,081
(7,790)
$
18,086
$
77,001 $
73,573 $
88,743 $
86,248 $
(4,019) $
(8,402) $
$0.97
$0.97
$0.83
$0.82
$(0.09)
$(0.09)
$0.20
$0.20
(1)
(2)
The sum of quarterly amounts may not equal the annual amounts due to rounding.
Quarterly amounts have been reclassified to conform to the current period presentation due to the adoption of ASU No. 2017-07, an amendment to ASC
715, Compensation - Retirement Benefits. See Note 2. Summary of Significant Accounting Policies.
Page 139
New Jersey Resources Corporation
Part II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the principal executive officer
and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the
period covered by this report. Based on this evaluation, the Company’s principal executive officer and principal financial
officer concluded that, as of end of the period covered by this report, the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms,
and that such information is accumulated and communicated to the Company’s management, including its principal executive
officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
The report of management required under this Item 9A is contained in Item 8 of this Form 10-K under the caption
Management’s Report on Internal Control over Financial Reporting.
Attestation Report of Registered Public Accounting Firm
The attestation report required under this Item 9A is contained in Item 8 of this 10-K under the caption Report of
Independent Registered Public Accounting Firm.
Changes in Internal Control over Financial Reporting
We periodically review our internal controls over financial reporting as part of our efforts to ensure compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we routinely review our system of internal
controls over financial reporting to identify potential changes to our processes and systems that may improve controls and
increase efficiency, while ensuring that we maintain an effective internal controls environment. During the fourth quarter of
fiscal 2020, we implemented a new core ERP system, which we expect to enhance our system of internal controls over financial
reporting. As a result of this implementation, we modified certain existing internal controls as well as implemented new
controls and procedures related to the new ERP. Except with respect to the implementation of the ERP, there were no changes
in our internal controls over financial reporting that occurred during the quarter ended September 30, 2020, that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None
Page 140
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 2021 Annual
Meeting of Shareowners, which will be filed with the SEC pursuant to Regulation 14A within 120 days after September 30,
2020. The information regarding executive officers is included in this report as Item 1 under the caption Information About our
Executive Officers 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 141
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 145.
Page 142
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, 2020
Page
144
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 143
New Jersey Resources Corporation
Part IV
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2020, 2019 and 2018
(Thousands)
CLASSIFICATION
2020
BEGINNING
BALANCE
ADDITIONS
CHARGED TO
EXPENSE
OTHER
ENDING
BALANCE
Valuation allowance for deferred tax assets
Allowance for doubtful accounts
2019
Allowance for doubtful accounts
2018
Allowance for doubtful accounts
$
$
$
$
4,035
6,148
15,869
2,238
(2,265)
(1,144) (1)
5,704
2,387
(1,943) (1)
5,181
2,579
(2,056) (1)
$
$
$
$
17,639
7,242
6,148
5,704
(1)
Uncollectible accounts written off, less recoveries and adjustments.
Page 144
New Jersey Resources Corporation
Part IV
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.3(a)
4.3(b)
4.3(c)
4.3(d)
4.3(e)
4.3(f)
4.3(g)
4.3(h)
4.3(i)
4.3(j)
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)
Membership Interest Purchase Agreement, between NJR Clean Energy Ventures II Corporation and SRIV
Partnership, LLC, dated as of November 21, 2018 (incorporated by reference to Exhibit 2.1 to the Current Report
on Form 8-K, as filed on November 21, 2018)
Membership Interest Purchase Agreement, dated September 3, 2019, by and between Leaf River Energy
Holdings, LLC and NJR Pipeline Company (incorporated by reference to Exhibit 2.1 to the Current Report on
Form 8-K, as filed on September 5, 2019)
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 and restated on July 14, 2020 (incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K, as filed on July 20, 2020)
Description of Common Stock (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K for
the fiscal year ended September 30, 2019, as filed on November 22, 2019)
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-
K for the fiscal 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)
36th Supplemental Indenture dated as of September 1, 2014, between NJNG and U.S. Bank National Association,
as Trustee (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K, as filed on September
30, 2014)
First Supplemental Indenture dated as of April 1, 2015 between NJNG and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q, as filed on May 7, 2015)
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)
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)
Fourth Supplemental Indenture, dated as of April 1, 2019, between NJNG and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.4 to the Quarterly Report on Form 10-Q, as filed on May 3, 2019)
Fifth Supplemental Indenture, dated as of July 1, 2019, by and between New Jersey Natural Gas Company and
the Purchasers party thereto (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, as filed
on July 17, 2019)
Sixth Supplemental Indenture, dated as of August 1, 2019, between NJNG and U.S. Bank National Association,
as Trustee (incorporated by reference to Exhibit 4.3(g) to the Annual Report on Form 10-K for the fiscal year
ended September 30, 2019, as filed on November 22, 2019)
Seventh Supplemental Indenture, dated as of June 1, 2020, between NJNG and U.S. Bank National Association,
as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, as filed on July 2, 2020)
Eighth Supplemental Indenture, dated as of July 23, 2020, between NJNG and U.S. Bank National Association,
as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, as filed on July 23, 2020)
Ninth Supplemental Indenture, dated as of September 2, 2020, between NJNG and U.S. Bank National
Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, as filed on
September 2, 2020)
Page 145
Exhibit
Number
4.4
4.4(a)
4.4(b)
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
New Jersey Resources Corporation
Part IV
Exhibit Description
$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)
$125,000,000 Note Purchase Agreement, dated as of February 7, 2014, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.5 to the Quarterly Report on
Form 10-Q, as filed on May 7, 2014)
Loan Agreement between New Jersey Economic Development Authority and New Jersey Natural Gas Company,
dated as of August 1, 2011 (incorporated by reference to Exhibit 4.10 to the Annual Report on Form 10-K for the
year ended September 30, 2011, as filed on November 23, 2011)
First Amendment to the Loan Agreement, dated as of August 1, 2019, NJNG and New Jersey Economic
Development Authority (incorporated by reference to Exhibit 4.7 to the Annual Report on Form 10-K for the
fiscal year ended September 30, 2019, as filed on November 22, 2019)
First Supplemental Indenture, dated as of August 1, 2019, between NJNG and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.8 to the Annual Report on Form 10-K for the fiscal year ended
September 30, 2019, as filed on November 22, 2019)
$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)
$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)
Amended and Restated Indenture, dated as of April 1, 2019, between NJNG and New Jersey Economic
Development Authority and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1
to the Quarterly Report on Form 10-Q, as filed on May 3, 2019)
Second Amendment to the Loan Agreement, dated as of April 1, 2019, NJNG and New Jersey Economic
Development Authority (incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q, as filed
on May 3, 2019)
Amended and Restated Continuing Disclosure Undertaking, dated as of April 18, 2019 (incorporated by reference
to Exhibit 4.3 to the Quarterly Report on Form 10-Q, as filed on May 3, 2019)
$150,000,000 Note Purchase Agreement, dated as of July 17, 2019, 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 July 17, 2019)
Page 146
New Jersey Resources Corporation
Part IV
Exhibit
Number
4.19
4.20
4.21
4.22
4.23
4.24
Exhibit Description
$185,000,000 Note Purchase Agreement, dated as of July 17, 2019, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.2 to the Current Report on
Form 8-K, as filed on July 17, 2019)
Amended and Restated Continuing Disclosure Undertaking, dated as of August 22, 2019 (incorporated by
reference to Exhibit 4.20 to the Annual Report on Form 10-K for the fiscal year ended September 30, 2019, as
filed on November 22, 2019)
$260,000,000 Note Purchase Agreement, dated as of May 14, 2020, 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 May 18, 2020)
$125,000,000 Note Purchase Agreement, dated as of May 14, 2020, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.2 to the Current Report on
Form 8-K, as filed on May 18, 2020)
$200,000,000 Note Purchase Agreement, dated as of September 1, 2020, 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 September 2, 2020)
$75,000,000 Note Purchase Agreement, dated as of September 1, 2020, by and among New Jersey Natural Gas
Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.2 to the Current Report on
Form 8-K, as filed on September 2, 2020)
10.1*+
Form of Amended and Restated Supplemental Executive Retirement Plan Agreement between the Company and
Named Executive Officer
10.1(a)*+ Schedule of Supplemental Executive Retirement Plan Agreements for named executive officers
10.2
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
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)
Summary of 2021 Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K as filed on September 11, 2020)
Summary of 2020 Company’s Non-Employee Director Compensation (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K as filed on January 23, 2020)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
Total Shareholder Return Fiscal Year 2018 (incorporated by reference to Exhibit 10.8 to the Quarterly Report on
Form 10-Q, as filed on February 8, 2018)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
NFE Fiscal Year 2018 (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q, as filed
on February 8, 2018)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Based Restricted Stock
Units Agreement Fiscal Year 2018 (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form
10-Q, as filed on February 8, 2018)
New Jersey Resources Corporation Deferred Stock Retention Award Agreement Fiscal Year 2018 (incorporated
by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q, as filed on February 8, 2018)
New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Restricted Stock Units Agreement
Fiscal Year 2018 (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q, as filed on
February 8, 2018)
10.10*
The Company’s 2017 Stock Award and Incentive Plan (incorporated by reference to Appendix A to the Proxy
Statement for the 2017 Annual Meeting as filed on December 15, 2016)
10.11*+ New Jersey Resources Savings Equalization Plan (as amended and restated as of November 16, 2020)
10.12*+ New Jersey Resources Pension Equalization Plan (as amended and restated as of November 16, 2020)
Page 147
New Jersey Resources Corporation
Part IV
Exhibit
Number
Exhibit Description
10.13* New Jersey Resources Corporation Directors’ Deferred Compensation Plan (incorporated by reference to Exhibit
10.25 to the Quarterly Report on Form 10-Q, as filed on February 6, 2009)
10.14*+ New Jersey Resources Corporation Officers’ Deferred Compensation Plan (as amended and restated on
November 16, 2020)
10.15*+ Amended and Restated New Jersey Resources Corporation Directors’ Deferred Compensation Plan (amended
and restated as of November 16, 2020)
10.16*
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
November 18, 2019)
10.16(a)*+ Schedule of Employee Continuation Agreements
10.16(b)* Form of Amended and Restated Employment Continuation Agreement for officers of NJR Energy Services
Company dated as of November 12, 2019 (incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K, as filed on November 18, 2019)
10.17
10.18
10.19
10.20
Limited Liability Company Agreement of Steckman Ridge GP, LLC, dated as of March 2, 2007 (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, as filed on May 3, 2007)
Limited Partnership Agreement of Steckman Ridge, LP dated as of March 2, 2007 (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q, as filed on May 3, 2007)
$425,000,000 Amended and Restated Credit Agreement dated as of December 5, 2018, by and among NJR, the
guarantors thereto, the lenders party thereto, PNC Bank, National Association, as Administrative Agent,
JPMorgan Chase Bank, N.A., Wells Fargo Bank, National Association and U.S. Bank National Association, as
Syndication Agents, and Bank of America, N.A., Mizuho Bank, Ltd. and TD Bank, N.A., as Documentation
Agents (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, as filed on December 11,
2018)
$250,000,000 Amended and Restated Credit Agreement dated as of December 5, 2018, by and among NJNG, the
lenders party thereto, PNC Bank, National Association, as Administrative Agent, JPMorgan Chase Bank, N.A.,
Wells Fargo Bank, National Association and U.S. Bank National Association, as Syndication Agents, and Bank
of America, N.A., Mizuho Bank, Ltd. and TD Bank, N.A., as Documentation Agents (incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K, as filed on December 11, 2018)
10.21* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
NFE Fiscal Year 2019 (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q, as filed
on February 6, 2019)
10.22* New Jersey Resources Corporation Deferred Stock Retention Award Agreement Fiscal Year 2019 (incorporated
by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q, as filed on February 6, 2019)
10.23* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
Total Shareholder Return Fiscal Year 2019 (incorporated by reference to Exhibit 10.8 to the Quarterly Report on
Form 10-Q, as filed on February 6, 2019)
10.24* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Restricted Stock Units Agreement
Fiscal Year 2019 (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q, as filed on
February 6, 2019)
10.25* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Based Restricted Stock
Units Agreement Fiscal Year 2019 (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form
10-Q, as filed on February 6, 2019)
10.26*+ New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Restricted Stock Units Agreement
Fiscal Year 2020
10.27*+ New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
Total Shareholder Return Fiscal Year 2020
10.28*+ New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
NFE Fiscal Year 2020
Page 148
New Jersey Resources Corporation
Part IV
Exhibit
Number
Exhibit Description
10.29*+ New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance-Based Restricted Stock
Unit Agreement Fiscal Year 2020
10.30*+ New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Deferred Retention Stock Award
Agreement Fiscal Year 2020
10.31
10.32
10.33
10.34
10.35
10.36
Forward Sale Agreement between New Jersey Resources Corporation and Wells Fargo Bank, National
Association, dated December 4, 2019 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-
K, as filed on December 9, 2019)
Forward Sale Agreement between New Jersey Resources Corporation and JPMorgan Chase Bank, National
Association, dated December 4, 2019 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-
K, as filed on December 9, 2019)
Additional Forward Sale Agreement between New Jersey Resources Corporation and Wells Fargo Bank,
National Association, dated December 5, 2019 (incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K, as filed on December 9, 2019)
Additional Forward Sale Agreement between New Jersey Resources Corporation and JPMorgan Chase Bank,
National Association, dated December 5, 2019 (incorporated by reference to Exhibit 10.4 to the Current Report
on Form 8-K, as filed on December 9, 2019)
Amendment to Forward Sale Agreement, dated September 18, 2020, between New Jersey Resources Corporation
and Wells Fargo Bank, National Association, dated December 4, 2019 and Additional Forward Sale Agreement
between New Jersey Resources Corporation and Wells Fargo Bank, National Association, dated December 5,
2019 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, as filed on September 24,
2020)
Amendment to Forward Sale Agreement, dated September 18, 2020, between New Jersey Resources Corporation
and J.P. Morgan Securities LLC, dated December 4, 2019 and Additional Forward Sale Agreement between New
Jersey Resources Corporation and J.P. Morgan Securities LLC, dated December 5, 2019 (incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K, as filed on September 24, 2020)
10.37*
2017 Stock Award and Incentive Plan Form of Director Restricted Stock Units Agreement (incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K, as filed on January 23, 2020)
10.38* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Restricted Stock Units Agreement
Fiscal Year 2021 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, as filed on
November 13, 2020)
10.39* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
Total Shareholder Return Fiscal Year 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, as filed on November 13, 2020)
10.40* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance Share Units Agreement -
NFE Fiscal Year 2021 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, as filed on
November 13, 2020)
10.41* New Jersey Resources Corporation 2017 Stock Award and Incentive Plan Performance-Based Restricted Stock
Unit Agreement Fiscal Year 2021 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K,
as filed on November 13, 2020)
Page 149
Exhibit
Number
10.42
New Jersey Resources Corporation
Part IV
Exhibit Description
364-Day $250,000,000 Revolving Credit Facility, dated as of April 24, 2020 by and among New Jersey
Resources Corporation and each of the Guarantors party thereto and the lenders party thereto, and PNC Bank,
National Association and PNC Capital Markets LLC, SunTrust Robinson Humphrey, Inc. and TD Bank, N.A., as
Joint Lead Arrangers, and Truist Bank and TB Bank, N.A., as Co- Syndication Agents (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K, as filed on April 27, 2020)
21.1+
Subsidiaries of the Registrant
23.1+
31.1+
31.2+
Consent of Independent Registered Public Accounting Firm
Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act
Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act
32.1+ † Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act
32.2+ † Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act
101+
Interactive Data File {Annual Report on Form 10-K, for the fiscal year ended September 30, 2020, furnished in
iXBRL (Inline eXtensible Business Reporting Language)}
104+
Cover Page Interactive Data File included in Exhibit 101
________________________________
+ 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 150
SIGNATURES
New Jersey Resources Corporation
Part IV
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 30, 2020
NEW JERSEY RESOURCES CORPORATION
(Registrant)
By:/s/ Patrick J. Migliaccio
Patrick J. 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 30, 2020
/s/ Stephen D. Westhoven
Stephen D. Westhoven
President and Chief Executive
Officer
Director
(Principal Executive Officer)
November 30, 2020
/s/ Patrick J. Migliaccio
Patrick J. Migliaccio
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
November 30, 2020
November 30, 2020
/s/ Donald L. Correll
Donald L. Correll
Chairman
/s/ Gregory E. Aliff
Gregory E. Aliff
Director
November 30, 2020
/s/ Jane M. Kenny
Jane M. Kenny
Director
November 30, 2020
/s/ Thomas C. O’Connor
Thomas C. O’Connor
Director
November 30, 2020
/s/ James H. DeGraffenreidt, Jr.
James H. DeGraffenreidt, Jr.
Director
November 30, 2020
November 30, 2020
November 30, 2020
/s/ Robert B. Evans
Robert B. Evans
Director
/s/ M. Susan Hardwick
M. Susan Hardwick
Director
November 30, 2020
/s/ M. William Howard, Jr.
M. William Howard, Jr.
Director
November 30, 2020
/s/ Sharon C. Taylor
Sharon C. Taylor
Director
/s/ David A. Trice
David A. Trice
Director
November 30, 2020
/s/ George R. Zoffinger
George R. Zoffinger
Director
Page 151
Shareowner Information
Annual Meeting
The Annual Shareowners Meeting will be held at 9:30 a.m. ET on
January 20, 2021. Due to the COVID-19 pandemic, this year’s
annual meeting will be held virtually via webcast with no physical
in-person meeting. Please refer to your proxy statement for the
link and details on how to participate.
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 websites and search engines.
Investor and Media Information
Members of the financial community are invited to contact
Dennis Puma, Director — Investor Relations, at 732-938-1229.
Members of the media are invited to contact Michael Kinney,
Director —Corporate Communications, at 732-938-1031.
Correspondence can be sent to New Jersey Resources, 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, Inc. (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.
General written inquiries and address changes may be sent to:
Broadridge Corporate Issuer Solutions
P.O. Box 1342, Brentwood, NY 11717
or
For certified and overnight delivery:
Broadridge Corporate Issuer Solutions, ATTN: IWS
1155 Long Island Avenue, Edgewood, NY 11717
Shareowners can view their account information online at
shareholder.broadridge.com/NJR.
New Jersey Resources Direct Stock Purchase and Dividend
Reinvestment Plan
The New Jersey Resources Direct Stock Purchase and Dividend
Reinvestment Plan, NJR Direct, provides a convenient and
economical method for new eligible investors to make an
initial investment in shares of common stock and for existing
shareowners to invest in additional shares of common stock or
reinvest all or some of their common stock cash dividends. This
is neither an offer to sell nor a solicitation of an offer to buy
securities. NJR Direct 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 cash
dividends in our common stock.
• Benefit from maintenance of shares of common stock in book-
entry form and detailed record keeping and reporting, provided
at no charge.
• Deposit common stock certificates registered in your name with
the plan administrator into your plan account for safekeeping,
at no cost.
• Receive statements of your account following each reinvestment
of dividends and each investment of an optional cash payment
or payroll deduction amount, if any.
• Execute plan transactions online.
For additional information, please visit njresources.com, then
“Shareholder Services” under “Investor Relations.” Full details are
contained in the NJR Direct prospectus, which may be obtained
from Broadridge or the company.
Dividends
Dividends on NJR common stock are currently declared quarterly
by the board of directors. Future dividends are dependent on a
number of factors, including our earnings, financial condition,
shareowner equity levels, our cash flow and business requirements,
as determined by the board of directors. Shareowners of record
receive their dividend checks from Broadridge, unless they have
elected to reinvest their dividends with NJR Direct. 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.
Request for Form 10-K and other Documents
The following documents may be obtained when available, without
charge, upon written request to: Investor Relations, New Jersey
Resources, 1415 Wyckoff Road, P.O. Box 1468, Wall, NJ 07719:
• Bylaws, as amended and restated
• Annual Report and Form 10-K
• Form 10-Q
• Form 8-K
• Quarterly Earnings News Release
• Corporate Governance Guidelines
• Audit Committee Charter
• Leadership Development and Compensation
Committee Charter
• Nominating/Corporate Governance Committee Charter
• NJR Code of Conduct
• Audit Complaint Procedure
• Communicating with Non-Management Directors
• Statement of Policy with Respect to Related Person Transactions
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.
• Invest automatically with optional withdrawals from your bank account.
Design: Decker Design, Inc., New York
Printed on recycled paper.
1415 Wyckoff Road
Post Office Box 1468
Wall, NJ 07719
732-938-1480
www.njresources.com
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