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 or (losses) on the financial transactions that are economic hedges of the cost of the purchased natural gas are recognized prior to the gains or (losses) on the physical transaction, which are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged along with fair value changes in derivative instruments, creates volatility in the results of Energy Services, although the Company's intended economic results relating to the entire transaction are unaffected.
NJNG’s derivative contracts are part of the Company's risk management activities that relate to its natural gas purchases and BGSS incentive programs and debt financing. These transactions are entered into pursuant to regulatory approval.programs. 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) gains associated with NJNG's derivative instruments for the periods set forth below:
NJNG and Energy Services had the following outstanding long (short) derivatives as of:
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 are as follows:
The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of DecemberMarch 31, 2017.2022. 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.
Conversely, certain of NJNG's and Energy Services' derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG's credit rating were to fall below its current level. NJNG's credit rating, with respect to S&P, reflects the overall corporate credit profile of NJR. Specifically, most, but not all, of these additional payments will be triggered if NJNG's debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings but are based on certain financial metrics.
Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company's credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed
applicable threshold limits. The aggregate fair value of allThere were no derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 2017 and September 30, 2017, was $14 million and $8.7 million, respectively, for which the Company had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements had been invoked on Decembercollateral is required as of March 31, 2017 and September 30, 2017, the Company would have been required to post an additional $13.1 million and $8.6 million, respectively, to its counterparties.2022. These amounts differ from the respective net derivative liabilities reflected on the Unaudited Condensed 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.
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.value, in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
The following table presents the calculation of the Company's basic and diluted earnings per share for:
|
| | | | | | | | | | | | | | | | | | | | | | |
(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 |
|
Net income |
|
|
| |
| |
| 123,699 |
| 123,699 |
|
Other comprehensive income |
|
|
| | (5,204 | ) | |
|
| (5,204 | ) |
Common stock issued: | | | | | | | | | |
Incentive plan | 525 |
| 1,453 |
| 13,951 |
| |
| |
|
|
| 15,404 |
|
Dividend reinvestment plan (1) | 90 |
|
| 245 |
| |
| | 3,554 |
|
| 3,799 |
|
Waiver discount | 554 |
| 1,384 |
| 21,306 |
| |
| |
|
| 22,690 |
|
Cash dividend declared ($.2725 per share) |
|
|
| |
| |
| (23,831 | ) | (23,831 | ) |
Treasury stock and other | (250 | ) |
| (56 | ) | |
| | (25,374 | ) |
| (25,430 | ) |
Balance at December 31, 2017 | 87,475 |
| $ | 225,095 |
| $ | 255,142 |
| | $ | (8,460 | ) | | $ | (91,859 | ) | $ | 967,852 |
| $ | 1,347,770 |
|
| |
(1) | Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid. |
NJR satisfies its external common equity requirements, if any, through issuances of its common stock, including the proceeds from stock issuances under its DRP. The DRP allows NJR, at its option, to use treasury shares or newly issued shares to raise capital. NJR raised $3.8 million and $4.6 million of equity through the DRP, by issuing approximately 90,000 and 139,000 shares of treasury stock, during the three months ended December 31, 2017 and 2016, respectively. During the three months ended December 31, 2017, NJR raised approximately $22.7 million of equity by issuing approximately 554,000 new shares through the waiver discount feature of the DRP. NJR issued no new shares during the three months ended December 31, 2016.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in the components of accumulated other comprehensive income (loss), net of related tax effects during the three months ended December 31, 2017 and 2016:
|
| | | | | | | | | | | |
(Thousands) | Available for Sale Securities | Postemployment Benefit Obligation | Total |
Balance at September 30, 2017 | $ | 11,044 |
| | $ | (14,300 | ) | | $ | (3,256 | ) |
Other comprehensive (loss) income, net of tax | | | | | |
Other comprehensive (loss), before reclassifications, net of tax of $851, $0, $851 | (2,290 | ) | | — |
| | (2,290 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax of $2,178, $(136), $2,042 | (3,154 | ) | | 240 |
| (1) | (2,914 | ) |
Net current-period other comprehensive (loss) income, net of tax of $3,029, $(136), $2,893 | (5,444 | ) | | 240 |
| | (5,204 | ) |
Balance at December 31, 2017 | $ | 5,600 |
| | $ | (14,060 | ) | | $ | (8,460 | ) |
| | | | | |
Balance as of September 30, 2016 | $ | 4,198 |
| | $ | (19,353 | ) | | $ | (15,155 | ) |
Other comprehensive income (loss), net of tax | | | | | |
Other comprehensive income, before reclassifications, net of tax of $(4,840), $0, $(4,840) | 7,042 |
| | — |
| | 7,042 |
|
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax of $1,054, $(217), $837 | (1,527 | ) | | 317 |
| (1) | (1,210 | ) |
Net current-period other comprehensive income, net of tax of $(3,786), $(217), $(4,003) | 5,515 |
| | 317 |
| | 5,832 |
|
Balance as of December 31, 2016 | $ | 9,713 |
| | $ | (19,036 | ) | | $ | (9,323 | ) |
| |
(1) | Included in the computation of net periodic pension cost, a component of operations and maintenance expense on the Unaudited Condensed Consolidated Statements of Operations. |
9. DEBT
NJR and NJNG finance working capital requirements and capital expenditures through various short-term debt and long-term financing arrangements, including a commercial paper program and committed unsecured credit facilities and private placement debt shelf facilities.
Credit Facilities and Short-term Debt
On February 8, 2022, NJR entered into a 364-day $150 million term loan credit agreement with an interest rate based on SOFR plus 0.85 percent and expires on February 7, 2023. The Company borrowed $50 million on February 9, 2022 and $100 million on February 14, 2022.
A summary of NJR's credit facility and term loan credit agreement and NJNG's commercial paper program and credit facility are as follows:
| | | | | | | | | | | | | | | | | |
(Thousands) | March 31, 2022 | | September 30, 2021 | | Expiration Dates |
NJR | | | | | |
Bank revolving credit facility (1) | $ | 500,000 | | | $ | 500,000 | | | September 2026 |
Notes outstanding at end of period | $ | 152,210 | | | $ | 219,100 | | | |
Weighted average interest rate at end of period | 2.02 | % | | 1.05 | % | | |
Amount available at end of period (2) | $ | 334,325 | | | $ | 270,312 | | | |
Bank term loan credit agreement | $ | 150,000 | | | $ | — | | | February 2023 |
Loans outstanding at end of period | $ | 150,000 | | | $ | — | | | |
Weighted average interest rate at end of period | 1.04 | % | | — | % | | |
Amount available at end of period | $ | — | | | $ | — | | | |
NJNG | | | | | |
Bank revolving credit facility (3) | $ | 250,000 | | | $ | 250,000 | | | September 2026 |
Commercial paper and notes outstanding at end of period | $ | — | | | $ | 158,200 | | | |
Weighted average interest rate at end of period | — | % | | 0.17 | % | | |
Amount available at end of period (4) | $ | 249,269 | | | $ | 91,069 | | | |
|
| | | | | | | | | |
(Thousands) | December 31, 2017 | | September 30, 2017 | | Expiration Dates |
NJR | | | | | |
Bank revolving credit facilities (1) | $ | 425,000 |
| | $ | 425,000 |
| | September 2020 |
Notes outstanding at end of period | $ | 327,200 |
| | $ | 255,000 |
| | |
Weighted average interest rate at end of period | 2.26 | % | | 2.14 | % | | |
Amount available at end of period (2) | $ | 86,834 |
| | $ | 156,601 |
| | |
Bank revolving credit facilities (1) | $ | 75,000 |
| | $ | — |
| | April 2018 |
Amount available at end of period | $ | 75,000 |
| | $ | — |
| | |
NJNG | | | | | |
Bank revolving credit facilities (1) | $ | 250,000 |
| | $ | 250,000 |
| | May 2019 |
Commercial paper outstanding at end of period | $ | 46,000 |
| | $ | 11,000 |
| | |
Weighted average interest rate at end of period | 1.33 | % | | 1.13 | % | | |
Amount available at end of period (3) | $ | 203,269 |
| | $ | 238,269 |
| | |
| |
(1) | Committed credit facilities, which require commitment fees on the unused amounts. |
| |
(2) | Letters of credit outstanding total $11 million and $13.4 million for December 31, 2017 and September 30, 2017, respectively, which reduces amount available by the same amount.
|
| |
(3) | Letters of credit outstanding total $731,000 for both December 31, 2017 and September 30, 2017, which reduces the amount available by the same amount.
|
New Jersey Resources Corporation(1)Committed credit facilities, which require commitment fees of 0.10 percent on the unused amounts.
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On December 14, 2017, NJR entered into a four-month, $75 million revolving line(2)Letters of credit facility,outstanding total $13.5 million at March 31, 2022 and $10.6 million at September 30, 2021, which will expirereduces the amount available by the same amount.
(3)Committed credit facilities, which require commitment fees of 0.075 percent on April 14, 2018. Asthe unused amounts.
(4)Letters of Decembercredit outstanding total $731,000 at both March 31, 2017, there were no borrowings against2022 and September 30, 2021, which reduces the facility. On January 19, 2018, NJR amendedamount available by the agreement to increase the available amount to $100 million.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 facility or debt shelf facilities.term loan.
Long-term Debt
NJR
On February 16, 2022, NJR signed a commitment letter with a financial institution to refinance $50 million of its Senior Unsecured Notes that are currently scheduled to mature in September 2022. The new Senior Unsecured Note will be financed over a 12-year term with an interest rate of 3.64 percent maturing in September 2034.
NJNG
On October 28, 2021, NJNG entered into a Note Purchase Agreement for $100 million of its senior notes, of which $50 million were issued at an interest rate of 2.97 percent, maturing in 2051, and $50 million were issued at an interest rate of 3.07 percent, maturing in 2061. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s Mortgage Indenture.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NJNG received $7.8$17.3 million and $9.6 million in December 2017 and 2016, respectively,during the six months ended March 31, 2022, in connection with the sale-leasebacksale leaseback of its natural gas meters. NJNG records a capitalfinancing lease obligation that is paid over the term of the lease and has the option to purchase the meters back at fair value upon expiration of the lease. There were no natural gas meter sale leasebacks recorded during the six months ended March 31, 2021. NJNG exercised early purchase options with respect to meter leases by making final principal payments of $1.1 million and $1$1.2 million during the threesix months ended December March 31, 20172022 and 2016,2021, respectively.
NJRClean Energy Ventures
On January 26, 2018, NJR enteredClean Energy Ventures enters into transactions to sell the commercial solar assets concurrent with agreements to lease the assets back over a variable-for-fixed interest rate swapperiod of five to 15 years. These transactions are treated as financing obligations for accounting purposes and are typically secured by the renewable energy facility asset and its future cash flows from RECs and energy sales. ITCs and other tax benefits associated with these solar projects are transferred to the buyer, if applicable; however, the lease payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Clean Energy Ventures continues to operate the solar assets, including related expenses, and retain the revenue generated from RECs and energy sales, and has the option to renew the lease or repurchase the assets sold at the end of the lease term. During the six months ended March 31, 2022 and 2021, Clean Energy Ventures received proceeds of $3.3 million and $12.1 million, respectively, in connection with the sale leaseback of commercial solar projects. The proceeds received were recognized as a financing obligation on NJR's existing $100 million variable rate term loan due August 16, 2019, which fixed the variable rate at 2.84 percent.Unaudited Condensed Consolidated Balance Sheets.
10. EMPLOYEE BENEFIT PLANS
Pension and Other Postemployment Benefit Plans
The components of the net periodic cost for pension benefits, including the Company's Pension Equalization Plan, and OPEB costs (principally health care and life insurance) for employees and covered dependents were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | OPEB |
| Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended |
| March 31, | March 31, | March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 |
Service cost | $ | 2,073 | | $ | 2,183 | | $ | 4,146 | | $ | 4,365 | | $ | 1,076 | | $ | 1,211 | | $ | 2,152 | | $ | 2,422 | |
Interest cost | 2,408 | | 2,278 | | 4,816 | | 4,556 | | 1,589 | | 1,517 | | 3,178 | | 3,035 | |
Expected return on plan assets | (5,318) | | (4,851) | | (10,637) | | (10,075) | | (1,894) | | (1,565) | | (3,788) | | (3,248) | |
Recognized actuarial loss | 2,186 | | 2,861 | | 4,372 | | 5,723 | | 1,421 | | 1,978 | | 2,842 | | 3,955 | |
Prior service cost (credit) amortization | 26 | | 26 | | 51 | | 51 | | (36) | | (45) | | (72) | | (90) | |
| | | | | | | | |
Net periodic benefit cost | $ | 1,375 | | $ | 2,497 | | $ | 2,748 | | $ | 4,620 | | $ | 2,156 | | $ | 3,096 | | $ | 4,312 | | $ | 6,074 | |
|
| | | | | | | | | | | | |
| Pension | OPEB |
| Three Months Ended | Three Months Ended |
| December 31, | December 31, |
(Thousands) | 2017 | 2016 | 2017 | 2016 |
Service cost | $ | 2,035 |
| $ | 2,087 |
| $ | 1,152 |
| $ | 1,095 |
|
Interest cost | 2,623 |
| 2,443 |
| 1,591 |
| 1,386 |
|
Expected return on plan assets | (4,910 | ) | (4,828 | ) | (1,338 | ) | (1,192 | ) |
Recognized actuarial loss | 1,884 |
| 2,207 |
| 1,165 |
| 1,093 |
|
Prior service cost amortization | 27 |
| 27 |
| (91 | ) | (91 | ) |
Net periodic benefit cost | $ | 1,659 |
| $ | 1,936 |
| $ | 2,479 |
| $ | 2,291 |
|
The Company does not expect to be required to make additional contributions to fund the pension plans during fiscal 2018 or 20192022 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, the Company may elect to make contributions in excess of the minimum required amount to the plans. There were no discretionary contributions made during the threesix months ended DecemberMarch 31, 2017.2022 and 2021.
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 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.
11. INCOME TAXES
ASC Topic 740, Income Taxes requires the use of an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating its estimated annual effective tax rate, NJRthe Company considers forecasted annual pre-tax income and estimated permanent book versus tax differences, as well as tax credits associated with solar and wind projects. For investment tax credits, the estimate is based on solar projects that are probable of being completed and placed in service during the current fiscal year based on the best information available at each reporting period. For production tax credits, the estimate is based on the forecast of electricity produced during the current fiscal year based on the best information available at each reporting period.differences. Adjustments to the effective tax rate and management's estimates will occur as information and assumptions change.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in tax laws or tax rates are recognized in the financial reporting period that includes the enactment date, the date in which the act is signed into law.
NJRThe Company evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. During the three months ended December 31, 2017 and 2016, the Company determined there was no need to recognize any liabilities associated with uncertainA tax positions.
The Tax Act
On December 22, 2017, the President signed into law the Tax Act. The law made several changes to the Internal Revenue Code of 1986, as amended, the most impactful to the Company of which was a reduction in the federal corporate income tax rate from 35 percent to 21 percent that became effective January 1, 2018. Since the Company's fiscal year end is September 30, it is required by the Internal Revenue Code to calculate a statutory rate based upon the federal tax rates in effect before and after the effective date of the change in the taxable year that includes the effective date. Accordingly, the Company will use a federal statutory tax rate of 24.5 percent during fiscal 2018 and will use the enacted rate of 21 percent beginning in fiscal 2019.
As a result of the changes associated with the Tax Act, the Company revalued its deferred tax assets and liabilities at the enactment date to reflect the rates that will be in effect when the deferred tax assets and liabilities arebenefit claimed, or expected to be realized or settled. The decrease ofclaimed, on a tax return may be recognized if it is more likely than not that the net deferredposition will be upheld upon examination by the applicable taxing authority. Interest and penalties related to unrecognized tax liability at NJNG of $228 million, which includes $164.3 million for the revaluation of its deferred income taxes and $63.7 million for the accounting of thebenefits, if any, are recognized within income tax effects on the revaluation, was recorded as aexpense and accrued interest, and penalties are recognized within other noncurrent regulatory liabilityliabilities on the Unaudited Condensed Consolidated Balance Sheets since it will be refunded to NJNG's ratepayers. The decrease of the net deferred tax liability for the remaining entities resulted in an income tax benefit of $57.6 million that was recognized on the Unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2017.Sheets.
The adjustments to deferred income taxes are based on assumptions the Company made with respect to its book versus tax differences and the timing of when those differences will reverse, including estimations associated with depreciation and the settlement of derivative unrealized amounts, therefore the revaluation of net deferred tax liabilities is subject to change as information and assumptions are updated.
Effective Tax Rate
The forecasted effective tax rates were 13.922.3 percent and 8.719.9 percent, for the threesix months ended DecemberMarch 31, 20172022 and 2016,2021, respectively. The increased effective tax rate is due primarily to an increase in forecasted pre-tax income combined with a decrease in forecasted tax credits for the fiscal year ending September 30, 2018, compared with the prior fiscal year, which more than offset the lower statutory rate. Forecasted tax credits, net of deferred income taxes, were $21.9 million and $36.4 million for fiscal 2018 and 2017, respectively.
To the extent there are discrete tax items that are not included in the forecasted effective tax rate, the actual effective tax rate willmay differ from the estimated annual effective tax rate. The Company recognized $2.8 million and $1.2 million duringDuring the threesix months ended DecemberMarch 31, 20172022 and 2016,2021, discrete items totaled approximately $(166,000) and $(145,000), respectively, inrelated to excess tax benefitsexpense (benefits) associated with the vesting of share-based awards, as a component of income tax (benefit) provision in its Unaudited Condensed Consolidated Statements of Operations. In addition, as discussed further above, the Company recognized a tax benefit of $57.6 million during the three months ended December 31, 2017. As a result of these discrete items,awards. NJR’s actual effective tax rate was (68.2)22.3 percent and 5.519.7 percent as of Decemberduring the six months ended March 31, 20172022 and 2016,2021, respectively.
Other Tax Items
As of DecemberMarch 31, 2017,2022 and September 30, 2021, the Company has federal and state income tax net operating lossescredit carryforwards of approximately $125.3$227.1 million and $526.4 million, respectively, which generally have a life of 20 years. The Company has recorded deferred federal and state tax assets of approximately $28.5 million and $27.7 million, respectively, on the Unaudited Condensed Consolidated Balance Sheets, reflecting the tax benefits associated with these net operating losses. As of September 30, 2017, the Company had federal and state income tax net operating losses of approximately $125.3 million and $471.7 million, respectively, and deferred federal and state tax assets of approximately $28.5 million and $23.6 million, respectively.
As of December 31, 2017 and September 30, 2017, the Company recorded a valuation allowance associated with state net operating loss carryforwards of $1.3 million and $1 million, respectively, related to Clean Energy Ventures in the state of Montana. There were no other valuation allowances needed for the Company as of December 31, 2017. In addition, as of December 31,
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2017 and September 30, 2017, the Company had an ITC/PTC carryforward of approximately $122.9 million and $109.3$224.2 million, respectively, which each have a life of 20 years. The Company expects to utilize this entire carryforward prior to expiration, which would begin in fiscal 2035.
As of March 31, 2022 and September 30, 2021, the Company has state income tax net operating losses of approximately $404.8 million and $554.6 million, respectively. These state net operating losses have varying carry-forward periods dictated by the state in which they were incurred; these state carry-forward periods range from seven to 20 years and began to expire in fiscal 2021, with the majority expiring after 2035. The Company expects to utilize this entire carryforward, other than as described below.
In December 2015,The impairment of the equity method investment in PennEast created potential net capital loss attributes totaling approximately $61.8 million, which can only be utilized to offset capital gains income, and can be carried back three years and forward five years prior to expiration.
As of March 31, 2022, the Company has a valuation allowance totaling $23.7 million comprised of approximately $17.3 million related to the recognition of state net operating loss carryforwards, which primarily relate to New Jersey and approximately $6.4 million related to potential capital loss carryforwards resulting from the impairment of the equity method investment in PennEast, which the Company believes may not be fully utilized prior to expiration. As of September 30, 2021, the Company had a valuation allowance totaling $23.6 million related to the state net operating loss carryforwards and the potential capital loss carryforwards resulting from the impairment of the equity method investment, as previously discussed.
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 declinedeclined to 26 percent for property under construction before the end of 2020. The Consolidated Appropriations Act, 2021 extended the 26 percent tax credit for property under construction during 20202021 and 2022. The credit will drop 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 end of 2023. After 2023 the ITC will be reduced to 10 percent. In addition,
12. LEASES
Lessee Accounting
The Company determines if an arrangement is a lease at inception based on whether the PTC was extended for five years through December 31, 2019, with a gradual three year phase out for any project for which constructionCompany has the right to control the use of an identified asset, the right to obtain substantially all of the facility begins after Decembereconomic benefits from the use of the asset and the right to direct the use of the asset. After the criteria is satisfied, the Company accounts for these arrangements as leases in accordance
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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. Most 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.
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. The variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and 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.
Generally, the Company’s solar land lease terms are between 20 and 50 years and may include multiple options to extend the terms for an additional five to 20 years. The Company’s office leases vary in duration, ranging from two to 17 years and may or may not include extension or early purchase options. The Company’s meter lease terms are between seven and ten years with purchase options available prior to the end of the term. Equipment leases include general office equipment that also vary in duration, with an average term of six 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 Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases.
The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with various NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation.
The following table presents the Company's lease costs included in the Unaudited Condensed Consolidated Statements of Operations:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | Six Months Ended |
| | March 31, | March 31, |
(Thousands) | Income Statement Location | 2022 | 2021 | 2022 | 2021 |
Operating lease cost (1) | Operation and maintenance | $ | 2,915 | | 1,356 | | $ | 5,034 | | $ | 3,445 | |
Finance lease cost | | | | | |
Amortization of right-of-use assets | Depreciation and amortization | $ | 457 | | $ | 1,191 | | 853 | | 2,437 | |
Interest on lease liabilities | Interest expense, net of capitalized interest | 104 | | 113 | | 184 | | 334 | |
Total finance lease cost | | 561 | | 1,304 | | 1,037 | | 2,771 | |
Short-term lease cost | Operation and maintenance | 12 | | 127 | | 23 | | 254 | |
Variable lease cost | Operation and maintenance | 172 | | 549 | | 363 | | 702 | |
Total lease cost | | $ | 3,660 | | $ | 3,336 | | $ | 6,457 | | $ | 7,172 | |
(1)Net of capitalized costs.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents supplemental cash flow information related to leases:
| | | | | | | | |
| Six Months Ended |
| March 31, |
(Thousands) | 2022 | 2021 |
Cash paid for amounts included in the measurement of lease liabilities | | |
Operating cash flows for operating leases | $ | 3,557 | | $ | 2,932 | |
Operating cash flows for finance leases | $ | 404 | | $ | 791 | |
Financing cash flows for finance leases | $ | 3,947 | | $ | 5,690 | |
Assets obtained or modified for operating lease liabilities totaled approximately $17,000 and $5.7 million during the three months ended March 31, 2016.2022 and 2021, respectively, and totaled $825,000 and $13.3 million during the six months ended March 31, 2022 and 2021, respectively. Assets obtained or modified through finance lease liabilities totaled $17.3 million during the six months ended March 31, 2022. There were no assets obtained or modified through finance lease liabilities during the three months ended March 31, 2022 and the three and six months ended March 31, 2021.
The following table presents the balance and classifications of the Company's right of use assets and lease liabilities included in the Unaudited Condensed Consolidated Balance Sheets: 12. | | | | | | | | | | | |
(Thousands) | Balance Sheet Location | March 31, 2022 | September 30, 2021 |
Assets | | | |
Noncurrent | | | |
Operating lease assets | Operating lease assets | $ | 171,207 | | $ | 173,928 | |
Finance lease assets | Utility plant | 22,828 | | 13,489 | |
Total lease assets | | $ | 194,035 | | $ | 187,417 | |
Liabilities | | | |
Current | | | |
Operating lease liabilities | Operating lease liabilities | $ | 4,878 | | $ | 4,300 | |
Finance lease liabilities | Current maturities of long-term debt | 6,443 | | 5,393 | |
Noncurrent | | | |
Operating lease liabilities | Operating lease liabilities | 140,036 | | 141,363 | |
Finance lease liabilities | Long-term debt | 27,045 | | 14,742 | |
Total lease liabilities | | $ | 178,402 | | $ | 165,798 | |
For operating lease assets and liabilities, the weighted average remaining lease term was 29.6 years and the weighted average discount rate used in the valuation over the remaining lease term was 3.2 percent for both March 31, 2022 and September 30, 2021.
For finance lease assets and liabilities as of March 31, 2022 and September 30, 2021, the weighted average remaining lease term was 4.5 years and 3.4 years, respectively, and the weighted average discount rate used in the valuation over the remaining lease term is 2.7 percent and 3.5 percent as of March 31, 2022 and September 30, 2021, respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Cash Commitments
NJNG has entered into long-term contracts, expiring at various dates through September 2024,2039, for the supply, storagetransportation and transportationstorage of natural gas. These contracts include annual fixed charges of approximately $75.9$199.5 million at current contract rates and volumes for the remainder of the fiscal year, which are recoverable through BGSS.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the purpose of securing storage and pipeline capacity, the Energy Services segment enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by Energy Services to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to 10 years. Demand charges are established by interstate storage and pipeline operators and are regulated by FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and/or transport natural gas utilizing their respective assets.
Commitments as of DecemberMarch 31, 2017,2022, for natural gas purchases and future demand fees for the next five fiscal year periods are as follows:
| | | | | | | | | | | | | | | | | | | | |
(Thousands) | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter |
Energy Services: | | | | | | |
Natural gas purchases | $ | 110,029 | | $ | 17,096 | | $ | — | | $ | — | | $ | — | | $ | — | |
Storage demand fees | 11,881 | | 20,416 | | 12,256 | | 6,434 | | 3,789 | | 3,027 | |
Pipeline demand fees | 36,564 | | 59,876 | | 41,802 | | 27,037 | | 26,359 | | 32,082 | |
Sub-total Energy Services | $ | 158,474 | | $ | 97,388 | | $ | 54,058 | | $ | 33,471 | | $ | 30,148 | | $ | 35,109 | |
NJNG: | | | | | | |
Natural gas purchases | $ | 55,151 | | $ | 5,361 | | $ | — | | $ | — | | $ | — | | $ | — | |
Storage demand fees | 25,167 | | 41,758 | | 27,318 | | 17,362 | | 10,266 | | 14,320 | |
Pipeline demand fees | 72,067 | | 147,689 | | 91,216 | | 136,515 | | 127,692 | | 1,179,683 | |
Sub-total NJNG | $ | 152,385 | | $ | 194,808 | | $ | 118,534 | | $ | 153,877 | | $ | 137,958 | | $ | 1,194,003 | |
Total | $ | 310,859 | | $ | 292,196 | | $ | 172,592 | | $ | 187,348 | | $ | 168,106 | | $ | 1,229,112 | |
|
| | | | | | | | | | | | | | | | | | |
(Thousands) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter |
Energy Services: | | | | | | |
Natural gas purchases | $ | 287,394 |
| $ | 117,129 |
| $ | 21,504 |
| $ | 11,443 |
| $ | — |
| $ | — |
|
Storage demand fees | 24,479 |
| 22,933 |
| 13,573 |
| 9,263 |
| 6,055 |
| 3,523 |
|
Pipeline demand fees | 59,067 |
| 50,562 |
| 39,292 |
| 23,348 |
| 19,087 |
| 18,977 |
|
Sub-total Energy Services | $ | 370,940 |
| $ | 190,624 |
| $ | 74,369 |
| $ | 44,054 |
| $ | 25,142 |
| $ | 22,500 |
|
NJNG: | | | | | | |
Natural gas purchases | $ | 39,542 |
| $ | 41,287 |
| $ | 40,046 |
| $ | 38,234 |
| $ | 38,794 |
| $ | 79,894 |
|
Storage demand fees | 22,531 |
| 27,193 |
| 16,482 |
| 9,380 |
| 8,952 |
| 11,373 |
|
Pipeline demand fees | 53,406 |
| 75,718 |
| 101,087 |
| 91,202 |
| 89,828 |
| 669,099 |
|
Sub-total NJNG | $ | 115,479 |
| $ | 144,198 |
| $ | 157,615 |
| $ | 138,816 |
| $ | 137,574 |
| $ | 760,366 |
|
Total | $ | 486,419 |
| $ | 334,822 |
| $ | 231,984 |
| $ | 182,870 |
| $ | 162,716 |
| $ | 782,866 |
|
Certain pipeline demand fees totaling approximately $4.0 million per year, for which Energy Services is the responsible party, are being paid for by the counterparty to a capacity release transaction beginning November 1, 2021 for a period of 10 years.
Legal Proceedings
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of fivecertain 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 Administrative Consent Orders or Memoranda of Agreement with the NJDEP.NJDEP regulations.
NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC approved by the BPU. NJNG currently recovers approximately $9.4 million annually through its SBC RAC. On November 17, 2017, NJNG filed its annual SBC application requesting a reduction in the RAC, which will decrease the annual recovery to $7 million, effective April 1, 2018. As of December 31, 2017, $31.2 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Unaudited Condensed Consolidated Balance Sheets.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 2017, the NJDEP contacted NJNG regarding its association with a parcel of land, located within NJNG's territory, which may have been a MGP site for a period of time. NJNG is investigating to determine the nature and extent of its relationship to the parcel, its previous owner and the operations conducted on the site. NJNG will continue to gather information relevant to the site in question, to determine if additional inquiry and inspection is warranted and whether a potential obligation, if any, exists to undertake remedial action.
NJNG periodically, and at least annually, performs an environmental review of theformer MGP sites located in Atlantic Highlands, Berkeley, Long Branch, Manchester, Toms River, Freehold and Aberdeen, New Jersey, including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures to remediate and monitorat the fiveformer MGP sites for which it is responsible, including potential liabilities for Natural Resource Damagesnatural resource damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites will range from approximately $117.6$115.7 million to $205.2$178.7 million. NJNG'sNJNG’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'sNJNG’s policy to accrue the lower end of the range. Accordingly, as of March 31, 2022, NJNG recorded ana MGP remediation liability and a corresponding regulatory asset of approximately $121.6 million on the Unaudited Condensed Consolidated Balance Sheets of $149 million as of September 30, 2017, based on the most likely amount at year end and $144 million as of December 31, 2017, which includes adjustments for actual expenditures during fiscal 2018.amount. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and insurance recoveries, if any.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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 are included in the MGP remediation liability and corresponding regulatory asset on the Unaudited Condensed Consolidated Balance Sheets at March 31, 2022 and September 30, 2021. NJNG will continue to gather information to determine whether the obligation exists to undertake remedial action, if any, and refine its estimate of potential costs for this site as more information becomes available.
NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC approved by the BPU. On March 23, 2022, the BPU approved an increase in the RAC, which increased the pre-tax annual recovery from $11.1 million to $11.7 million, effective April 1, 2022. As of March 31, 2022, $65.5 million of previously incurred remediation costs, net of recoveries from customers and insurance recoveries.
proceeds, are included in regulatory assets on the Unaudited Condensed 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 earningsincome 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, NJRthe Company establishes reservesaccruals 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. The Company also discloses contingent matters for which there is a reasonable possibility of a loss. Based upon currently available information, NJRthe Company believes that the results of litigation that isare currently pending, taken together, will not have a materially adverse effect on the Company’s financial condition, results of operations or cash flows. The actual results of resolving the pending litigation matters may be substantially higher than the amounts reserved.accrued.
The foregoing statements about NJR’sthe Company’s litigation are based upon the Company’s judgments, assumptions and estimates and are necessarily subjective and uncertain. The Company has a number of threatened and pending litigation matters at various stages. Certain of the Company’s significant litigation is described below.
In February 2015, a natural gas fire and explosion occurred in Stafford Township, New Jersey as a result of a natural gas leak emanating from an underground pipe. There were no fatalities, although several employees of NJNG were injured and several homes were damaged. NJNG notified its insurance carrier and believes that any costs associated with the incident, including attorneys’ fees, property damage and other losses, will be substantially covered by insurance. The Company believes the resolution of any potential claims associated with the incident will not have a material effect on its financial condition, results of operations or cash flows. As of December 31, 2017, NJNG estimates that liabilities associated with claims will range between $600,000 and $3.2 million and has accrued the lower end of the range, as we do not believe there is an amount within the range that is more probable than any other.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13.14. REPORTING SEGMENT AND OTHER OPERATIONS DATA
The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated wholesale and retail energy operations; the MidstreamStorage and Transportation segment consists of the Company'sCompany’s investments in natural gas transportation and storage facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.
Information related to the Company's various reporting segments and other operations is detailed below:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues | | | | |
Natural Gas Distribution | | | | |
External customers | $ | 463,474 | | $ | 310,167 | | $ | 737,909 | | $ | 505,896 | |
Intercompany | 338 | | — | | 675 | | — | |
Clean Energy Ventures | | | | |
External customers | 11,827 | | 6,476 | | 22,010 | | 12,846 | |
Energy Services | | | | |
External customers (1) | 411,069 | | 459,766 | | 776,857 | | 687,115 | |
Intercompany | 1,576 | | 2,803 | | 5,032 | | 4,931 | |
Storage and Transportation | | | | |
External customers | 12,805 | | 13,257 | | 24,389 | | 25,704 | |
Intercompany | 537 | | 669 | | 1,096 | | 1,326 | |
Subtotal | 901,626 | | 793,138 | | 1,567,968 | | 1,237,818 | |
Home Services and Other | | | | |
External customers | 13,141 | | 12,521 | | 26,993 | | 24,931 | |
Intercompany | 81 | | 252 | | 180 | | 419 | |
Eliminations | (2,532) | | (3,724) | | (6,983) | | (6,676) | |
Total | $ | 912,316 | | $ | 802,187 | | $ | 1,588,158 | | $ | 1,256,492 | |
Depreciation and amortization | | | | |
Natural Gas Distribution | $ | 23,344 | | $ | 19,475 | | $ | 46,237 | | $ | 38,644 | |
Clean Energy Ventures | 5,311 | | 4,685 | | 10,544 | | 10,118 | |
Energy Services (2) | 32 | | 13 | | 60 | | 55 | |
Storage and Transportation | 2,571 | | 2,364 | | 4,704 | | 5,004 | |
Subtotal | 31,258 | | 26,537 | | 61,545 | | 53,821 | |
Home Services and Other | 203 | | 227 | | 407 | | 487 | |
Eliminations | (26) | | 84 | | (124) | | (98) | |
Total | $ | 31,435 | | $ | 26,848 | | $ | 61,828 | | $ | 54,210 | |
Interest income (3) | | | | |
Natural Gas Distribution | $ | 191 | | $ | 76 | | $ | 384 | | $ | 158 | |
Clean Energy Ventures | — | | 240 | | — | | 240 | |
| | | | |
Storage and Transportation | 381 | | 851 | | 758 | | 1,545 | |
Subtotal | 572 | | 1,167 | | 1,142 | | 1,943 | |
Home Services and Other | 147 | | 127 | | 302 | | 259 | |
Eliminations | (231) | | (237) | | (455) | | (476) | |
Total | $ | 488 | | $ | 1,057 | | $ | 989 | | $ | 1,726 | |
(1)Includes sales to Canada for the Energy Services segment, which are immaterial.
(2)The amortization of acquired wholesale energy contracts is excluded above and is included in natural gas purchases - nonutility on the Unaudited Condensed Consolidated Statements of Operations.
(3)Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations.
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating revenues | | |
Natural Gas Distribution | | |
External customers | $ | 209,787 |
| $ | 185,556 |
|
Clean Energy Ventures | | |
External customers | 13,996 |
| 7,567 |
|
Energy Services | | |
External customers (1) | 472,171 |
| 338,930 |
|
Intercompany | 5,810 |
| (1,749 | ) |
Subtotal | 701,764 |
| 530,304 |
|
Home Services and Other | | |
External customers | 9,351 |
| 8,975 |
|
Intercompany | 606 |
| 1,031 |
|
Eliminations | (6,416 | ) | 718 |
|
Total | $ | 705,305 |
| $ | 541,028 |
|
Depreciation and amortization | | |
Natural Gas Distribution | $ | 12,783 |
| $ | 12,030 |
|
Clean Energy Ventures | 8,935 |
| 7,041 |
|
Energy Services | 14 |
| 16 |
|
Midstream | 1 |
| 1 |
|
Subtotal | 21,733 |
| 19,088 |
|
Home Services and Other | 188 |
| 221 |
|
Eliminations | (67 | ) | (49 | ) |
Total | $ | 21,854 |
| $ | 19,260 |
|
Interest income (2) | | |
Natural Gas Distribution | $ | 119 |
| $ | 75 |
|
Midstream | 664 |
| 462 |
|
Subtotal | 783 |
| 537 |
|
Home Services and Other | 204 |
| 121 |
|
Eliminations | (931 | ) | (583 | ) |
Total | $ | 56 |
| $ | 75 |
|
| |
(1) | Includes sales to Canada, which accounted for .02 and 1.9 percent of total operating revenues during the three months ended December 31, 2017 and 2016, respectively.
|
| |
(2) | Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations. |
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Interest expense, net of capitalized interest | | | | |
Natural Gas Distribution | $ | 10,764 | | $ | 9,006 | | $ | 21,759 | | $ | 17,980 | |
Clean Energy Ventures | 5,395 | | 5,266 | | 10,822 | | 10,300 | |
Energy Services | 795 | | 575 | | 1,470 | | 1,255 | |
Storage and Transportation | 1,847 | | 3,578 | | 3,983 | | 7,560 | |
Subtotal | 18,801 | | 18,425 | | 38,034 | | 37,095 | |
Home Services and Other | 125 | | 1,728 | | 369 | | 2,844 | |
| | | | |
Total | $ | 18,926 | | $ | 20,153 | | $ | 38,403 | | $ | 39,939 | |
Income tax provision (benefit) | | | | |
Natural Gas Distribution | $ | 29,689 | | $ | 15,622 | | $ | 42,893 | | $ | 23,989 | |
Clean Energy Ventures | (1,952) | | (2,714) | | (3,998) | | (5,800) | |
Energy Services | (790) | | 23,128 | | 19,715 | | 35,250 | |
Storage and Transportation | 714 | | 873 | | 1,057 | | 1,519 | |
Subtotal | 27,661 | | 36,909 | | 59,667 | | 54,958 | |
Home Services and Other | 256 | | (59) | | 502 | | 59 | |
Eliminations | 893 | | 2,207 | | (552) | | 1,481 | |
Total | $ | 28,810 | | $ | 39,057 | | $ | 59,617 | | $ | 56,498 | |
Equity in earnings of affiliates | | | | |
Storage and Transportation | $ | 1,256 | | $ | 3,386 | | $ | 2,312 | | $ | 6,579 | |
Eliminations | (487) | | (582) | | (968) | | (1,100) | |
Total | $ | 769 | | $ | 2,804 | | $ | 1,344 | | $ | 5,479 | |
Net financial earnings (loss) | | | | |
Natural Gas Distribution | $ | 102,783 | | $ | 80,541 | | $ | 153,863 | | $ | 130,008 | |
Clean Energy Ventures | (6,491) | | (8,872) | | (13,312) | | (19,146) | |
Energy Services | 29,940 | | 96,528 | | 47,507 | | 98,028 | |
Storage and Transportation | 4,625 | | 4,711 | | 7,587 | | 8,219 | |
Subtotal | 130,857 | | 172,908 | | 195,645 | | 217,109 | |
Home Services and Other | 451 | | 747 | | 898 | | 685 | |
Eliminations | (1,102) | | (3,051) | | (567) | | (2,533) | |
Total | $ | 130,206 | | $ | 170,604 | | $ | 195,976 | | $ | 215,261 | |
Capital expenditures | | | | |
Natural Gas Distribution | $ | 52,000 | | $ | 97,239 | | $ | 125,464 | | $ | 176,485 | |
Clean Energy Ventures | 41,176 | | 18,549 | | 66,556 | | 40,884 | |
Storage and Transportation | 43,673 | | 20,094 | | 109,048 | | 27,707 | |
Subtotal | 136,849 | | 135,882 | | 301,068 | | 245,076 | |
Home Services and Other | 163 | | 125 | | 242 | | 811 | |
Total | $ | 137,012 | | $ | 136,007 | | $ | 301,310 | | $ | 245,887 | |
Investments in (return of capital from) equity investees | | | | |
Storage and Transportation | $ | (4,000) | | $ | 196 | | $ | (4,000) | | $ | 482 | |
Total | $ | (4,000) | | $ | 196 | | $ | (4,000) | | $ | 482 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Interest expense, net of capitalized interest | | |
Natural Gas Distribution | $ | 6,536 |
| $ | 6,824 |
|
Clean Energy Ventures | 4,208 |
| 3,324 |
|
Energy Services | 1,257 |
| 571 |
|
Midstream | 309 |
| 56 |
|
Subtotal | 12,310 |
| 10,775 |
|
Home Services and Other | 90 |
| 74 |
|
Eliminations | (495 | ) | (234 | ) |
Total | $ | 11,905 |
| $ | 10,615 |
|
Income tax provision (benefit) | | |
Natural Gas Distribution | $ | 11,704 |
| $ | 14,887 |
|
Clean Energy Ventures | (73,988 | ) | (11,887 | ) |
Energy Services | 13,743 |
| (3,176 | ) |
Midstream | (12,843 | ) | 1,649 |
|
Subtotal | (61,384 | ) | 1,473 |
|
Home Services and Other | 11,698 |
| (245 | ) |
Eliminations | (482 | ) | 790 |
|
Total | $ | (50,168 | ) | $ | 2,018 |
|
Equity in earnings of affiliates | | |
Midstream | $ | 4,129 |
| $ | 3,331 |
|
Eliminations | (865 | ) | (1,020 | ) |
Total | $ | 3,264 |
| $ | 2,311 |
|
Net financial earnings | | |
Natural Gas Distribution | $ | 34,109 |
| $ | 30,348 |
|
Clean Energy Ventures | 71,250 |
| 2,842 |
|
Energy Services | 20,274 |
| 3,487 |
|
Midstream | 17,511 |
| 2,387 |
|
Subtotal | 143,144 |
| 39,064 |
|
Home Services and Other | (7,716 | ) | 1,542 |
|
Eliminations | (95 | ) | (223 | ) |
Total | $ | 135,333 |
| $ | 40,383 |
|
Capital expenditures | | |
Natural Gas Distribution | $ | 47,390 |
| $ | 38,855 |
|
Clean Energy Ventures | 18,387 |
| 46,785 |
|
Subtotal | 65,777 |
| 85,640 |
|
Home Services and Other | 1,313 |
| 171 |
|
Total | $ | 67,090 |
| $ | 85,811 |
|
Investments in equity investees | | |
Midstream | $ | 7,202 |
| $ | 4,636 |
|
Total | $ | 7,202 |
| $ | 4,636 |
|
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's assets for the various reporting segments and business operations are detailed below:
| | | | | | | | |
(Thousands) | March 31, 2022 | September 30, 2021 |
Assets at end of period: | | |
Natural Gas Distribution | $ | 3,844,036 | | $ | 3,707,461 | |
Clean Energy Ventures | 970,599 | | 914,788 | |
Energy Services | 248,112 | | 365,423 | |
Storage and Transportation | 965,615 | | 862,407 | |
Subtotal | 6,028,362 | | 5,850,079 | |
Home Services and Other | 136,300 | | 162,134 | |
Intercompany assets (1) | (294,658) | | (289,935) | |
Total | $ | 5,870,004 | | $ | 5,722,278 | |
(1)Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
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:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Net financial earnings | $ | 130,206 | | $ | 170,604 | | $ | 195,976 | | $ | 215,261 | |
Less: | | | | |
Unrealized loss (gain) on derivative instruments and related transactions | 42,022 | | 29,255 | | (40,169) | | (8,235) | |
Tax effect | (9,980) | | (6,954) | | 9,556 | | 1,958 | |
Effects of economic hedging related to natural gas inventory | 1,155 | | (7,209) | | 24,732 | | (14,741) | |
Tax effect | (274) | | 1,713 | | (5,877) | | 3,503 | |
| | | | |
| | | | |
NFE tax adjustment | 1,248 | | 3,990 | | 387 | | 1,922 | |
Net income | $ | 96,035 | | $ | 149,809 | | $ | 207,347 | | $ | 230,854 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Net financial earnings | $ | 135,333 |
| $ | 40,383 |
|
Less: | | |
Unrealized loss on derivative instruments and related transactions | 34,855 |
| 28,302 |
|
Tax effect | (8,059 | ) | (9,757 | ) |
Effects of economic hedging related to natural gas inventory | (25,387 | ) | (17,939 | ) |
Tax effect | 8,244 |
| 6,204 |
|
Net income to NFE tax adjustment | 1,981 |
| (1,356 | ) |
Net income | $ | 123,699 |
| $ | 34,929 |
|
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 isare 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, realizedRealized 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. NFE also excludes impairment charges associated with equity method investments, which are non-cash charges considered unusual in nature that occur infrequently and are not indicative of the Company's performance for its ongoing operations. 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 the three month ended December 31, 2017, are the impactscomponents 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 quarter. NJRCompany also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.
The Company's assets for the various business segments and business operations are detailed below:
|
| | | | | | |
(Thousands) | December 31, 2017 | September 30, 2017 |
Assets at end of period: | | |
Natural Gas Distribution | $ | 2,590,623 |
| $ | 2,519,578 |
|
Clean Energy Ventures | 797,951 |
| 771,340 |
|
Energy Services | 547,388 |
| 398,277 |
|
Midstream | 248,498 |
| 232,806 |
|
Subtotal | 4,184,460 |
| 3,922,001 |
|
Home Services and Other | 125,149 |
| 114,801 |
|
Intercompany assets (1) | (122,681 | ) | (108,295 | ) |
Total | $ | 4,186,928 |
| $ | 3,928,507 |
|
| |
(1) | Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation. |
New Jersey Resources Corporation
14.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. RELATED PARTY TRANSACTIONS
Effective April 1, 2010,2020, NJNG entered into a 10-year5-year agreement for 3 Bcf of firm storage capacity with Steckman Ridge.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'sNJNG’s BGSS mechanism and are included as a component of regulatory assets.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-jurisdictional natural gas storage facility, Steckman Ridge. As of DecemberMarch 31, 2017,2022, Energy Services has entered into transactions with Steckman Ridge for varying terms, all of which expire by OctoberMarch 31, 2020.2024.
Demand fees, net of eliminations, associated with Steckman Ridge were as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Natural Gas Distribution | $ | 1,546 | | $ | 1,505 | | $ | 3,104 | | $ | 3,073 | |
Energy Services | 337 | | 226 | | 625 | | 391 | |
Total | $ | 1,883 | | $ | 1,731 | | $ | 3,729 | | $ | 3,464 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Natural Gas Distribution | $ | 1,448 |
| $ | 1,410 |
|
Energy Services | 701 |
| 701 |
|
Total | $ | 2,149 |
| $ | 2,111 |
|
The following table summarizes demand fees payable to Steckman Ridge as of:
| | | | | | | | |
(Thousands) | March 31, 2022 | September 30, 2021 |
Natural Gas Distribution | $ | 779 | | $ | 778 | |
Energy Services | 76 | | 83 | |
Total | $ | 855 | | $ | 861 | |
|
| | | | | | |
(Thousands) | December 31, 2017 | September 30, 2017 |
Natural Gas Distribution | $ | 775 |
| $ | 775 |
|
Energy Services | 375 |
| 377 |
|
Total | $ | 1,150 |
| $ | 1,152 |
|
NJNG and Energy Services have entered into various asset management agreements,AMAs, 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 DecemberMarch 31, 2017,2022, NJNG and Energy Services had four asset management agreements1 AMA with an expiration dates ranging from February 28, 2018 through Octoberdate of March 31, 2020.2023.
NJNG has entered into a 15-year5-year transportation precedent agreement with Adelphia Gateway for committed capacity of 180,000 Dths130,000 Dekatherms per day, which is expected to begin during the 2nd half of fiscal 2022.
Energy Services has a 5-year agreement for 3 Bcf of firm storage capacity with PennEast, to commence when PennEastLeaf River, which is eliminated in service.consolidation and expires in March 2024.
15. ACQUISITION
On October 27, 2017, Adelphia, an indirect wholly owned subsidiary of NJR,In March 2021, NJNG and Clean Energy Ventures entered into a Purchase15-year sublease and Sale Agreement with Talen pursuantPPA agreement related to which Adelphia will acquire all of Talen’s membership interests in IEC for a base purchase price of $166 million. As additional consideration, Adelphia will pay Talen specified amounts of up to $23 million contingent upon the achievement of certain regulatory approvals and binding natural gas capacity commitments. On November 7, 2017, the Company made an initial payment of $10 million towards the base purchase price, which is included in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets.
IEC owns an existing 84-mile pipeline in southeastern Pennsylvania. The transaction is expected to close following receipt of necessary permits and regulatory actions including those from the FERConsite solar array and the Pennsylvania Public Utility Commission. Uponrelated energy output at the closing, Adelphia will acquire IEC and,Company’s headquarters in Wall, New Jersey, the effects of which are immaterial to the consolidated financial statements.
In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with it, IEC’s existing pipeline, related assets and rightsvarious NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of way. Adelphia has also agreed to provide firm natural gas transportation service for ten years following the closing to two power generators owned by affiliates of Talen thatwhich are currently served by IEC.eliminated in consolidation.
1
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Critical Accounting PoliciesEstimates
A summary of our critical accounting policies is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 2017.2021. Our critical accounting policies have not changed from those reported in the 20172021 Annual Report on Form 10-K.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Recently Issued Accounting Standards
Refer to Note 2. Summary of Significant Accounting Policies for discussion of recently issued accounting standards.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Management's Overview
Consolidated
NJR is ana diversified energy services holding company providing retail natural gas service in New Jersey and wholesale and retail natural gas and related energy services to customers in the United StatesU.S. and Canada. In addition, we invest in clean energy projects, midstreamstorage and transportation assets and provide various repair, sales and installationsinstallation services. A more detailed description of our organizational structure can be found in Item 1. Business of our 20172021 Annual Report on Form 10-K.
Reporting Segments
We have four primary reporting segments as presented in the chart below:
In addition to our four reporting segments above, 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; andNJRHS, commercial real estate holdings at CR&R.&R and home warranty contracts at NJR Retail.
The Tax ActImpacts of the COVID-19 Pandemic
On December 22, 2017, the President signed into law the Tax Act. The newly enacted legislation became effective January 1, 2018, and includes a broad range of tax reform initiatives, including a reductionWe continue to closely monitor developments related to the federal statutory corporate tax rate from 35 percentCOVID-19 pandemic and have, when appropriate, taken steps intended to 21 percent, modification of bonus depreciationlimit potential exposure for our employees and changes to the deductibility of certain business related expenses. ASC Topic 740, Income Taxes, requires the impact of changes in tax laws or tax rates to be recognizedthose we serve, including continuity in the financial reporting period that includes that enactment date, which issafe operation of our business. These steps include working from home for our office-based employees utilizing a newly implemented hybrid schedule, limiting direct contact with our customers and suspending late payment fees for our utility customers. And while we, along with other businesses, are continuing to return to normal operating practices, this remains an evolving situation. The timing for recovery of businesses and local economies, resurgences or mutations of the datevirus, and any potential future shutdowns remains unknown. Throughout the act is signed into law.COVID-19 pandemic, we have continued to provide essential services to our
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
As a resultcustomers. Both NJR and NJNG continue to have sufficient liquidity to meet their current obligations and business operations remain fundamentally unchanged at this time. We cannot predict the nature and extent of the changeimpacts 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 realizedfuture operations, or settled. The decrease of the net deferred tax liability at NJNG of $228 million, which includes $164.3 million for the revaluation of its deferred income taxes and $63.7 million for the accounting of the income tax effects on our financial condition, results of operations and cash flows. We will continue to monitor developments affecting our employees, customers, and operations and take additional steps to address the revaluation, was recordedCOVID-19 pandemic and its impacts, as a noncurrent regulatory liability on the Unaudited Condensed Consolidated Balance Sheets and will be refunded to ratepayers. The decrease of our net deferred tax liability, that was recognized on the Unaudited Condensed Consolidated Statements of Operations, for the remaining entities was as follows:necessary.
|
| | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 |
Income tax (benefit) provision | |
Clean Energy Ventures | $ | (62,657 | ) |
Energy Services | 9,107 |
|
Midstream | (13,989 | ) |
Home Services and Other | 9,974 |
|
Total | $ | (57,565 | ) |
Since these adjustments are based on assumptions the Company made with respect to its book versus tax differences and the timing of when those differences will reverse, including estimations associated with depreciation and the settlement of derivative unrealized amounts, therefore the revaluation of our net deferred tax liabilities is subject to change as information and assumptions are updated.
On January 31, 2018, the BPU issued an Order directing the New Jersey utilities to submit filings by March 2, 2018, proposing the prospective change in rates as a result of the Tax Act, the method to return to customers the rate difference from January 1, 2018 through the effective date of the rate change, and the method by which the excess deferred taxes will 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. The return to customers of the plant-related excess deferred taxes, as well as any non-plant related excess deferred taxes will be addressed in NJNG’s filing to the BPU. See Note 3. Regulation for a more detailed discussion on the BPU order.
Since the Company's fiscal year end is September 30, it is required by the Internal Revenue Code to calculate a statutory rate based upon the federal tax rates in effect before and after the effective date of the change in the taxable year that includes the effective date. Accordingly, the Company will use a federal statutory tax rate of 24.5 percent during fiscal 2018 and will use the enacted rate of 21 percent beginning in fiscal 2019. See Note 11. Income Taxes for a more detailed discussion on the Tax Act.
Operating Results
Net income (loss) by reporting segment and operations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| March 31, | | March 31, |
(Thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | | | | | | | | | | | |
Natural Gas Distribution | $ | 102,783 | | 107 | % | | $ | 80,541 | | 54 | % | | $ | 153,863 | | 74 | % | | $ | 130,008 | | 56 | % |
Clean Energy Ventures | (6,491) | | (7) | | | (8,872) | | (6) | | | (13,312) | | (6) | | | (19,146) | | (8) | |
Energy Services | (3,031) | | (3) | | | 75,662 | | 51 | | | 62,713 | | 30 | | | 114,534 | | 49 | |
Storage and Transportation | 4,625 | | 5 | | | 4,711 | | 3 | | | 7,587 | | 4 | | | 8,219 | | 4 | |
Home Services and Other | 451 | | — | | | 747 | | — | | | 898 | | — | | | 685 | | — | |
Eliminations (1) | (2,302) | | (2) | | | (2,980) | | (2) | | | (4,402) | | (2) | | | (3,446) | | (1) | |
Total | $ | 96,035 | | 100 | % | | $ | 149,809 | | 100 | % | | $ | 207,347 | | 100 | % | | $ | 230,854 | | 100 | % |
|
| | | | | | | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | | 2016 |
Net income (loss) | | | | | |
Natural Gas Distribution | $ | 34,109 |
| 28 | % | | $ | 30,348 |
| 87 | % |
Clean Energy Ventures | 69,269 |
| 56 |
| | 4,198 |
| 12 |
|
Energy Services | 11,120 |
| 9 |
| | (4,790 | ) | (14 | ) |
Midstream | 17,511 |
| 13 |
| | 2,387 |
| 7 |
|
Home Services and Other | (7,716 | ) | (6 | ) | | 1,542 |
| 4 |
|
Eliminations (1) | (594 | ) | — |
| | 1,244 |
| 4 |
|
Total | $ | 123,699 |
| 100 | % | | $ | 34,929 |
| 100 | % |
| |
(1) | Consists of transactions between subsidiaries that are eliminated in consolidation.
|
(1) Consists of transactions between subsidiaries that are eliminated in consolidation.
The increase of $88.8 milliondecrease in net income during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, was driven primarily by an income tax benefit of $57.6 million associated with the Tax Act and increased operating incomedecreased earnings at Energy Services due primarily to increases in the average price of natural gasresulting from extreme cold weather and volumes relatedstrong market demand during February 2021, which did not reoccur to the weathersame extent during 2022, partially offset by the commencement of AMAs at Energy Services with an investment grade public utility, which began in December 2017 being 14.4 percent colder than normal. The primary drivers of the changes noted above are described in more detail in the individual segment discussions.November 2021 and increased earnings at NJNG due to higher base rates.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Assets by reporting segment and operations are as follows:
| | | | | | | | | | | | | | | | | |
(Thousands) | March 31, 2022 | | September 30, 2021 |
Assets | | | | | |
Natural Gas Distribution | $ | 3,844,036 | | 66 | % | | $ | 3,707,461 | | 65 | % |
Clean Energy Ventures | 970,599 | | 17 | | | 914,788 | | 16 | |
Energy Services | 248,112 | | 4 | | | 365,423 | | 6 | |
Storage and Transportation | 965,615 | | 16 | | | 862,407 | | 15 | |
Home Services and Other | 136,300 | | 2 | | | 162,134 | | 3 | |
Intercompany assets (1) | (294,658) | | (5) | | | (289,935) | | (5) | |
Total | $ | 5,870,004 | | 100 | % | | $ | 5,722,278 | | 100 | % |
|
| | | | | | | | | | | |
(Thousands) | December 31, 2017 | | September 30, 2017 |
Assets | | | | | |
Natural Gas Distribution | $ | 2,590,623 |
| 62 | % | | $ | 2,519,578 |
| 64 | % |
Clean Energy Ventures | 797,951 |
| 19 |
| | 771,340 |
| 20 |
|
Energy Services | 547,388 |
| 13 |
| | 398,277 |
| 10 |
|
Midstream | 248,498 |
| 6 |
| | 232,806 |
| 6 |
|
Home Services and Other | 125,149 |
| 3 |
| | 114,801 |
| 3 |
|
Intercompany assets (1) | (122,681 | ) | (3 | ) | | (108,295 | ) | (3 | ) |
Total | $ | 4,186,928 |
| 100 | % | | $ | 3,928,507 |
| 100 | % |
(1)Consists of transactions between subsidiaries that are eliminated in consolidation. | |
(1)
| Consists of transactions between subsidiaries that are eliminated in consolidation. |
The increase in assets was due primarily to additional investment in utility plant in our Natural Gas Distribution segment, solar asset investments at Clean Energy Ventures, increased infrastructure spend in Storage and Transportation primarily related to the on-going conversion and construction of the southern end of Adelphia Gateway and an increase in accounts receivable at our Natural Gas Distribution segment, partially offset by lower gas in storage at Energy Services and our Natural Gas Distribution segment, as well as additional utility plant.segment.
Non-GAAP Financial Measures
Our management uses NFE, a non-GAAP financial measure, when evaluating our operating results. Energy Services economically hedges its natural gas inventory with financial derivative instruments. 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. Also included in the tax effect during the three month ended December 31, 2017, 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 quarter. To the extent we utilize forwards, futures, or other derivatives to hedge forecasted SREC production, unrealized gains and losses are also eliminated from NFE. NFE also excludes impairment charges associated with equity method investments, which are a non-cash charge considered unusual in nature that occur infrequently and are not
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
indicative of the Company's performance for NFE purposes.our ongoing operations. Included in the tax effects are current and deferred income tax expense corresponding with the components of NFE.
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 differences 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. Since this adjustment is made to reflect the forecasted tax rate, noNo adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at 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. Below is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to NFE:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| March 31, | | March 31, |
(Thousands, except per share data) | 2022 | 2021 | | 2022 | 2021 |
Net income | $ | 96,035 | | $ | 149,809 | | | $ | 207,347 | | $ | 230,854 | |
Add: | | | | | |
Unrealized loss (gain) on derivative instruments and related transactions | 42,022 | | 29,255 | | | (40,169) | | (8,235) | |
Tax effect | (9,980) | | (6,954) | | | 9,556 | | 1,958 | |
Effects of economic hedging related to natural gas inventory (1) | 1,155 | | (7,209) | | | 24,732 | | (14,741) | |
Tax effect | (274) | | 1,713 | | | (5,877) | | 3,503 | |
| | | | | |
| | | | | |
NFE tax adjustment | 1,248 | | 3,990 | | | 387 | | 1,922 | |
Net financial earnings | $ | 130,206 | | $ | 170,604 | | | $ | 195,976 | | $ | 215,261 | |
Basic earnings per share | $ | 1.00 | | $ | 1.56 | | | $ | 2.16 | | $ | 2.40 | |
Add: | | | | | |
Unrealized loss (gain) on derivative instruments and related transactions | 0.44 | | 0.30 | | | (0.42) | | (0.09) | |
Tax effect | (0.10) | | (0.08) | | | 0.10 | | 0.02 | |
Effects of economic hedging related to natural gas inventory (1) | 0.01 | | (0.07) | | | 0.26 | | (0.15) | |
Tax effect | — | | 0.02 | | | (0.06) | | 0.04 | |
| | | | | |
| | | | | |
NFE tax adjustment | 0.01 | | 0.04 | | | — | | 0.02 | |
Basic NFE per share | $ | 1.36 | | $ | 1.77 | | | $ | 2.04 | | $ | 2.24 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands, except per share data) | 2017 | 2016 |
Net income | $ | 123,699 |
| $ | 34,929 |
|
Add: | | |
Unrealized loss on derivative instruments and related transactions | 34,855 |
| 28,302 |
|
Tax effect | (8,059 | ) | (9,757 | ) |
Effects of economic hedging related to natural gas inventory (1) | (25,387 | ) | (17,939 | ) |
Tax effect | 8,244 |
| 6,204 |
|
NFE tax adjustment | 1,981 |
| (1,356 | ) |
Net financial earnings | $ | 135,333 |
| $ | 40,383 |
|
Basic earnings per share | $ | 1.42 |
| $ | 0.41 |
|
Add: | | |
Unrealized loss on derivative instruments and related transactions | 0.40 |
| 0.33 |
|
Tax effect | (0.09 | ) | (0.11 | ) |
Effects of economic hedging related to natural gas inventory (1) | (0.29 | ) | (0.21 | ) |
Tax effect | 0.10 |
| 0.07 |
|
NFE tax adjustment | 0.02 |
| (0.02 | ) |
Basic NFE per share | $ | 1.56 |
| $ | 0.47 |
|
| |
(1) | Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period. |
New Jersey Resources Corporation(1)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NFE by reporting segment and other operations, discussed in more detail within the operating results sections of each segment, is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| March 31, | | March 31, |
(Thousands) | 2022 | | 2021 | | 2022 | | 2021 |
Net financial earnings (loss) | | | | | | | | | | | |
Natural Gas Distribution | $ | 102,783 | | 79 | % | | $ | 80,541 | | 47 | % | | $ | 153,863 | | 79 | % | | $ | 130,008 | | 60 | % |
Clean Energy Ventures | (6,491) | | (5) | | | (8,872) | | (5) | | | (13,312) | | (7) | | | (19,146) | | (9) | |
Energy Services | 29,940 | | 23 | | | 96,528 | | 57 | | | 47,507 | | 24 | | | 98,028 | | 46 | |
Storage and Transportation | 4,625 | | 4 | | | 4,711 | | 3 | | | 7,587 | | 4 | | | 8,219 | | 4 | |
Home Services and Other | 451 | | — | | | 747 | | — | | | 898 | | — | | | 685 | | — | |
Eliminations (1) | (1,102) | | (1) | | | (3,051) | | (2) | | | (567) | | — | | | (2,533) | | (1) | |
Total | $ | 130,206 | | 100 | % | | $ | 170,604 | | 100 | % | | $ | 195,976 | | 100 | % | | $ | 215,261 | | 100 | % |
|
| | | | | | | | | | | |
| Three Months Ended |
| December 31, |
($ in Thousands) | 2017 | | 2016 |
Net financial earnings (loss) | | | | | |
Natural Gas Distribution | $ | 34,109 |
| 25 | % | | $ | 30,348 |
| 75 | % |
Clean Energy Ventures | 71,250 |
| 53 |
| | 2,842 |
| 7 |
|
Energy Services | 20,274 |
| 15 |
| | 3,487 |
| 9 |
|
Midstream | 17,511 |
| 13 |
| | 2,387 |
| 6 |
|
Home Services and Other | (7,716 | ) | (6 | ) | | 1,542 |
| 4 |
|
Eliminations (1) | (95 | ) | — |
| | (223 | ) | (1 | ) |
Total | $ | 135,333 |
| 100 | % | | $ | 40,383 |
| 100 | % |
| |
(1) | Consists of transactions between subsidiaries that are eliminated in consolidation.
|
(1) Consists of transactions between subsidiaries that are eliminated in consolidation.
The increase of $95 milliondecrease in NFE during the three and six months ended DecemberMarch 31, 2017,2022, compared with the three and six months ended DecemberMarch 31, 2016,2021, was due primarily to the income tax benefit of $57.6 million associated with the Tax Act, as previously discussed, and higher financial margin generateddecreased earnings at Energy Services due primarilyrelated to colderthe extreme cold weather in December 2017, resulting in increased storage withdrawals dueduring February 2021, which did not reoccur to higher demand coupled with higher volatility allowingthe same extent during 2022, partially offset by the commencement of AMAs at Energy Services to capture additional margin from natural gas price spreads.and higher base rates at NJNG as previously discussed.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Natural Gas Distribution Segment
Overview
Our Natural Gas Distribution segment is comprised of NJNG, a natural gas utility that provides regulated retail natural gas service in centralthroughout Burlington, Middlesex, Monmouth, Morris, Ocean, and northernSussex counties in New Jersey to approximately 534,400568,100 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, which can negatively impactmay 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. These risks include, but are not limitedIn addition, NJNG may be subject to adverse economic conditions, customer usage, certain regulatory actions, environmental remediation and severe weather conditions. It is often difficult to predict the impact of events or trends associated with these risks.
In addition, NJNG'sNJNG’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 receivesgenerates 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.
As a regulated company, NJNG is required to recognize the impact of regulatory decisions on its financial statements. See Note 3.4. Regulation in the accompanying Unaudited Condensed 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'sNJNG’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 through several key initiatives, including:above.
Base Rate Case
earning
On November 17, 2021, the BPU issued an order adopting a reasonablestipulation of settlement approving a $79.0 million increase to base rates, effective December 1, 2021. In addition, the order also included approval for the final increase for the NJ RISE/SAFE II programs, which totaled $269,000. These increases include an overall rate of return on the investments in its natural gas distribution rate base of 6.84 percent, return on common equity of 9.6 percent, a common equity ratio of 54.0 percent and transmission businesses, as well as timely recoverya composite depreciation rate of all prudently incurred costs to provide safe and reliable service throughout NJNG's territory;
2.78 percent.
continuing to invest in the safety and integrity of its infrastructure;
managing its customer growth rate, which NJNG expects will be approximately 1.7 percent annually through fiscal 2020;
maintaining a collaborative relationship with the BPU on regulatory initiatives, including:
- planning and authorization of infrastructure investments;
- utilizing BGSS incentive programs through BPU-approved mechanisms to reduce gas costs and generate margin; - pursuing rate and regulatory strategies to stabilize and decouple margin, including CIP; and
- administering and promoting NJNG's BPU-approved SAVEGREEN Project;
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
managing the volatility of wholesale natural gas prices through a hedging program designed to keep customers' BGSS rates as stable as possible; and
working with the NJDEP and BPU to manage its financial obligations related to remediation activities associated with its former MGP sites.
Infrastructure projectsProjects
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 pipeline integrity management and infrastructure programs. Below is a summary of NJNG'sNJNG’s capital expenditures, including accruals, for the threesix months ended DecemberMarch 31, 2017,2022, and estimates of expected investments for fiscal 20182022 and 2019:2023:
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory oversight, environmental regulations, unforeseen events and the ability to access capital.
Infrastructure Investment Program
In February 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP consisted of two components: transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP was approximately $507.0 million. All approved investments will be recovered through annual filings to adjust base rates. In October 2020, the BPU approved the Company’s transmission and distribution component of the IIP for $150.0 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. On March 31, 2022, the Company filed its first rate recovery request for its BPU approved IIP with capital expenditures estimated at $25.6 million, including AFUDC through June 30, 2022.
SAFE II and NJ RISE
NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability and integrity of NJNG'sNJNG’s natural gas distribution system.
The BPU approved recovery of SAFE I capital investments through September 30, 2016, and approved the rate mechanism and extension of5-year SAFE II for an additional five yearsprogram and the associated rate mechanism to replace the remaining unprotected steel mains and services from itsNJNG’s natural gas distribution system at an estimated cost of approximately $200 million, excluding AFUDC. TheWith the approval of SAFE II, $157.5 million was approved for accelerated cost recovery methodology for the $157.5 million associated with the extension of SAFE II was approved in NJNG’s new base rates.methodology. The remaining $42.5 million in capital expenditures will bewas requested for recovery in a futurebase rate cases, of which $23.4 million was approved in NJNG’s 2019 base rate case and $19.1 million was approved in the 2021 base rate case.
The BPU approved the recovery of NJNG'sNJNG’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 that live in the most storm pronestorm-prone areas of NJNG'sNJNG’s service territory. Recovery of NJ RISE investments is included in NJNG’s base rates.
In March 2017,2021, NJNG filed its annuala petition with the BPU requesting athe final base rate increase for the recovery ofassociated with NJ RISE and SAFE II capital investment costs, with a weightedinvestments cost of capital of 6.9 percent including a return on equity of 9.75 percent, related to the period endingapproximately $3.4 million made through June 30, 2017, based on estimates, pursuant to2021. In June 2021, this filing was consolidated with the September 20162021 base rate case. In July 2017, NJNG filed an update to this petition with actual costs, requesting a $4.1 million annual increase in recoveries, which was approved by the BPU, effective October 1, 2017.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Southern Reliability Link
The SRL is an approximate 30-mile, 30-inch transmission main designed to support improved system reliability and integrity in the southern portion of NJNG's service territory, estimated to cost between $180 million and $200 million. In January 2016,On November 17, 2021, the BPU issued an order approving NJNG's modified, proposed SRL pipeline installation, operation and route selection. In March 2016,for the BPU issued an order designatingconsolidated matter which included approval for the SRL route and exempting the SRL from municipal land use ordinances, regulations, permits and license requirements. In February 2017, the NJDEP issued a permit authorizing construction of the SRL within the jurisdiction of the Coastal Area Facility Review Act, as well as a Freshwater Wetlands permit.
In September 2017,final increase for the NJ Pinelands Commission approved constructionRISE and SAFE II programs of $269,000. With this approval, the SRL as being compliantfilings with the Commission's Comprehensive Management Plan. All approvalsrespect to NJ RISE and permits have been appealed by third parties. Once the final road opening permits and easementsSAFE II are secured, construction is expected to begin, with an estimated in-service date during the first quarter of fiscal 2019.complete.
Customer growthGrowth
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 include the following:
| | | | | | | | |
| March 31, 2022 | March 31, 2021 |
Firm customers | | |
Residential | 508,729 | | 498,583 | |
Commercial, industrial & other | 32,116 | | 31,313 | |
Residential transport | 18,675 | | 22,574 | |
Commercial transport | 8,551 | | 8,971 | |
Total firm customers | 568,071 | | 561,441 | |
Other | 53 | | 45 | |
Total customers | 568,124 | | 561,486 | |
|
| | | | |
| December 31, 2017 | December 31, 2016 |
Firm customers | | |
Residential | 463,679 |
| 451,587 |
|
Commercial, industrial & other | 28,656 |
| 27,995 |
|
Residential transport | 31,969 |
| 35,698 |
|
Commercial transport | 10,089 |
| 10,149 |
|
Total firm customers | 534,393 |
| 525,429 |
|
Other | 49 |
| 64 |
|
Total customers | 534,442 |
| 525,493 |
|
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
During the threesix months ended DecemberMarch 31, 20172022 and 2016,2021, respectively, NJNG added 2,6373,579 and 1,8663,694 new customers. NJNG expects new customer additions, and those customers and converted 113 and 196 existing customers towho added additional natural gas heat and other services. This customer growth, as well as commercial customers who switched from interruptibleservices to firm natural gas service, willtheir premises to contribute approximately $1.5$2.9 million of incremental utility gross margin on an annualized basis,basis.
NJNG continues to utility gross margin.
In addition, NJNG currently expectsexpect to add approximately 26,00028,000 to 28,00030,000 new customers during the three-year period of fiscal 20182022 to 2020.2024. Based on information from municipalities and developers, as well as external industry analysts and management's experience, NJNG estimates that approximately 6065 percent of the growth will come from new construction markets and 4035 percent from customer conversions to natural gas from other fuel sources. This new customer and conversion growth would increase utility gross margin under NJNG's base rates by approximately $5.3$19.1 million annually, as calculated under NJNG's CIP tariff. See the Natural Gas Distribution Segment Operating Results section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations that follows for a definition and further discussion of utility gross margin.
SAVEGREENEnergy Efficiency Programs
SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives which are designed to encourage the installation of high-efficiency heating and cooling equipment and other energy-efficiencyenergy efficiency upgrades. Depending on the specific incentive or approval, NJNG recovers costs associated with the programs over a twotwo- to 10-year period through a tariff rider mechanism.
Since inception, $153.1 million in grants, rebates and loans has been provided to customers, with a total annual recovery of approximately $20 million. In June 2016,March 2021, the BPU approved NJNG's extensiona three-year SAVEGREEN program consisting of SAVEGREEN through December 31, 2018. approximately $126.1 million of direct investment, $109.4 million in financing options, and approximately $23.4 million in operation and maintenance expenses, which resulted in a $15.6 million annual recovery increase, effective July 1, 2021.
In October 2016,May 2020, NJNG filed a petition with the BPU approved NJNG’s filing to maintain the existing SAVEGREEN recovery rate. On October 20, 2017, the BPU approved NJNG's filing to decrease its EE recovery rate. In October 2020, the BPU approved NJNG to maintain its existing rate, which wouldwill result in an annual decreaserecovery of $3.9approximately $11.4 million, effective November 1, 2017.2020.
In June 2021, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through 2018. On January 26, 2022, the BPU approved the stipulation, which increases annual recoveries by $2.2 million, effective February 1, 2022.
The following table summarizes, loans, grants, rebates and related investments as of:
| | | | | | | | |
(Thousands) | March 31, 2022 | September 30, 2021 |
Loans | $ | 142,400 | | $ | 132,800 | |
Grants, rebates and related investments | 112,700 | | 98,100 | |
Total | $ | 255,100 | | $ | 230,900 | |
Program recoveries from customers during the six months ended March 31, 2022 and 2021, were $12.5 million and $5.3 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 9.759.6 percent to 10.3 percent.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Conservation Incentive ProgramProgram/BGSS
The CIP facilitates normalizing NJNG'sNJNG’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'sNJNG’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. In September 2016, the BPU approved NJNG's filing to increase its CIP rates resulting in a $43.9 million annual recovery increase, effective October 2016. In September 2017, the BPU provisionally approved NJNG's petition to decrease its CIP rates, which will result in a $16.2 million annual recovery decrease, effective October 1, 2017.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NJNG's total utility firm gross margin includes the following adjustments related to the CIP mechanism:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Weather (1) | $ | 5,523 | | $ | 6,335 | | $ | 21,457 | | $ | 12,790 | |
Usage | 3,057 | | (3,839) | | 1,984 | | (3,245) | |
Total | $ | 8,580 | | $ | 2,496 | | $ | 23,441 | | $ | 9,545 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Weather (1) | $ | (1,368 | ) | $ | 2,985 |
|
Usage | 642 |
| (125 | ) |
Total | $ | (726 | ) | $ | 2,860 |
|
| |
(1) | Compared with the CIP 20-year average, weather was 0.1 percent colder-than-normal and 6(1)Compared with the 20-year average, weather was 3.0 percent warmer-than-normal and 4.1 percent warmer-than-normal during the three months ended December 31, 2017 and 2016, respectively.
|
As of December 31, 2017 and September 30, 2017, NJNG had $10 million and $17.7 million, respectively, in regulatory assets related to CIP to be collected from customers in future periods on the Unaudited Condensed Consolidated Balance Sheets.
Commodity prices
Our Natural Gas Distribution segment is affected by the price of natural gas, which can have a significant impact on our cash flows, short-term financing costs, the price of natural gas charged to our customers through the BGSS clause, our ability to collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other fuel sources. Natural gas commodity prices may experience high volatility as shown in the graph below, which illustrates the daily natural gas prices(1) in the Northeast market region, also known as Tetco M-3.
(1) Data source from Platts, a division of McGraw Hill Financial.
The maximum daily price was $17.26 and $8.71 and the minimum daily price was $0.53 and $0.36 for the three months ended DecemberMarch 31, 20172022 and 2016,2021, respectively, and 8.7 percent warmer-than-normal and 6.4 percent warmer-than-normal during the six months ended March 31, 2022 and 2021, respectively. A more detailed discussion of the impacts of the price of natural gas on operating revenues, gas purchases and cash flows can be found in the Results of Operations and Cash Flow sections of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
BGSS
Recovery of natural gas costsNatural Gas Costs
NJNG'sNJNG’s cost of natural gas is passed through to our customers, without markup, by applying NJNG'sNJNG’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'sNJNG’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.
In September 2017,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, provisionally approved maintaining NJNG's BGSS ratecan 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.
During fiscal 2021, NJNG notified the BPU of its intent to provide BGSS bill credits to residential and small commercial sales customers. The actual bill credits given to customers and an increase to its balancing charge rate, which will result intotaled $20.6 million, $19.3 million net of tax.
On November 17, 2021, the BPU approved a $3.7$2.9 million increase to the annual revenues credited to BGSS, a $13.0 million annual increase related to its balancing charge, as well as changes to CIP rates, which result in a $6.3 million annual recovery decrease, effective OctoberDecember 1, 2017.2021. On November 19, 2021, NJNG submitted notification of its intent to self-implement an increase to its BGSS rate, which result in an approximately $24.2 million increase to annual revenues credited to BGSS, effective December 1, 2021. On April 6, 2022, the Company, BPU, and Rate Counsel executed a Stipulation for final rates. The current BGSS, CIP, and balancing charge rates remain in effect and there is no further rate impact from this filing. The balancing charge rate includes the cost of balancing natural gas deliveries with customer usage for sales and transportation customers and balancing charge revenues are credited to BGSS. During the three months ended December 31, 2016, NJNG issued bill credits of $19.3 million as a result of a decline in the wholesale price of natural gas. There were no bill credits issued during the three months endedDecember 31, 2017.
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing programs that include off-system sales, capacity release and storage incentive programs. These programs are designed to encourage better utilization and hedging of itsNJNG’s natural gas supply, transportation and storage assets. Depending on the program, NJNG shares 80 or 85 percent of utility gross margin generated by these programs with firm customers. Should performance of the existing incentives or market conditions warrant, NJNG is permitted to propose a process to re-evaluate and discuss alternative incentive programs annually. Utility gross margin from incentive programs was $4.4$6.3 million and $3.8$2.1 million during the three months ended DecemberMarch 31, 20172022 and 2016,2021, respectively, and $10.1 million and $6.7 million during the six months ended March 31, 2022 and 2021, respectively. A more detailed discussion of the impacts to utility gross margin can be found in the Natural Gas Distribution Operating Results sectionof Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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.
New Jersey Resources Corporation
DuePart I
ITEM 2. 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 capital-intensive nature of NJNG's operations, significant changesBGSS 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 are shown in interest rates can impact NJNG's results. NJNG entered into a treasury lock transaction to fix a benchmark treasury rate associated with debt issuance expectedthe graph below, which illustrates the daily natural gas prices(1) in May 2018. the Northeast market region, also known as TETCO M-3.
(1) Data sourced from Standard & Poor's Financial Services, LLC Global Platts.
The fair value of NJNG's treasury lock agreement is recorded as a component of regulatory assets or liabilities onmaximum price per MMBtu was $17.69 and $14.57 and the Unaudited Condensed Consolidated Balance Sheets sinceminimum price was $2.42 and $0.28 for the Company believes that the market value upon settlement will be reflected in future rates. Upon settlement, any gain or loss will be amortized in earnings over the life of the future debt issuance.
six months ended March 31, 2022 and 2021, respectively. A more detailed discussion of NJNG's debtthe impacts of the price of natural gas on operating revenues, natural gas purchases and cash flows can be found in the Liquidity Operating Results and Capital Resources and Cash Flowsections ofItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations.
Societal Benefits Charge
USF
NJNG'sNJNG’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 2017,April 2021, the BPU approved on a final basis NJNG's annual SBC application to recover remediation expenses, including an increase in the RAC, of approximately $1.3 million annually and an increase to the NJCEP factor, of approximately $6.0 million, which was effective May 1, 2021.
In September 2021, the BPU approved on a final basis NJNG's annual USF compliance filing, to decrease the statewide USF rate, which will resultresulted in a $2.6an annual increase of approximately $4.9 million, annual decrease, effective October 1, 2017.2021.
On March 23, 2022, the BPU approved on a final basis NJNG's annual SBC application to recover remediation expenses, including an increase in the RAC, of approximately $600,000 annually and a decrease to the NJCEP factor of approximately $2.9 million, effective April 1, 2022.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Environmental Remediation
NJNG is responsible for the environmental remediation of fiveformer 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'smanagement’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 $144$121.6 million as of DecemberMarch 31, 2017,2022, a decrease of $5$13.4 million compared with September 30, 2017.the prior fiscal period.
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. The preliminary assessment and site investigation activities are ongoing at the Aberdeen, NJ site location and based on initial findings will be moving to remedial investigation phase. The costs associated with preliminary assessment, site investigation and remedial 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 13. 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 3.4. Regulation in the accompanying Unaudited Condensed Consolidated Financial Statements.
Operating Results
NJNG's operating results are as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues (1) | $ | 463,812 | | $ | 310,167 | | $ | 738,584 | | $ | 505,896 | |
Operating expenses | | | | |
Natural gas purchases (2)(3) | 215,223 | | 118,452 | | 339,817 | | 177,761 | |
Operation and maintenance | 53,024 | | 52,951 | | 89,455 | | 96,589 | |
Regulatory rider expense (4) | 30,910 | | 18,413 | | 47,581 | | 29,114 | |
Depreciation and amortization | 23,344 | | 19,475 | | 46,237 | | 38,644 | |
Total operating expenses | 322,501 | | 209,291 | | 523,090 | | 342,108 | |
Operating income | 141,311 | | 100,876 | | 215,494 | | 163,788 | |
Other income, net | 1,925 | | 4,293 | | 3,021 | | 8,189 | |
Interest expense, net of capitalized interest | 10,764 | | 9,006 | | 21,759 | | 17,980 | |
Income tax provision | 29,689 | | 15,622 | | 42,893 | | 23,989 | |
Net income | $ | 102,783 | | $ | 80,541 | | $ | 153,863 | | $ | 130,008 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating revenues | $ | 209,787 |
| $ | 185,556 |
|
Operating expenses | | |
Gas purchases (1) | 84,755 |
| 64,186 |
|
Operation and maintenance | 35,391 |
| 33,218 |
|
Regulatory rider expense | 11,769 |
| 12,601 |
|
Depreciation and amortization | 12,783 |
| 12,030 |
|
Energy and other taxes | 13,750 |
| 12,149 |
|
Total operating expenses | 158,448 |
| 134,184 |
|
Operating income | 51,339 |
| 51,372 |
|
Other income, net | 1,010 |
| 687 |
|
Interest expense, net of capitalized interest | 6,536 |
| 6,824 |
|
Income tax provision | 11,704 |
| 14,887 |
|
Net income | $ | 34,109 |
| $ | 30,348 |
|
(1)Includes nonutility revenue of approximately $338,000 and $675,000 for the three and six months ended March 31, 2022, respectively, for lease agreements with various NJR subsidiaries leasing office space from NJNG at the Company’s headquarters that commenced in July 2021, which are eliminated in consolidation. There was no nonutility revenue for the three and six months ended March 31, 2021. | |
(1) | Includes related party transactions of approximately $7.2 million and $2.9 million for the three months ended December 31, 2017 and 2016, respectively, a portion of which is eliminated in consolidation. |
(2)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.
(3)Includes related party transactions of approximately $2.3 million and $5.2 million for the three months ended March 31, 2022 and 2021, respectively, and approximately $4.7 million and $8.4 million for the six months ended March 31, 2022 and 2021, respectively, the majority of which is eliminated in consolidation.
(4)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.
Operating Revenues and Natural Gas Purchases
DuringOperating revenues increased by 49.5 percent and 46.0 percent and natural gas purchases increased 81.7 percent and 91.2 percent during the three and six months ended DecemberMarch 31, 2017,2022, respectively, compared with the three and six months ended DecemberMarch 31, 2016, operating revenues and gas purchases increased by 13.1 percent and 32 percent,2021, respectively. The factors contributing to the increases (decreases) in operating revenues and gas purchases are as follows:
|
| | | | | | |
| Three Months Ended |
| December 31, |
| 2017 v. 2016 |
(Thousands) | Operating revenues | Gas purchases |
Bill credits (1) | $ | 19,260 |
| $ | 18,000 |
|
Firm sales | 11,093 |
| 4,806 |
|
NJ RISE/SAFE II | 1,448 |
| — |
|
Average BGSS rates (2) | 1,156 |
| 1,070 |
|
CIP adjustments | (3,586 | ) | — |
|
Off-system sales | (2,700 | ) | (3,054 | ) |
Other (3) | (2,440 | ) | (253 | ) |
Total increase | $ | 24,231 |
| $ | 20,569 |
|
| |
(1)
| Operating revenues includes changes in sales tax of $1.3 million.
|
| |
(2) | Operating revenues includes changes in sales tax of $86,000. |
| |
(3) | Other includes changes in rider rates, including those related to NJCEP and other programs. |
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The factors contributing to the increases and decreases in operating revenues and natural gas purchases during the three months ended December 31, 2017, compared with the three months ended December 31, 2016 were due primarily to:are as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| March 31, | | March 31, |
| 2022 v. 2021 | | 2022 v. 2021 |
(Thousands) | Operating revenues | Natural gas purchases | | Operating revenues | Natural gas purchases |
BGSS incentives | $ | 63,074 | | $ | 58,840 | | | $ | 109,427 | | $ | 106,006 | |
Average BGSS rates | 25,309 | | 25,309 | | | 39,451 | | 39,451 | |
Base rate impact | 32,757 | | — | | | 41,067 | | — | |
Bill credits | 11,071 | | 11,071 | | | 20,590 | | 20,590 | |
Firm sales | 2,356 | | 1,097 | | | (10,788) | | (4,675) | |
CIP adjustments | 6,084 | | — | | | 13,896 | | — | |
Riders and other (1) | 12,994 | | 454 | | | 19,045 | | 684 | |
Total increase | $ | 153,645 | | $ | 96,771 | | | $ | 232,688 | | $ | 162,056 | |
bill credits issued to residential and small commercial customers during fiscal 2017 that did not occur(1)Other includes changes in fiscal 2018;
increased firm sales due primarily to customer growth and higher usagerider rates, including those related to weather being 5.6 percent colder; partially offset by
EE, NJCEP and other programs.
a decrease in CIP due primarily to weather being colder during December 2017; and
lower off-system sales due primarily to reduction in volumes of 24.9 percent, partially offset by an increase of 18.5 percent in the average price of gas sold.
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 gasoperating revenues less natural gas purchases, sales tax, and regulatory rider expenses,expenses. This measure differs from gross margin as presented on a GAAP basis as it excludes certain operations and maintenance expense and depreciation and amortization. Utility gross margin may also 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 revenuerevenues 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,gross margin, the closest GAAP financial measure to NJNG's utility gross margin, is as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues | $ | 463,812 | | $ | 310,167 | | $ | 738,584 | | $ | 505,896 | |
Less: | | | | |
Natural gas purchases | 215,223 | | 118,452 | | 339,817 | | 177,761 | |
Operation and maintenance (1) | 26,748 | | 26,281 | | 39,889 | | 51,106 | |
Regulatory rider expense | 30,910 | | 18,413 | | 47,581 | | 29,114 | |
Depreciation and amortization | 23,344 | | 19,475 | | 46,237 | | 38,644 | |
Gross margin | 167,587 | | 127,546 | | 265,060 | | 209,271 | |
Add: | | | | |
Operation and maintenance (1) | 26,748 | | 26,281 | | 39,889 | | 51,106 | |
Depreciation and amortization | 23,344 | | 19,475 | | 46,237 | | 38,644 | |
Utility gross margin | $ | 217,679 | | $ | 173,302 | | $ | 351,186 | | $ | 299,021 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating revenues | $ | 209,787 |
| $ | 185,556 |
|
Less: | | |
Gas purchases | 84,755 |
| 64,186 |
|
Energy taxes (1) | 12,404 |
| 10,882 |
|
Regulatory rider expense | 11,769 |
| 12,601 |
|
Utility gross margin | $ | 100,859 |
| $ | 97,887 |
|
(1)Excludes selling, general and administrative expenses of $26.3 million and $26.7 million for the three months ended March 31, 2022 and 2021, respectively, and approximately $49.6 million and $45.5 million for the six months ended March 31, 2022 and 2021, respectively | |
(1) | Energy taxes includes only sales tax on operating revenues, excluding tax-exempt sales. |
Utility gross margin consists of three components:
•utility firm gross margin generated from only the delivery component of either a sales tariff or a transportation tariff from residential and commercial customers who receive natural gas service from NJNG;
•BGSS incentive programs, where revenues generated or savings achieved from BPU-approved off-system sales, capacity release or storage incentive programs are shared between customers and NJNG; and
•utility gross margin generated from off-tariff customers, as well as interruptible customers.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The following provides more information on the components of utility gross margin and associated throughput (Bcf) of natural gas delivered to customers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
| 2022 | | 2021 | 2022 | | 2021 |
($ in thousands) | Margin | Bcf | | Margin | Bcf | Margin | Bcf | | Margin | Bcf |
Utility gross margin/throughput | | | | | | | | | | |
Residential | $ | 155,514 | | 23.0 | | | $ | 124,468 | | 22.7 | | $ | 248,119 | | 35.6 | | | $ | 210,443 | | 36.3 | |
Commercial, industrial and other | 30,120 | | 4.3 | | | 23,050 | | 4.3 | | 49,222 | | 6.6 | | | 40,090 | | 6.7 | |
Firm transportation | 25,090 | | 5.6 | | | 22,878 | | 5.7 | | 42,372 | | 9.2 | | | 40,166 | | 9.6 | |
Total utility firm gross margin/throughput | 210,724 | | 32.9 | | | 170,396 | | 32.7 | | 339,713 | | 51.4 | | | 290,699 | | 52.6 | |
BGSS incentive programs | 6,349 | | 24.0 | | | 2,114 | | 23.6 | | 10,113 | | 49.1 | | | 6,692 | | 49.5 | |
Interruptible/off-tariff agreements | 606 | | 1.1 | | | 792 | | 0.8 | | 1,360 | | 7.2 | | | 1,630 | | 5.3 | |
Total utility gross margin/throughput | $ | 217,679 | | 58.0 | | | $ | 173,302 | | 57.1 | | $ | 351,186 | | 107.7 | | | $ | 299,021 | | 107.4 | |
|
| | | | | | | | | | | |
| Three Months Ended |
| December 31, |
| 2017 | | 2016 |
($ in thousands) | Margin | Bcf | | Margin | Bcf |
Utility gross margin/throughput | | | | | |
Residential | $ | 64,735 |
| 13.6 |
| | $ | 62,498 |
| 12.6 |
|
Commercial, industrial and other | 13,918 |
| 2.6 |
| | 13,696 |
| 2.4 |
|
Firm transportation | 16,260 |
| 4.6 |
| | 16,285 |
| 4.5 |
|
Total utility firm gross margin/throughput | 94,913 |
| 20.8 |
| | 92,479 |
| 19.5 |
|
BGSS incentive programs | 4,435 |
| 38.7 |
| | 3,784 |
| 43.6 |
|
Interruptible/off-tariff agreements | 1,511 |
| 9.9 |
| | 1,624 |
| 13.3 |
|
Total utility gross margin/throughput | $ | 100,859 |
| 69.4 |
| | $ | 97,887 |
| 76.4 |
|
Utility Firm Gross Margin
Utility firm gross margin increased $2.4$40.3 million and $49.0 million during the three and six months ended DecemberMarch 31, 2017,2022, compared with the three and six months ended DecemberMarch 31, 2016,2021, respectively, due primarily to customer growth of $1.2 million and NJ RISE/SAFE II rate impact of $1.4 million.the increase in base rates as previously discussed.
BGSS Incentive Programs
The factors contributing to the increases (decreases)change in utility gross margin generated by BGSS incentive programs are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 v. 2021 | 2022 v. 2021 |
Off-system sales | | $ | 4,969 | | | | $ | 6,149 | | |
Storage | | (165) | | | | (1,669) | | |
Capacity release | | (569) | | | | (1,059) | | |
Total increase | | $ | 4,235 | | | | $ | 3,421 | | |
|
| | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 v. 2016 |
Off-system sales | | $ | 354 |
| |
Storage | | 301 |
| |
Capacity release | | (3 | ) | |
Total increase | | $ | 652 |
| |
The increase in BGSS incentive programs during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, was due primarily to increased margins from off-system sales, partially offset by the timing differences for storage incentive and lower capacity release volumes.
Operation and Maintenance Expense
O&M during the three months ended DecemberMarch 31, 2017, compared2022, remained consistent with the three months ended DecemberMarch 31, 2016, was2021. O&M expense decreased $7.1 million during the six months ended March 31, 2022, compared with the six months ended March 31, 2021, due primarily to the deferral of bad debt costs in accordance with the July 2, 2020 BPU deferral order, partially offset by an increase in capacity values contributing tocompensation, information technology expenditures and consulting fees.
Depreciation Expense
Depreciation expense increased margins in off-system sales$3.9 million and timing differences on injection activity in the storage incentive program.
Operation and Maintenance Expense
The factors contributing to the increases (decreases) in O&M expense is as follows:
|
| | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 v. 2016 |
Compensation and benefits | | $ | 622 |
| |
Donations | | 725 |
| |
Consulting | | 532 |
| |
Other | | 294 |
| |
Total increase | | $ | 2,173 |
| |
The increase in O&M expense$7.6 million during the three and six months ended DecemberMarch 31, 2017,2022, compared with the three and six months ended DecemberMarch 31, 2016, was due primarily to higher compensation costs due primarily to increases in headcount and healthcare premiums, charitable contributions and consulting costs due primarily to an increase in software consulting costs and audit expenses.
Depreciation Expense
Depreciation expense increased $753,000 during the three months ended December 31, 2017, compared with the three months ended December 31, 2016,2021, as a result of additional utility plant being placed into service.
Interest Expense
Interest expense increased $1.8 million and $3.8 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, due primarily to increased outstanding long-term debt and lower AFUDC debt related to infrastructure projects completed and placed in service at the end of fiscal 2021.
Other Income
Other income decreased $2.4 million and $5.2 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, due primarily to decreased AFUDC equity as previously discussed.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Income Tax Provision
Income tax provision decreased $3.2increased $14.1 million and $18.9 million during the three and six months ended DecemberMarch 31, 2017,2022, compared with the three and six months ended DecemberMarch 31, 2016,2021, due primarily to the decreasehigher operating income and an increase in the annualized effective tax rate as a result of the new tax legislation.applied.
Net Income
Net income increased $3.8$22.2 million and $23.9 million during the three and six months ended DecemberMarch 31, 2017,2022, compared with the three and six months ended DecemberMarch 31, 2016,2021, due primarily to the decrease in the income tax provision, as discussed above, increased higher revenue along with decreased O&M, partially offset by higher depreciation and interest expenses and decreased other income, related to AFUDC interest earned on infrastructure projects and lower interest expense due to the purchase in lieu of redemption of the three FMBs that occurred during the second quarter of fiscal 2017.as previously discussed.
Clean Energy Ventures Segment
Overview
Our Clean Energy Ventures segment actively pursues opportunities in the cleanrenewable energy markets. Clean Energy Ventures has enteredenters into various agreements to install solar net-metered systems for residential and commercial customers, as well as large commercial grid-connected projects. In addition, Clean Energy Ventures has enteredenters into various long-term agreements, including PPAs, to supply energy from wind andcommercial 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.
The primary contributors toward the value of qualifying clean energy projects are tax incentives and SRECs.RECs. Changes in the federal statutes related to the ITC or PTC or in the marketplace and/or relevant state legislation surroundingand regulatory policies affecting the market for solar renewable clean energy credits, could significantly affect future results.
Solar
Since inception, Solar projects placed in service and related expenditures are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, |
($ in Thousands) | 2022 | 2021 |
Placed in service | Projects | MW | Costs | Projects | MW | Costs |
Grid-connected (1) | — | | — | | $ | 10 | | | 1 | | 2.7 | | $ | 5,492 | | |
Net-metered: | | | | | | | | |
| | | | | | | | |
Residential | 114 | | 1.3 | | 4,144 | | | 80 | | 0.8 | | 2,230 | | |
Total placed in service | 114 | | 1.3 | | $ | 4,154 | | | 81 | | 3.5 | | $ | 7,722 | | |
| Six Months Ended |
| March 31, |
($ in Thousands) | 2022 | 2021 |
Placed in service | Projects | MW | Costs | Projects | MW | Costs |
Grid-connected (1) | 1 | | 1.0 | | $ | 3,130 | | | 2 | | 5.6 | | $ | 9,175 | | (2) |
Net-metered: | | | | | | | | |
| | | | | | | | |
Residential | 167 | | 1.9 | | 5,697 | | | 126 | | 1.3 | | 3,829 | | |
Total placed in service | 168 | | 2.9 | | $ | 8,827 | | | 128 | | 6.9 | | $ | 13,004 | | |
(1)Includes projects subject to sale leaseback arrangements.
(2)Includes an operational 2.9 MW commercial solar project acquired in December 2020.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Clean Energy Ventures has constructed a total of 190.9approximately 370.6 MW of solar capacity and has an additional 21.4 MW under construction.in service. Projects that arewere placed in service through December 31, 2019, qualifyqualified for a 30-percent federal ITC. The credit will declinedeclined to 26 percent for property under construction during 2020 and was originally scheduled to decline to 22 percent for property under construction during 2021. The ITC will be reduced to2021 and 10 percent for any property that is under construction beforeafter 2021. On December 27, 2020, the 26 percent federal ITC was extended through the end of 2022. The credit declines to 22 percent after 2022 but notand to 10 percent after 2023.
Projects placed in service before 2024.
We estimate total solar-related capital expenditures for projects during fiscal 2018 to be between $132 million and $140 million. There were no commercial projects placed into service during the three months endedafter December 31, 20172019, also qualified for a 30 percent federal ITC if five percent or 2016.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 higher rates for certain solar projects that are completed after the scheduled reduction in rates, in accordance with IRS guidance.
During fiscal 2017, Clean Energy Ventures enteredmay enter into sale-leaseback arrangements for twotransactions to sell certain of its commercial solar projects,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 whichrelated expenses and entitled to retain the revenue generated from RECs and energy sales. The ITCs and other tax benefits associated with these solar projects were transferredtransfer to the buyer.buyer if applicable; however, the lease payments are structured so that Clean Energy Ventures expects to utilize sale-leaseback arrangements, basedis 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 market conditions, as an option to finance itsthe Unaudited Condensed Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease. During the six months ended March 31, 2022 and 2021, Clean Energy Ventures received proceeds of $3.3 million and $12.1 million, respectively, in connection with the sale leaseback of commercial solar projectsassets. There were no proceeds from sale leasebacks during fiscal 2018.the three months ended March 31, 2022 and 2021.
As part of its solar investment portfolio, Clean Energy Ventures operates a residential and small commercial solar program, The Sunlight Advantage®, that provides qualifying homeowners and small business owners the opportunity to have a solar system installed at their home or place of business 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. Clean Energy Ventures' residential
For solar leasing program installed approximately 1.8 MW of capacity on 191 homes, and 2.8 MW of capacity on 314 homes during the three months ended December 31, 2017 and 2016, respectively.
Once a solar installation has received the proper certifications and commences operations,installations placed in-service in New Jersey prior to April 30, 2020, 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 activity consistedprogram. 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 following:project, as defined. All TRECs generated are required to be purchased monthly by a TREC program administrator as appointed by the BPU.
| | | | | | | | | | | | | | |
REC activity consisted of the following: | Six Months Ended |
| March 31, |
| 2022 | 2021 |
| SRECs | TRECs | SRECs | TRECs |
Inventory balance as of October 1, | 108,104 | | 6,944 | | 35,011 | | 9,270 | |
RECs generated | 157,902 | | 13,261 | | 141,071 | | 10,310 | |
RECs delivered | (32,200) | | (12,353) | | (9,495) | | (5,294) | |
Inventory balance as of March 31, | 233,806 | | 7,852 | | 166,587 | | 14,286 | |
The average SREC sales price was $212 and $218 during the six months ended March 31, 2022 and 2021, respectively, and the average TREC price was $138 and $147 during the six months ended March 31, 2022 and 2021, respectively.
|
| | | | |
| Three Months Ended |
| December 31, |
| 2017 | 2016 |
Inventory balance as of October 1, | 48,357 |
| 24,135 |
|
SRECs generated | 53,568 |
| 41,443 |
|
SRECs delivered | (29,680 | ) | (10,319 | ) |
Inventory balance as of December 31, | 72,245 |
| 55,259 |
|
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Clean Energy Ventures hedges a portion of its expected SREC production through the use of forward sales contracts. The following table reflects the hedged percentage of SRECour projected inventory and projected SREC productionof SRECs related to its in-service commercial and residential assets:
| | | | | |
Energy Year (1) | Percent of SRECs Hedged |
2022 | 98% |
2023 | 99% |
2024 | 95% |
2025 | 81% |
2026 | 29% |
| |
|
| |
Energy Year (1) | Percent of SRECs Hedged |
2018 | 94% |
2019 | 86% |
2020 | 32% |
(1)Energy years are compliance periods for New Jersey's renewable portfolio standard that run from June 1 to May 31. | |
(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/RECsSRECs or TRECs by our solar and wind assets. All related costs are included as a component of O&M expenses on the Unaudited Condensed Consolidated Statements of Operations, including such expenses as facility maintenance and variousbroker fees.
Onshore Wind
Clean Energy Ventures has invested in small to mid-size onshore wind projects that fit its investment profile and had a total of 126.6 MW of wind capacity as of December 31, 2017. The wind projects are eligible for PTCs for a 10-year period following commencement of operations and have PPAs of various terms in place, which typically govern the sale of energy, capacity and/or renewable energy credits.
Clean Energy Ventures' investments are subject to a variety of factors, such as timing of construction schedules, permitting and regulatory processes, volatility of energy prices, the ability to secure PPAs, delays related to electric grid interconnection, which can affect our ability to commence operations on a timely basis or, at all, economic trends, the ability to access capital or allocation of capital to other investments or business opportunities and other unforeseen events. Solar projects not placed in service, as originally planned prior to the end of a reporting period, may result in a failure to qualify for ITCs. Further, changes in prices on the unhedged portion of SREC production could have a significant adverse impact on earnings with some offset expected from higher wind energy market prices due to the PTC phase out and/or improved efficiencies from lower costs for related turbine technology.
Wind projects for which construction of a facility begins after December 31, 2016 through December 31, 2019, will be subject to reduced PTCs, and could have a significant adverse impact on 10 years of forward earnings. PTCs are being be phased out from 100 percent in 2016 to 80 percent in 2017, 60 percent in 2018, 40 percent in 2019 and zero thereafter.
Operating Results
Clean Energy Ventures’ financial results are summarized as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues | $ | 11,827 | | $ | 6,476 | | $ | 22,010 | | $ | 12,846 | |
Operating expenses | | | | |
Operation and maintenance | 9,212 | | 8,260 | | 18,134 | | 17,461 | |
Depreciation and amortization | 5,311 | | 4,685 | | 10,544 | | 10,118 | |
| | | | |
Total operating expenses | 14,523 | | 12,945 | | 28,678 | | 27,579 | |
Operating loss | (2,696) | | (6,469) | | (6,668) | | (14,733) | |
Other (expense) income, net | (352) | | 149 | | 180 | | 87 | |
Interest expense, net | 5,395 | | 5,266 | | 10,822 | | 10,300 | |
Income tax benefit | (1,952) | | (2,714) | | (3,998) | | (5,800) | |
Net loss | $ | (6,491) | | $ | (8,872) | | $ | (13,312) | | $ | (19,146) | |
Operating Revenues
Operating revenues increased $5.4 million and $9.2 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to increased SREC and electricity sales.
Net Loss
Net loss decreased $2.4 million and $5.8 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to the increased operating revenues, as previously discussed.
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating revenues | $ | 13,996 |
| $ | 7,567 |
|
Operating expenses | | |
Operation and maintenance | 5,192 |
| 4,404 |
|
Depreciation and amortization | 8,935 |
| 7,041 |
|
Other taxes | 404 |
| 415 |
|
Total operating expenses | 14,531 |
| 11,860 |
|
Operating loss | (535 | ) | (4,293 | ) |
Other income, net | 24 |
| (72 | ) |
Interest expense, net | 4,208 |
| 3,324 |
|
Income tax benefit | (73,988 | ) | (11,887 | ) |
Net income | $ | 69,269 |
| $ | 4,198 |
|
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Revenues
Operating revenues increased $6.4 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to higher SREC sales. SRECs generated increased 29.3 percent and the average SREC sales price was $231 and $241 during the three months ended December 31, 2017, and 2016, respectively.
Operation and Maintenance Expense
O&M expense increased $788,000 during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to additional maintenance costs associated with wind and solar projects placed in service.
Depreciation Expense
Depreciation expense increased $1.9 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, as a result of increases in solar capital additions.
Income Tax (Benefit)
Income tax benefit increased $62.1 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to an income tax benefit of $62.7 million associated with the Tax Act, which caused a revaluation of the deferred tax liability related to the book versus tax differences in depreciation calculated on property related items.
Net Income
Net income increased $65.1 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to the increased income tax benefit, as previously discussed.
Non-GAAP Financial Measures
Management of the Company uses NFE, a non-GAAP financial measure, when evaluating the operating results of Clean Energy Ventures. 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 differences between our forecasted net income and our forecasted NFE for the fiscal year. This adjustment is applied to Clean Energy Ventures, as such adjustment is primarily related to tax credits generated by Clean Energy Ventures. Since this adjustment is made to reflect the forecasted tax rate, no adjustment is needed at year end. Accordingly, for NFE purposes, the annual estimated effective tax rate for fiscal 2018 is 16.3 percent and 14.7 percent for fiscal 2017.
Since the annual estimated effective tax rate is based on certain forecasted assumptions, including estimates surrounding completion of projects, the rate and resulting NFE are subject to change. The details of such tax adjustments can be found in the table below. 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 Clean Energy Ventures' net income, the most directly comparable GAAP financial measure to NFE is as follows:
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Net income | $ | 69,269 |
| $ | 4,198 |
|
Add: | | |
Net income to NFE tax adjustment | 1,981 |
| (1,356 | ) |
Net financial earnings | $ | 71,250 |
| $ | 2,842 |
|
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Energy Services Segment
Overview
Energy Services markets and sells natural gas to wholesale and retail customers and manages natural gas storagetransportation and transportationstorage assets throughout major market areas across North America. Energy Services maintains a strategic portfolio of natural gas storagetransportation and transportationstorage contracts that it utilizes in conjunction with its market expertise to provide service and value to its customers. Availability of these storagetransportation and transportationstorage contracts allows Energy Services to generate market opportunities by capturing price differentials over specific time horizons and between geographic market locations.
Energy Services also provides management of storagetransportation and transportationstorage assets for natural gas producers and regulated utilities. These management transactions typically involve the release of producer/utility ownedutility-owned storage and/or transportation capacity in combination with either an obligation to purchase and/or deliver physical natural gas. In addition to the contractual purchase and/or sale of physical natural gas, Energy Services generates or pays fee-based margin in exchange for its active management and may provide the producer and/or utility with additional margin based on actual results.
In conjunction with the active management of these contracts, Energy Services generates financial margin by identifying market opportunities and simultaneously entering into natural gas purchase/sale, storage or transportation contracts and financial derivative contracts. In cases where storage is utilized to fulfill these contracts, these forecast sales and/or purchases are economically hedged through the use of financial derivative contracts. The financial derivative contracts consist primarily of exchange-traded futures, options and swap contracts, and are frequently used to lock in anticipated transactional cash flows and to help manage volatility in natural gas market prices. Generally, when its storagetransportation and transportationstorage contracts are exposed to periods of increased market volatility, Energy Services is able to implement strategies that allow themit to capture margin by improving the respective time or geographic spreads on a forward basis.
On July 27, 2017, Energy Services acquired certain retail and wholesale natural gas energy contract assets from Talen. The acquisition included sales agreements with large commercial and industrial retail customers in Delaware, Maryland, New Jersey and Pennsylvania, pipeline and storage capacity agreements on various pipelines and various wholesale transportation contracts.
Energy Services accounts for its physical commodity contracts and its financial derivative instruments at fair value on the Unaudited Condensed 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 revenuerevenues or natural gas purchases on the Unaudited Condensed 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.
During December 2020, Energy Services entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts. The utility provides certain asset management services and Energy Services may deliver natural gas to the utility in exchange for aggregate net proceeds of approximately $500 million, payable through November 1, 2030. The AMAs include a series of initial and permanent releases, which commenced on November 1, 2021. NJR will receive approximately $260 million in cash from fiscal 2022 through fiscal 2024 and $34 million per year from fiscal 2025 through fiscal 2031 under the agreements. Energy Services recognized $10.3 million and $32.4 million of operating revenue during the three and six months ended March 31, 2022, respectively, on the Unaudited Condensed Consolidated Statements of Operations. Amounts received in excess of revenue totaling $54.4 million as of March 31, 2022, are included in deferred revenue on the Unaudited Condensed Consolidated Balance Sheets.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operating Results
Energy Services’ financial results are summarized as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues (1) | $ | 412,645 | | $ | 462,569 | | $ | 781,889 | | $ | 692,046 | |
Operating expenses | | | | |
Natural gas purchases (including demand charges (2)(3)) | 411,146 | | 330,280 | | 689,833 | | 504,117 | |
Operation and maintenance | 4,599 | | 32,998 | | 8,350 | | 37,014 | |
Depreciation and amortization | 32 | | 13 | | 60 | | 55 | |
| | | | |
Total operating expenses | 415,777 | | 363,291 | | 698,243 | | 541,186 | |
Operating (loss) income | (3,132) | | 99,278 | | 83,646 | | 150,860 | |
Other income, net | 106 | | 87 | | 252 | | 179 | |
Interest expense, net | 795 | | 575 | | 1,470 | | 1,255 | |
Income tax (benefit) provision | (790) | | 23,128 | | 19,715 | | 35,250 | |
Net (loss) income | $ | (3,031) | | $ | 75,662 | | $ | 62,713 | | $ | 114,534 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating revenues (1) | $ | 477,981 |
| $ | 337,181 |
|
Operating expenses | | |
Gas purchases (including demand charges (2)(3)) | 446,210 |
| 339,087 |
|
Operation and maintenance | 4,420 |
| 5,018 |
|
Depreciation and amortization | 14 |
| 16 |
|
Other taxes | 1,217 |
| 455 |
|
Total operating expenses | 451,861 |
| 344,576 |
|
Operating income (loss) | 26,120 |
| (7,395 | ) |
Interest expense, net | 1,257 |
| 571 |
|
Income tax provision (benefit) | 13,743 |
| (3,176 | ) |
Net income (loss) | $ | 11,120 |
| $ | (4,790 | ) |
(1)Includes related party transactions of approximately $1.6 million and $2.8 million for the three months ended March 31, 2022 and 2021, respectively, and approximately $5.0 million and $4.9 million for the six months ended March 31, 2022 and 2021, respectively, which are eliminated in consolidation. | |
(1) | Includes related party transactions of approximately $5.8 million and $1.7 million for the three months ended December 31, 2017 and 2016, respectively, which is eliminated in consolidation. |
| |
(2) | 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 ten years. |
| |
(3) | Includes related party transactions of approximately $1.1 million and $1.2 million for the three months ended December 31, 2017 and 2016, respectively, a portion of which is eliminated in consolidation. |
(2)Costs associated with pipeline and storage capacity are expensed over the term of the related contracts, which generally varies from less than one year to ten years.
(3)Includes related party transactions of approximately $270,000 and $226,000 for the three months ended March 31, 2022 and 2021, respectively, and approximately $495,000 and $391,000 for the six months ended March 31, 2022 and 2021, respectively, a portion of which is eliminated in consolidation.
Energy Services' portfolio of financial derivative instruments are composed of:
| | | | | | | | |
| Six Months Ended |
| March 31, |
(in Bcf) | 2022 | 2021 |
Net short futures contracts | 0.9 | | 12.4 | |
| | |
|
| | | | |
| Three Months Ended |
| December 31, |
(in Bcf) | 2017 | 2016 |
Net short futures contracts | 33.4 |
| 76.4 |
|
Net long options | — |
| 0.5 |
|
During the six months ended March 31, 2022 and 2021, the net short position resulted in an unrealized gain of $1.8 million and $5.8 million, respectively.
Operating Revenues and Natural Gas Purchases
Operating revenues increased $140.8decreased $49.9 million and natural gas purchases increased $107.1$80.9 million during the three months ended DecemberMarch 31, 2017,2022, compared with the three months endedDecember March 31, 2016,2021. The decrease in operating revenues during the three months was due primarily to an approximate 29.2increased natural gas price volatility related to the extreme weather in the mid-continent and southern regions of the U.S. during February 2021, which did not reoccur to the same extent during 2022. The increase in gas purchases is due primarily to a 83.9 percent increase in the average price of natural gas prices.
Operating revenues and natural gas purchases increased $89.8 million and $185.7 million, respectively, during the six months ended March 31, 2022, compared with the six months ended March 31, 2021, due primarily to a 29.2101.2 percent increase in sales volumesnatural gas prices. To a lesser extent, operating revenues also increased $32.4 million due to AMAs with an investment grade public utility that commenced in November 2021, partially offset by the colderextreme weather in December 2017.during February 2021, as previously discussed.
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 milderwarmer temperatures, and reduced volatility can negatively impact Energy Services' earnings. See Item 2. Management's Discussion and Analysisof Financial Condition and Results of Operations - Natural Gas Distribution Segment forTetcoTETCO M-3 Daily Prices, which illustrates the daily natural gas prices in the Northeast market region.
52
Income Tax Provision
Income tax provision increased $16.9 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to higher income tax expense associated with the Tax Act in the amount of $9.1 million and an increase in income tax expense related to the increased operating income, partially offset by the lower effective tax rate as a result of the new tax legislation.
Net Income
Net income increased $15.9 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to the increase in operating income, partially offset by an increase in income tax expense, as previously discussed.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Operation and Maintenance Expense
O&M expense decreased $28.4 million and $28.7 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, due primarily to decreased compensation costs, charitable contributions and bad debt expense.
Income Tax Provision
Income tax provision decreased $23.9 million and $15.5 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to decreased operating income related to the increased natural gas prices, partially offset by decreased O&M.
Net (Loss) Income
Net income decreased $78.7 million and $51.8 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to decreased operating income, partially offset by lower income taxes, 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. Also included in the tax effectinstruments. GAAP also requires us, during the three month ended December 31, 2017, 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 theinterim 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 reconciling items to differ from the statutory rate in effectdifferences between our forecasted net income and our forecasted NFE for the quarter.fiscal year. This adjustment is applied to Energy Services, as the adjustment primarily relates to timing differences associated with certain derivative instruments which impacts the estimate of the annual effective tax rate for NFE. No adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at year end.
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. Financial margin differs from gross margin as defined on a GAAP basis as it excludes certain operations and maintenance expense and depreciation and amortization as well as the effects of derivatives as discussed above.
New Jersey Resources Corporation
Part I
ITEM 2. 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:
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating revenues (1) | $ | 477,981 |
| $ | 337,181 |
|
Less: Gas purchases | 446,210 |
| 339,087 |
|
Add: | | |
Unrealized loss on derivative instruments and related transactions | 33,873 |
| 30,592 |
|
Effects of economic hedging related to natural gas inventory (2) | (25,387 | ) | (17,939 | ) |
Financial margin | $ | 40,257 |
| $ | 10,747 |
|
| |
(1) | Includes unrealized (gains) related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $982,000 and $(2.3) million for the three months ended December 31, 2017 and 2016, respectively.
|
| |
(2) | Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period. |
A reconciliation of operating income,gross margin, the closest GAAP financial measure, to Energy Services' financial margin is as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues (1) | $ | 412,645 | | $ | 462,569 | | $ | 781,889 | | $ | 692,046 | |
Less: | | | | |
Natural gas purchases | 411,146 | | 330,280 | | 689,833 | | 504,117 | |
Operation and maintenance (2) | 3,978 | | 20,924 | | 7,247 | | 24,608 | |
Depreciation and amortization | 32 | | 13 | | 60 | | 55 | |
Gross margin | (2,511) | | 111,352 | | 84,749 | | 163,266 | |
Add: | | | | |
Operation and maintenance (2) | 3,978 | | 20,924 | | 7,247 | | 24,608 | |
Depreciation and amortization | 32 | | 13 | | 60 | | 55 | |
Unrealized loss (gain) on derivative instruments and related transactions | 40,446 | | 29,348 | | (45,201) | | (9,433) | |
Effects of economic hedging related to natural gas inventory (3) | 1,155 | | (7,209) | | 24,732 | | (14,741) | |
Financial margin | $ | 43,100 | | $ | 154,428 | | $ | 71,587 | | $ | 163,755 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating income (loss) | $ | 26,120 |
| $ | (7,395 | ) |
Add: | | |
Operation and maintenance | 4,420 |
| 5,018 |
|
Depreciation and amortization | 14 |
| 16 |
|
Other taxes | 1,217 |
| 455 |
|
Subtotal | 31,771 |
| (1,906 | ) |
Add: | | |
Unrealized loss on derivative instruments and related transactions | 33,873 |
| 30,592 |
|
Effects of economic hedging related to natural gas inventory | (25,387 | ) | (17,939 | ) |
Financial margin | $ | 40,257 |
| $ | 10,747 |
|
(1)Includes unrealized losses related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $1.6 million and $(91,000) for the three months ended March 31, 2022 and 2021, respectively, and approximately $5.0 million and $1.2 million for the six months ended March 31, 2022 and 2021, respectively.
(2)Excludes selling, general and administrative expenses of approximately $621,000 and $12.1 million for the three months ended March 31, 2022 and 2021, respectively, and approximately $1.1 million and $12.4 million for the six months ended March 31, 2022 and 2021, respectively.
(3)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.
Financial margin increased $29.5decreased $111.3 million and $92.2 million during the three and six months ended DecemberMarch 31, 2017,2022, compared with the three and six months ended DecemberMarch 31, 2016, due2021, respectively, resulting primarily from the price volatility related to colderthe extreme weather in December 2017, resulting inthe mid-continent and southern regions of the U.S. during February 2021, which did not reoccur to the same extent during 2022 and increased storage withdrawals due to higher demand coupled with higher volatility allowing Energy Services to capture additional margin from natural gas price spreads.prices, partially offset by the AMAs, which commenced November 2021, as previously discussed.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Net Financial Earnings
A reconciliation of Energy Services' net income, the most directly comparable GAAP financial measure, to NFE is as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Net (loss) income | $ | (3,031) | | $ | 75,662 | | $ | 62,713 | | $ | 114,534 | |
Add: | | | | |
Unrealized loss (gain) on derivative instruments and related transactions | 40,446 | | 29,348 | | (45,201) | | (9,433) | |
Tax effect (1) | (9,604) | | (6,976) | | 10,753 | | 2,243 | |
Effects of economic hedging related to natural gas inventory | 1,155 | | (7,209) | | 24,732 | | (14,741) | |
Tax effect | (274) | | 1,713 | | (5,877) | | 3,503 | |
Net income to NFE tax adjustment | 1,248 | | 3,990 | | 387 | | 1,922 | |
Net financial earnings | $ | 29,940 | | $ | 96,528 | | $ | 47,507 | | $ | 98,028 | |
(1)Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $(375,000) and $23,000 for the three months ended March 31, 2022 and 2021, respectively, and $(1.2) million and $(284,000) for the six months ended March 31, 2022 and 2021, respectively.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Net income (loss) | $ | 11,120 |
| $ | (4,790 | ) |
Add: | | |
Unrealized loss on derivative instruments and related transactions | 33,873 |
| 30,592 |
|
Tax effect (1) | (7,576 | ) | (10,580 | ) |
Effects of economic hedging related to natural gas inventory | (25,387 | ) | (17,939 | ) |
Tax effect | 8,244 |
| 6,204 |
|
Net financial earnings | $ | 20,274 |
| $ | 3,487 |
|
| |
(1) | Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $(483,000) and $823,000 for the three months ended December 31, 2017 and 2016, respectively.
|
NFE increased $16.8decreased $66.6 million and $50.5 million during the three and six months ended DecemberMarch 31, 2017,2022, compared with the three and six months ended DecemberMarch 31, 2016,2021, respectively, due primarily to higherlower financial margin, partially offset by an an income tax expense of $9.1 million associated with the Tax Act, 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.
MidstreamStorage and Transportation Segment
Overview
Our MidstreamStorage and Transportation segment invests in natural gas assets, such as natural gas transportation and storage facilities. We believe that acquiring, owning and developing these midstreamstorage and transportation assets, which operate under a tariff structure that has either regulatedcost- or market-based rates, can provide us a growth opportunity. ToOur Storage and Transportation segment is subject to various risks, including the construction, development and operation of our transportation and storage 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 construction, operation 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 the 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 Leaf River, a 32.2 million Dth salt dome natural gas storage facility that end,operates under market-based rates and Adelphia Gateway, an existing 84-mile pipeline in southeastern Pennsylvania. 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. On October 5, 2020, we havebegan the conversion of the southern zone of the pipeline to natural gas.
Our Storage and Transportation segment also has a 50 percent ownership interest in Steckman Ridge, a storage facility that operates under market-based rates and a 20 percent ownership interest in PennEast, a partnership whose purpose was to construct and operate a 120-mile natural gas pipeline which is estimatedthat would have extended from northeast Pennsylvania to be completed and operational in 2019. western New Jersey.
PennEast may revise the project timeline further since thereceived a Certificate of Public Convenience and Necessity for the project from FERC in January 2018. However, because of numerous regulatory and legal challenges, we evaluated our equity investment in PennEast for impairment during fiscal 2021, and determined that it was received on January 19, 2018. As of December 31, 2017, our net investments in Steckman Ridge and PennEast were $119.4 million and $60 million, respectively.
Operating Results
The financial resultsother-than-temporarily impaired. We estimated the fair value of our Midstream segmentinvestment in PennEast using probability weighted scenarios assigned to discounted future cash flows. The impairment was the result of management's estimates and assumptions regarding the likelihood of certain outcomes related to required regulatory approvals and pending legal matters, the timing and magnitude of construction costs and in-service dates, the evaluation of the current environmental and political climate as it relates to interstate pipeline development, and transportation capacity revenues and discount rates.
During the third quarter of fiscal 2021, the PennEast partnership determined that this project is no longer supported, and all further development ceased. The Company recognized an other-than-temporary impairment charge of $92.0 million, or approximately $74.5 million, net of income taxes, which represents the best estimate of the salvage value of the remaining assets of the project. Other-than-temporary impairments are summarized as follows:recorded in equity in (losses) earnings from affiliates in the Unaudited Condensed Consolidated Statements of Operations.
On December 16, 2021, the FERC dismissed PennEast’s pending applications. The order vacates the certificate authorization for the PennEast pipeline project in light of PennEast’s response to FERC staff’s November 23, 2021 request for a status update, in which PennEast informed the Commission it is no longer developing the project. The order vacates the certificate authorization, subject to leave of the U.S. Court of Appeals for the D.C. Circuit where the Commission’s certificate and rehearing orders are under review.
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Equity in earnings of affiliates | $ | 4,129 |
| $ | 3,331 |
|
Operation and maintenance | $ | 372 |
| $ | 149 |
|
Other income, net | $ | 1,221 |
| $ | 917 |
|
Interest expense, net | $ | 309 |
| $ | 56 |
|
Income tax provision | $ | (12,843 | ) | $ | 1,649 |
|
Net income | $ | 17,511 |
| $ | 2,387 |
|
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
On March 10, 2022, following the sale of certain project related assets and refunds of interconnection fees received from interstate pipelines, the PennEast board of managers approved a cash distribution to members of the partnership totaling $4.0 million per partner. The distribution was received by the Company on March 31, 2022.
As of March 31, 2022, our investments in Steckman Ridge and PennEast were $108.5 million and $1.5 million, respectively.
Operating Results
The financial results of our Storage and Transportation segment are summarized as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues (1) | $ | 13,342 | | $ | 13,926 | | $ | 25,485 | | $ | 27,030 | |
Operating expenses | | | | |
Natural gas purchases | 337 | | 238 | | 1,041 | | 471 | |
Operation and maintenance | 7,254 | | 7,139 | | 14,684 | | 13,681 | |
Depreciation and amortization | 2,571 | | 2,364 | | 4,704 | | 5,004 | |
Total operating expenses | 10,162 | | 9,741 | | 20,429 | | 19,156 | |
Operating income | 3,180 | | 4,185 | | 5,056 | | 7,874 | |
Other income, net | 2,750 | | 1,591 | | 5,259 | | 2,845 | |
Interest expense, net | 1,847 | | 3,578 | | 3,983 | | 7,560 | |
Income tax provision | 714 | | 873 | | 1,057 | | 1,519 | |
Equity in earnings of affiliates | 1,256 | | 3,386 | | 2,312 | | 6,579 | |
Net income | $ | 4,625 | | $ | 4,711 | | $ | 7,587 | | $ | 8,219 | |
(1)Includes related party transactions of approximately $536,000 and $669,000 for the three months ended March 31, 2022 and 2021, respectively, and $1.1 million and $1.3 million for the six months ended March 31, 2022 and 2021, respectively, which are eliminated in consolidation.
Operating Revenues
Operating revenues decreased $584,000 and $1.5 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to a decrease in hub services revenue at Leaf River.
Equity in earnings of affiliates decreased $2.1 million and $4.3 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to decreased AFUDC equity related to our investment in PennEast, which ceased all further development.
Other Income, Net
Other income increased $798,000$1.2 million and $2.4 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to increased AFUDC equity related to the Adelphia Gateway project.
Interest Expense
Interest expense decreased $1.7 million and $3.6 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to reduced debt related to the PennEast project.
Net Income
Net income remained relatively flat during the three months ended DecemberMarch 31, 2017,2022, compared with the three months ended DecemberMarch 31, 2016,2021. Net income decreased $632,000 during the six months ended March 31, 2022, compared with the six months ended March 31, 2021, due primarily to the AFUDC earned at PennEast.
Income tax benefit increased $14.5 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to an adjustment of $14 million associated with the Tax Act.
Net income increased $15.1 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016, due primarily to increased income tax benefit, as well as the increasedlower equity in earnings of affiliates, partially offset by higher AFUDC equity at Adelphia Gateway along with decreased interest expense, as previously discussed.
Home Services and Other Operations
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Overview
The financial results of Home Services and Other consist primarily of the operating results of NJRHS and CR&R.NJRHS. NJRHS provides service, sales and installation of appliances to approximately 112,000 service contract customers and has been focused on growing its installation business and expanding its service contract customer base. Home Services and Other also includes organizational expenses incurred at NJR. NJR Energy Corporation, a subsidiary of CR&R, which invested in other energy-related ventures, was dissolved on November 28, 2016, and all assets were moved to CR&R during the first quarter of fiscal 2017.home warranty contract income at NJR Retail.
Operating Results
The consolidatedcondensed financial results of Home Services and Other are summarized as follows:
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| March 31, | March 31, |
(Thousands) | 2022 | 2021 | 2022 | 2021 |
Operating revenues | $ | 13,222 | | $ | 12,773 | | $ | 27,173 | | $ | 25,350 | |
| | | | |
| | | | |
| | | | |
| | | | |
Income before income taxes | $ | 707 | | $ | 688 | | $ | 1,400 | | $ | 744 | |
Income tax provision (benefit) | 256 | | (59) | | 502 | | 59 | |
Net income | $ | 451 | | $ | 747 | | $ | 898 | | $ | 685 | |
|
| | | | | | |
| Three Months Ended |
| December 31, |
(Thousands) | 2017 | 2016 |
Operating revenues | $ | 9,957 |
| $ | 10,006 |
|
Operation and maintenance | $ | 10,179 |
| $ | 10,164 |
|
Energy and other taxes | $ | 1,120 |
| $ | 1,076 |
|
Other income, net | $ | 5,603 |
| $ | 2,827 |
|
Income tax provision (benefit) | $ | 11,698 |
| $ | (245 | ) |
Net (loss) income | $ | (7,716 | ) | $ | 1,542 |
|
Operating Revenues
Other income, net
Operating revenues increased $2.8$449,000 and $1.8 million during the three and six months ended March 31, 2022, compared with the three and six months ended March 31, 2021, respectively, due primarily to the sale of available for sale securities, which resulted in a pre-tax gain of $5.3 millionincreased installation revenue at NJRHS.
Net Income
Net income decreased $296,000 during the three months ended DecemberMarch 31, 2017, compared with $2.6 million during the three months ended December 31, 2016.
Income tax provision increased $11.9 million during the three months ended December 31, 2017,2022, compared with the three months ended DecemberMarch 31, 2016, due primarily to an adjustment of $10 millionassociated with the Tax Act, as well as taxes related to the increased other income, as previously discussed.
Net income decreased $9.3 million during the three months ended December 31, 2017, compared with the three months ended December 31, 2016,2021, due primarily to increased income tax provision,O&M, partially offset by the increase inincreased revenue and other income as previously discussed.along with decreased interest expense. Net income increased $213,000 during the six months ended March 31, 2022, compared with the six months ended March 31, 2021, respectively, due primarily to increased revenue and other income along with decreased interest expense, partially offset by increased O&M.
Liquidity and Capital Resources
Our objective is to maintain an efficient consolidated capital structure that reflects the different characteristics of each businessreporting segment and business operations and provides adequate financial flexibility for accessing capital markets as required.
Our consolidated capital structure was as follows:
| | | | | | | | |
| March 31, 2022 | September 30, 2021 |
Common stock equity | 40 | % | 38 | % |
Long-term debt | 52 | | 51 | |
Short-term debt | 8 | | 11 | |
Total | 100 | % | 100 | % |
|
| | | | |
| December 31, 2017 | September 30, 2017 |
Common stock equity | 47 | % | 46 | % |
Long-term debt | 35 |
| 38 |
|
Short-term debt | 18 |
| 16 |
|
Total | 100 | % | 100 | % |
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Common Stock Equity
We satisfy our external common equity requirements, if any, through issuances of our common stock, including the proceeds from stock issuances under our DRP. The DRP allows us, at our option, to use treasury shares or newly issued shares to raise capital. WeNJR raised $3.8approximately $3.7 million and $4.6$3.6 million of equity through the DRP by issuing approximately 90,000 and 139,000 shares of treasury stock, during the three months ended DecemberMarch 31, 20172022 and 2016,2021, respectively. During the three months ended December 31, 2017, NJR also raised approximately $22.7$7.5 million of equity by issuing approximately 554,000 new shares through the waiver discount featureDRP during both of the DRP. No new shares were issued during the threesix months ended DecemberMarch 31, 2016.2022 and 2021.
In March 2021, we cash settled a portion of a forward sale agreement for a payout of approximately $388,000 for 727,272 common shares.
In 1996, the Board of Directors authorized us to implement a share repurchase program, which was expanded seven times since the inception of the program, authorizing a total of 19.5 million shares of common stock for repurchase. As of DecemberMarch 31, 2017,2022, we had repurchased a total of approximately 17.117.8 million of those shares and may repurchase an additional 2.41.7 million shares under the approved program. There were no shares repurchased during the threesix months ended DecemberMarch 31, 20172022 and 105,000 shares repurchased during the three months ended December 31, 2016.2021.
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, as borrowers, respectively, periodically access the capital markets to fund long-life assets through the issuance of long-term debt securities.
We believe that our existing borrowing availability, equity proceeds and cash flowflows from operations will be sufficient to satisfy our and our subsidiaries' working capital, capital expenditures and dividend requirements for at least the next 12 months. NJR, NJNG, Clean Energy Ventures, Storage and Transportation 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 sale-leasebacks and proceeds from our DRP, including utilizing the waiver discount feature.meter or solar asset sale leasebacks.
We believe that as of DecemberMarch 31, 2017,2022, 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. We have been able to obtain sufficient financing to meet its funding requirements for operations and capital expenditures, however, our ability to access funds from financial institutions at a reasonable cost may impact the nature and timing of future capital market transactions.
Short-Term Debt
We use our short-term borrowings primarily to finance Energy Services' short-term liquidity needs, Midstream segment's PennEast contributions,Storage and Transportation investments, share repurchases and, on an initial basis, Clean Energy Ventures' investments. Energy Services' use of high volumehigh-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 DecemberMarch 31, 2017,2022, NJR had a revolving credit facilitiesfacility and a term loan totaling $500$650 million, with $161.8$334.3 million available under the facilities.facility.
NJNG satisfies its debt needs by issuing short-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.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 DecemberMarch 31, 2017,2022, 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 $203.3$249.3 million.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Short-term borrowings were as follows:
| | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
(Thousands) | March 31, 2022 |
NJR | | | |
Notes Payable to banks: | | | |
Balance at end of period | $ | 302,210 | | | $ | 302,210 | |
Weighted average interest rate at end of period | 1.05 | % | | 1.05 | % |
Average balance for the period | $ | 385,205 | | | $ | 320,130 | |
Weighted average interest rate for average balance | 1.23 | % | | 1.01 | % |
Month end maximum for the period | $ | 401,750 | | | $ | 401,750 | |
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 | $ | 3,309 | | | $ | 5,842 | |
Weighted average interest rate for average balance | 0.58 | % | | 0.43 | % |
Month end maximum for the period | $ | 138,025 | | | $ | 177,700 | |
|
| | | |
| Three Months Ended |
(Thousands) | December 31, 2017 |
NJR | |
Notes Payable to banks: | |
Balance at end of period | $ | 327,200 |
|
Weighted average interest rate at end of period | 2.26 | % |
Average balance for the period | $ | 299,868 |
|
Weighted average interest rate for average balance | 2.19 | % |
Month end maximum for the period | $ | 330,900 |
|
NJNG | |
Commercial Paper and Notes Payable to banks: | |
Balance at end of period | $ | 46,000 |
|
Weighted average interest rate at end of period | 1.33 | % |
Average balance for the period | $ | 40,114 |
|
Weighted average interest rate for average balance | 1.21 | % |
Month end maximum for the period | $ | 51,000 |
|
Due to the seasonal nature of natural gas prices and demand, and because inventory levels are built up during its natural gas injection season (April through October), NJR and NJNG's short-term borrowings tend to peak in the November and December.through January time frame.
NJR
As noted above, basedBased on its average borrowings during the three and six months ended DecemberMarch 31, 2017,2022, NJR's average interest rate was 2.191.23 percent and 1.01 percent, resulting in interest expense of $1.7approximately $794,000 and $1.6 million, respectively.
During fiscal 2021, NJR entered into a Second Amended and Restated Credit Agreement governing a $500 million NJR Credit Facility. The NJR Credit Facility expires on September 2, 2026, 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 a $75 million sublimit for 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 increments of $50 million 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 DecemberMarch 31, 2017,2022, NJR had sevennine letters of credit outstanding totaling $11$13.5 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 December 14, 2017,February 8, 2022, NJR entered into a four-month $75364-day $150 million revolving line ofterm loan credit facility,agreement with an interest rate based on SOFR plus 0.85 percent, which will expireexpires on AprilFebruary 7, 2023. The Company borrowed $50 million on February 9, 2022 and $100 million on February 14, 2018. Borrowings may be requested in amounts of at least $1 million and in $500,000 increments above such minimum and may be prepaid at any time without premium or penalty other than normal LIBOR break funding costs. The commitment fees rate for the unused portion may range from 0.075 percent to 0.2 percent, depending on NJR’s credit rating. Proceeds will be used for working capital or other general business purposes of NJR. As of December 31, 2017, there were no borrowings against the facility. On January 19, 2018, NJR amended the agreement to increase the available amount to $100 million. All of the other terms and conditions remain unchanged.2022.
Neither NJNG nor its assets are obligated or pledged to support the NJR Credit Facility.Facility or term loan credit agreement.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NJNG
NJNG had no outstanding short-termAs noted above, based on its average borrowings during the three and six months ended DecemberMarch 31, 2017.2022, NJNG's average interest rate was 0.58 percent and 0.43 percent, resulting in interest expense of approximately $27,000 and $159,000, respectively.
During fiscal 2021, NJNG entered into a Second Amended and Restated Credit Agreement governing a $250 million, NJNG Credit Facility. The NJNG Credit Facility expires on September 2, 2026, 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 a $30 million sublimit for 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 DecemberMarch 31, 2017,2022, 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.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Short-Term Debt Covenants
Borrowings under the NJR Credit Facility, term loan credit agreement and the 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 .70 to 1.00 for NJR and .65 to 1.00 at any time.for NJNG. These revolving credit facilities and term loan credit agreement contain customary representations and warranties for transactions of this type. They also contain customary events of default and certain covenants that will limit NJR's or NJNG's ability, beyond agreed upon thresholds, to, among other things:
•incur additional debt;
•incur liens and encumbrances;
•make dispositions of assets;
•enter into transactions with affiliates; and
•merge, consolidate, transfer, sell or lease all or substantially all of the borrower's or guarantors' assets.
These covenants are subject to a number of exceptions and qualifications set forth in the applicable agreements.
Default Provisions
The agreements governing our long-term and short-term debt obligations include provisions that, if not complied with, could require early payment or similar actions. Default events include, but are not limited to, the following:
•defaults for non-payment;
•defaults for breach of representations and warranties;
•defaults for insolvency;
•defaults for non-performance of covenants;
•cross-defaults to other debt obligations of the borrower; and
•guarantor defaults.
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.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Long-Term Debt
NJR
As of DecemberMarch 31, 2017,2022, NJR hashad the following outstanding:
•$25 million of 2.51 percent senior notes due September 15, 2018;
•$100 million variable rate term loan due August 16, 2019;
•$50 million of 3.25 percent senior notes due September 17, 2022;
•$50 million of 3.23.20 percent senior notes due August 18, 2023;
•$100 million of 3.48 percent senior notes due November 7, 2024; and
•$100 million of 3.54 percent senior notes due August 18, 2026.2026;
•$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.
On February 16, 2022, NJR signed a commitment letter with a financial institution to refinance $50 million of its Senior Unsecured Notes that are currently scheduled to mature in September 2022, over a 12-year term with an interest rate of 3.64 percent maturing in September 2034.
Neither NJNG nor its assets are obligated or pledged to support NJR's long-term debt.
On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on NJR's existing $100 million variable rate term loan due August 16, 2019, which fixed the variable rate at 2.84 percent.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
NJNG
As of DecemberMarch 31, 2017,2022, NJNG's long-term debt consisted of $575 million$1.2 billion in fixed-rate debt issuances secured by the Mortgage Indenture, with maturities ranging from 20182024 to 2046, $972061, and $27.0 million in secured variable rate debt with maturities ranging from 2027 to 2041 and $33.5 million in capitalfinance leases with various maturities ranging from 20182024 to 2025.2028.
On October 28, 2021, NJNG entered into a Note Purchase Agreement for $100 million of its senior notes, of which $50 million were issued at an interest rate of 2.97 percent, maturing in 2051, and $50 million were issued at an interest rate of 3.07 percent, maturing in 2061. 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.NJNG’s fixed-rate debt issuances.
Long-Term Debt Covenants and Default Provisions
The NJR and NJNG long-term debt instruments contain customary representations and warranties for transactions of their type. They also contain customary events of default and certain covenants that will limit NJR or NJNG's ability beyond agreed upon thresholds to, among other things:
•incur additional debt (including a covenant that limits the amount of consolidated total debt of the borrower at the end of a fiscal quarter to 70 percent for NJR and 65 percent for NJNG of the consolidated total capitalization of the borrower, as those terms are defined in the applicable agreements, and a covenant limiting priority debt to 20 percent of the borrower's consolidated total capitalization, as those terms are defined in the applicable agreements);
•incur liens and encumbrances;
•make loans and investments;
•make dispositions of assets;
•make dividends or restricted payments;
•enter into transactions with affiliates; and
•merge, consolidate, transfer, sell or lease substantially all of the borrower's assets.
The aforementioned covenants are subject to a number of exceptions and qualifications set forth in the applicable note purchase agreements.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
In addition, the FMBs issued by NJNG under the Mortgage Indenture are subject to certain default provisions. Events of Default, as defined in the Mortgage Indenture, consist mainly of:
•failure for 30 days to pay interest when due;
•failure to pay principal or premium when due and payable;
•failure to make sinking fund payments when due;
•failure to comply with any other covenants of the Mortgage Indenture after 30 days' written notice from the Trustee;
•failure to pay or provide for judgments in excess of $30 million in aggregate amount within 60 days of the entry thereof; or
•certain events that are or could be the basis of a bankruptcy, reorganization, insolvency or receivership proceeding.
Upon the occurrence and continuance of such an Event of Default, the Mortgage Indenture, subject to any provisions of law applicable thereto, provides that the Trustee may take possession and conduct the business of NJNG, may sell the trust estate, or proceed to foreclose the lien pursuant toof the Mortgage Indenture. The interest rate on defaulted principal and interest, to the extent permitted by law, on the FMBs issued under the Mortgage Indenture is the rate stated in the applicable supplement or, if no such rate is stated, six percent per annum.
New Jersey Resources CorporationSale Leaseback
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Sale-Leaseback
NJNG
NJNG received $7.8$17.3 million and $9.6 million in December 2017 and 2016, respectively,during the six months ended March 31, 2022, in connection with the sale-leasebacksale leaseback of its natural gas meters. NJNG exercised earlyrecords a financing lease obligation that is paid over the term of the lease and has the option to purchase options with respect to meter leases by making final principal paymentsthe meters back at fair value upon expiration of $1.1 million and $1 million during the three months ended December 31, 2017 and 2016, respectively.lease. NJNG continues to evaluate this sale-leasebacksale leaseback program based on current market conditions. Natural gas meters are excepted from the lien on NJNG property under the Mortgage Indenture. There were no natural gas meter sale leasebacks recorded during the six months ended March 31, 2021.
Clean Energy Ventures
During September 2017, Clean Energy Ventures enteredenters into transactions to sell two of itsthe commercial solar assets concurrent with agreements to lease the assets back over seven year periods.a period of five to 15 years. These sale-leasebackstransactions are considered failed sale leasebacks for accounting purposes and are therefore treated as financing obligations, which are typically secured by the solar assetsrenewable energy facility asset and relatedits future cash flows from SRECRECs and energy sales. ITCs and other tax benefits associated with these solar projects wereare transferred to the buyer.buyer, if applicable; however, the lease payments are structured so that Clean Energy Ventures will continueis compensated for the transfer of the related tax incentives. Clean Energy Ventures continues to operate the solar projectsassets, including related expenses, and retain ownership of SRECsthe revenue generated from RECs and energy sales, and has the option to renew the lease or repurchase the assets sold at the end of the lease term. There were no solar sale-leasebacks duringDuring the threesix months ended December March 31, 20172022 and 2016.2021, Clean Energy Ventures expects to utilize sale-leaseback arrangements, based on market conditions, as an option to finance itsreceived proceeds of $3.3 million and $12.1 million, respectively, in connection with the sale leaseback of commercial solar projects in fiscal 2018.projects. The proceeds received were recognized as a financing obligation on the Unaudited Condensed Consolidated Balance Sheets.
Contractual Obligations
NJNG's total capital expenditures are projected to be $421.4 million and $235.2 million, in fiscal 2018 and 2019, respectively. Total capital expenditures spent or accrued during the three months ended December 31, 2017 were $39.9 million. 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 DecemberMarch 31, 2017, NJNG's future MGP expenditures are estimated to be $144 million. For a more detailed description2022, there were NJR guarantees covering approximately $215.4 million of MGP expenditures see Note 12. Commitmentsnatural gas purchases and Contingent LiabilitiesEnergy Services demand fee commitments and eleven outstanding letters of credit totaling $14.2 million, as previously mentioned, not yet reflected in accounts payable on the accompanying Unaudited Condensed Consolidated Financial Statements.Balance Sheets.
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.
NJNG's total capital expenditures are projected to be between $285 million and $335 million during fiscal 2022. Total capital expenditures spent or accrued during the six months ended March 31, 2022, were $119.3 million. NJNG expects to fund its obligations with a combination of cash flows 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 March 31, 2022, NJNG's future MGP expenditures are estimated to be $121.6 million. For a more detailed description of MGP expenditures see Note 13. Commitments and Contingent Liabilities in the accompanying Unaudited Condensed Consolidated Financial Statements.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
During the six months ended March 31, 2022, our Storage and Transportation segment had capital expenditures spent or accrued for the Adelphia Gateway project totaling $88.5 million and capital expenditures spent or accrued for Leaf River totaling $10.2 million. During fiscal 2022, we expect expenditures related to the Adelphia Gateway project to be between $115 million and $130 million and expenditures related to Leaf River to be between $7 million and $11 million.
During the six months ended March 31, 2022, total capital expenditures spent or accrued related to the purchase and installation of solar equipment were $67.7 million. Clean Energy Ventures' expenditures include clean energy projects that support our goal to promote renewable energy. Accordingly, Clean Energy Ventures enters into agreements to install solar equipment involving both residential and commercial projects. During the three months ended December 31, 2017, capital expenditures related to the purchase and installation of solar equipment were $18.3 million. An additional $65.9 million has been committed for solar projects to be placed into service during fiscal 2018 and beyond. We estimate solar-related capital expenditures for projects during fiscal 20182022 to be between $132$139 million and $140$157 million.
During the first quarter of fiscal 2017, Clean Energy Ventures completed construction of a $89 million, 39.9 MW onshore wind project in Somerset County, Pennsylvania.
Capital expenditures related to clean energy projects are subject to change due to a variety of factors that may affect our ability to commence operations at these projects on a timely basis or at all, including 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.
During the three months ended December 31, 2017, capital expenditures related to our investment in the PennEast pipeline project were $7.2 million. We estimate expenditures to be between $240 million and $280 million in fiscal 2018.
Energy Services does not currently anticipate any significant capital expenditures during fiscal 2022 and 2023.
During December 2020, Energy Services entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts. The utility provides certain asset management services and Energy Services may deliver natural gas to the utility in exchange for aggregate net proceeds of approximately $500 million, payable through November 1, 2030. The AMAs include a series of initial and permanent releases, which commenced on November 1, 2021. NJR will receive approximately $260 million in cash from fiscal 20182022 through fiscal 2024 and 2019.$34 million per year from fiscal 2025 through fiscal 2031 under the agreements. During the six months ended March 31, 2022, Energy Services recognized $32.4 million of operating revenue on the Unaudited Condensed Consolidated Statements of Operations. Amounts received in excess of revenue totaling $54.4 million as of March 31, 2022, are included in deferred revenue on the Unaudited Condensed Consolidated Balance Sheets.
More detailed information regarding contractual obligations is contained in Liquidity and Capital Resources - Contractual Obligations section of Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 2017.2021.
Off-Balance-Sheet Arrangements
Our off-balance-sheet arrangements consist of guarantees covering approximately $335.6 million of natural gas purchases, SREC sales and demand fee commitments and outstanding letters of credit totaling $11.7 million.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Cash Flows
Operating Activities
Cash flows used infrom operating activities during the threesix months ended DecemberMarch 31, 2017,2022, totaled $23.5$330.5 million, compared with $46.1$356.3 million during the threesix months ended DecemberMarch 31, 2016.2021. 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 utilized to optimize margins related to natural gas transactions;
•broker margin requirements;
•impact of unusual weather patterns on our wholesale business;
•timing of the collections of receivables and payments of current liabilities;
•volumes of natural gas purchased and sold; and
•timing of SREC deliveries.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The increasedecrease of $22.6$25.8 million in operating cash flows during the threesix months ended DecemberMarch 31, 2017,2022, compared with the threesix months ended DecemberMarch 31, 2016,2021, was due primarily to increased earningsoutsized performance at Energy Services resulting from the volatility in December 2017 due to the colder weather,during February 2021 that did not reoccur during fiscal 2022, partially offset by an increase in working capital requirements.the AMAs, which commenced November 2021, as previously discussed.
Investing Activities
Cash flows used in investing activities totaled $76.9$296.8 million during the threesix months ended DecemberMarch 31, 2017,2022, compared with $86.5$245.5 million during the threesix months ended DecemberMarch 31, 2016.2021. The decreaseincrease of $9.6$51.3 million was due primarily to a decreasean increase in solarcapital expenditures for Storage and Transportation related to the conversion of $28.4 million,the southern portion of Adelphia Gateway's pipeline to natural gas along with an increase of $3.4 million in proceeds from the sale of available for sale securities,increased solar expenditures, partially offset by an increase in expenditures of $8.5 million and $2.6 million for itsdecreased utility plant and investment in PennEast, respectively.expenditures.
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.
Cash flows fromused in financing activities totaled $102.9$24.5 million during the threesix months ended DecemberMarch 31, 2017,2022, compared with $141.9$171.2 million during the threesix months ended DecemberMarch 31, 2016.2021. The decrease of $39$146.8 million is due primarily to decreased short-term borrowings,the new $150 million term loans at NJR, the $100 million issuance of long-term debt at NJNG, along with proceeds of $17.3 million for meter sale leasebacks at NJNG, partially offset by the issuanceincreased payments of common stock through the waiver discount feature of the DRP.short-term debt at NJNG and lower proceeds from solar sale leasebacks at Clean Energy Ventures.
New Jersey Resources Corporation
Part I
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Credit Ratings
The table below summarizes NJNG's credit ratings as of DecemberMarch 31, 2017,2022, issued by two rating entities, S&PMoody's and Moody's:
|
| | | | | | | |
| Standard and Poor'sMoody's | Moody'sFitch |
Corporate Rating | N/A | N/AA- |
Commercial Paper | A-1P-2 | P-1F-2 |
Senior Secured | A+A1 | Aa2A+ |
Ratings Outlook | Stable | Stable |
TheseFitch ratings and outlook were reaffirmed by S&P on October 26, 2017and by Moody’sApril 14, 2022. The Moody's ratings and outlook were reaffirmed on October 4, 2017.May 11, 2021. NJNG's S&PMoody's and Moody'sFitch ratings are investment-grade ratings. NJR is not a rated entity.
On January 19, 2018, Moody’s notified NJNG that it was among 24 companies whose ratings outlook was being lowered to negative from stable. This change reflects Moody’s view that tax reform is credit negative for regulated utilities due to reduced cash collected from customers, while the loss of bonus deprecation reduces tax deferrals. The negative outlook also considers the uncertainty over timing of any regulatory actions or changes to corporate finance polices made to offset the financial impact. This action does not currently affect any of NJNG’s short or long term borrowing rates.
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.
New Jersey Resources Corporation
Part I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
Commodity Market Risks
Natural gas is a nationally traded commodity. Its prices are determined effectively by the NYMEX, ICE and over-the-counter markets. The prices on the NYMEX, CME, ICE and over-the-counter markets generally reflect the national balance of natural gas supply and demand, but are also significantly influenced from time to time by other events.
Our regulated and deregulatedunregulated 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 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance | Increase | Less | Balance |
(Thousands) | September 30, 2021 | (Decrease) in Fair Market Value | Amounts Settled | March 31, 2022 |
Natural Gas Distribution | | $ | 2,033 | | | (3,421) | | | 388 | | | $ | (1,776) | |
Energy Services | | (29,487) | | | (18,490) | | | (49,768) | | | 1,791 | |
Total | | $ | (27,454) | | | (21,911) | | | (49,380) | | | $ | 15 | |
|
| | | | | | | | | | | | | | |
| Balance | Increase | Less | Balance |
(Thousands) | September 30, 2017 | (Decrease) in Fair Market Value | Amounts Settled | December 31, 2017 |
Natural Gas Distribution | | $ | (1,149 | ) | | (3,774 | ) | | (1,445 | ) | | $ | (3,478 | ) |
Energy Services | | (5,552 | ) | | (23,727 | ) | | 3,121 |
| | (32,400 | ) |
Total | | $ | (6,701 | ) | | (27,501 | ) | | 1,676 |
| | $ | (35,878 | ) |
There were no changes in methods of valuations during the threesix months ended DecemberMarch 31, 2017.2022.
New Jersey Resources Corporation
Part I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The following is a summary of fair market value of financial derivatives at Decemberas of March 31, 2017,2022, excluding foreign exchange contracts discussed below, by method of valuation and by maturity for each fiscal year period:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands) | 2022 | 2023 | 2024 - 2026 | After 2026 | Total Fair Value |
Price based on NYMEX/CME | $ | (416) | | (122) | | | — | | | — | | | $ | (538) | |
Price based on ICE | (1,224) | | (719) | | | 2,496 | | | — | | | 553 | |
Total | $ | (1,640) | | (841) | | | 2,496 | | | — | | | $ | 15 | |
|
| | | | | | | | | | | | | | | |
(Thousands) | 2018 | 2019 | 2020 - 2022 | After 2022 | Total Fair Value |
Price based on ICE | $ | (27,037 | ) | (6,145 | ) | | (2,700 | ) | | 4 |
| | $ | (35,878 | ) |
Total | $ | (27,037 | ) | (6,145 | ) | | (2,700 | ) | | 4 |
| | $ | (35,878 | ) |
The following is a summary of financial derivatives by type as of DecemberMarch 31, 2017:2022:
| | | | | | | | | | | | | | | | | |
| | Volume Bcf | Price per MMBtu(1) | Amounts included in Derivatives (Thousands) |
Natural Gas Distribution | Futures | 29.6 | | $2.55-$11.54 | | $ | (1,776) | |
| | | | | |
| | | | | |
Energy Services | Futures | (0.7) | | $2.41-$8.14 | | 2,329 | |
| Swaps | (0.2) | | $2.72-$3.03 | | (538) | |
| | | | | |
Total | | | | | $ | 15 | |
|
| | | | | | | | |
| | Volume Bcf | Price per MMBtu(1) | Amounts included in Derivatives (Thousands) |
Natural Gas Distribution | Futures | 20.4 |
| $2.73 - $5.21 | | $ | (3,478 | ) |
Energy Services | Futures | (33.4 | ) | $1.53 - $6.04 | | (32,400 | ) |
Total | | | | | $ | (35,878 | ) |
(1) Million British thermal unit | |
(1) | Million British thermal unit |
The following table reflects the changes in the fair market value of physical commodity contracts:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance | Increase | Less | Balance |
(Thousands) | September 30, 2021 | (Decrease) in Fair Market Value | Amounts Settled | March 31, 2022 |
Natural Gas Distribution - Prices based on other external data | | $ | 20 | | | 4,381 | | | 4,316 | | | $ | 85 | |
Energy Services - Prices based on other external data | | (34,678) | | | (12,085) | | | (7,521) | | | (39,242) | |
Total | | $ | (34,658) | | | (7,704) | | | (3,205) | | | $ | (39,157) | |
|
| | | | | | | | | | | | | | |
| Balance | Increase | Less | Balance |
(Thousands) | September 30, 2017 | (Decrease) in Fair Market Value | Amounts Settled | December 31, 2017 |
Natural Gas Distribution - Prices based on other external data | | $ | 79 |
| | (404 | ) | | (759 | ) | | $ | 434 |
|
Energy Services - Prices based on other external data | | (3,584 | ) | | (26,285 | ) | | (7,130 | ) | | (22,739 | ) |
Total | | $ | (3,505 | ) | | (26,689 | ) | | (7,889 | ) | | $ | (22,305 | ) |
The following table reflects the changes in the fair market value of interest rate contracts:
|
| | | | | | | | | | | | | | |
| Balance | Increase | Less | Balance |
(Thousands) | September 30, 2017 | (Decrease) in Fair Market Value | Amounts Settled | December 31, 2017 |
Natural Gas Distribution - Prices based on other external data | | $ | (8,467 | ) | | (4,067 | ) | | — |
| | $ | (12,534 | ) |
New Jersey Resources Corporation
Part I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
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 $11.6$2.5 million. This analysis does not include potential changes to reported credit adjustments embedded in the $16.3$(6.8) 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 | $ | — | | $ | (1,231) | | $ | (2,463) | | $ | (3,694) | | $ | (4,926) | |
Ending derivative fair value | $ | (6,805) | | $ | (8,036) | | $ | (9,268) | | $ | (10,499) | | $ | (11,731) | |
| | | | | |
Percent decrease in NYMEX natural gas futures prices | 0% | (5)% | (10)% | (15)% | (20)% |
Estimated change in derivative fair value | $ | — | | $ | 1,231 | | $ | 2,463 | | $ | 3,694 | | $ | 4,926 | |
Ending derivative fair value | $ | (6,805) | | $ | (5,574) | | $ | (4,342) | | $ | (3,111) | | $ | (1,879) | |
|
| | | | | | | | | | | | | | | |
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 | $ | — |
| $ | (5,799 | ) | $ | (11,598 | ) | $ | (17,397 | ) | $ | (23,196 | ) |
Ending derivative fair value | $ | 16,270 |
| $ | 10,471 |
| $ | 4,672 |
| $ | (1,127 | ) | $ | (6,926 | ) |
| | | | | |
Percent decrease in NYMEX natural gas futures prices | 0% | (5)% | (10)% | (15)% | (20)% |
Estimated change in derivative fair value | $ | — |
| $ | 5,799 |
| $ | 11,598 |
| $ | 17,397 |
| $ | 23,196 |
|
Ending derivative fair value | $ | 16,270 |
| $ | 22,069 |
| $ | 27,868 |
| $ | 33,667 |
| $ | 39,466 |
|
New Jersey Resources Corporation
Part I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Wholesale Credit Risk
The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade counterparties, as of DecemberMarch 31, 2017.2022. Gross credit exposure for Energy Services 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. Gross credit exposure for Storage and Transportation is defined as demand and estimated usage fees for contracted services and/or market value of loan balances for which payment has not yet been received. Net credit exposure is defined as gross credit exposure reduced by collateral received from counterparties and/or payables, where netting agreements exist. The amounts presented below exclude accounts receivable for NJNG retail natural gas sales and services.
Energy Services' &, Clean Energy Ventures' and Storage and Transportation's counterparty credit exposure as of DecemberMarch 31, 2017,2022, is as follows:
| | | | | | | | | | | | | | |
(Thousands) | Gross Credit Exposure | Net Credit Exposure |
Investment grade | | $ | 111,418 | | | $ | 88,099 | |
Noninvestment grade | | 9,568 | | | 492 | |
Internally rated investment grade | | 19,625 | | | 14,072 | |
Internally rated noninvestment grade | | 21,250 | | | 9,980 | |
Total | | $ | 161,861 | | | $ | 112,643 | |
|
| | | | | | | | |
(Thousands) | Gross Credit Exposure | Net Credit Exposure |
Investment grade | | $ | 179,097 |
| | $ | 145,295 |
|
Noninvestment grade | | 24,933 |
| | 9,333 |
|
Internally rated investment grade | | 25,235 |
| | 17,813 |
|
Internally rated noninvestment grade | | 48,222 |
| | 14,517 |
|
Total | | $ | 277,487 |
| | $ | 186,958 |
|
NJNG's counterparty credit exposure as of DecemberMarch 31, 2017,2022, is as follows:
| | | | | | | | | | | | | | |
(Thousands) | Gross Credit Exposure | Net Credit Exposure |
Investment grade | | $ | 17,508 | | | $ | 15,343 | |
Noninvestment grade | | 33 | | | — | |
Internally rated investment grade | | 941 | | | 209 | |
Internally rated noninvestment grade | | 975 | | | 66 | |
Total | | $ | 19,457 | | | $ | 15,618 | |
|
| | | | | | | | |
(Thousands) | Gross Credit Exposure | Net Credit Exposure |
Investment grade | | $ | 3,417 |
| | $ | 2,268 |
|
Noninvestment grade | | 146 |
| | — |
|
Internally rated investment grade | | 200 |
| | 138 |
|
Internally rated noninvestment grade | | 13,492 |
| | 3,321 |
|
Total | | $ | 17,255 |
| | $ | 5,727 |
|
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.
New Jersey Resources Corporation
Information regarding NJR's interest rate risk can be found in Item 7A. Quantitative and Qualitative Disclosures About Market Risks and the Liquidity and Capital Resources - Debt section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsof our Annual Report on Form 10-K for the period ended September 30, 2017.Part I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued) ��
Effects of Interest Rate and Foreign Currency Rate Fluctuations
We are also exposed to changes in interest rates on our debt hedges, variable rate debt and changes in foreign currency rates for our business conducted in Canada using Canadian dollars. We do not believe an immediate 10 percent increase or decrease in interest rates or foreign currency rates would have a material effect on our operating results or cash flows.
Information regarding NJR's interest rate risk can be found in Item 7A. Quantitative and Qualitative Disclosures About Market Risks and the Liquidity and Capital Resources - Debt section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsof our Annual Report on Form 10-K for the period ended September 30, 2021.
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.
New Jersey Resources Corporation
Part I
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our 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, our principal executive officer and principal financial officer concluded that, as of end of the period covered by this report, our disclosure controls and procedures are effective, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission'sSEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended DecemberMarch 31, 2017,2022, that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
New Jersey Resources Corporation
ITEM 1. LEGAL PROCEEDINGS
Information regarding reportable legal proceedings is contained in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K for the year ended September 30, 2017,2021, and is set forth in Part I, Item 1, Note 12.13. Commitments and Contingent Liabilities-Legal Proceedings on the Unaudited Condensed Consolidated Financial Statements, which is incorporated by reference. No legal proceedings became reportable during the quarter ended DecemberMarch 31, 2017,2022, and there have been no material developments during such quarter regarding any previously reported legal proceedings, which have not been previously disclosed.
ITEM 1A. RISK FACTORS
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical, under the circumstances, some level of risk and uncertainty will always be present. Part I, Item 1A. Risk Factors of our 20172021 Annual Report on Form 10-K includes a detailed discussion of our risk factors. Those risks and uncertainties have the potential to materially affect our financial condition and results of operations. There have been no material changes in our risk factors from those previously disclosed in Part I, Item 1A, of our 20172021 Annual Report on Form 10-K.10-K, except the following, which is an additional risk factor that should be read to supplement the previously disclosed risk factors:
Inflation and increased natural gas costs could adversely impact NJNG’s customer base and customer collections and increase its level of indebtedness.
Inflation has caused increases in certain operating and capital costs. NJR has a process in place to continually review the adequacy of NJNG’s rates in relation to the increasing cost of providing service and the inherent regulatory lag in adjusting those rates. The ability to control expenses is an important factor that will influence future results.
Rapid increases in the price of purchased gas may cause NJNG to experience a significant increase in short-term debt because it must pay suppliers for gas when it is purchased, which can be significantly in advance of when these costs may be recovered through the collection of monthly customer bills for gas delivered. Increases in purchased gas costs could also slow collection efforts as customers are more likely to delay the payment of their gas bills, leading to higher-than-normal accounts receivable. This situation could also result in higher short-term debt levels and increased bad debt expense.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth our repurchase activity for the quarter ended DecemberMarch 31, 2017:2022:
|
| | | | | | | | | | | | | | | | |
Period | Total Number of Shares (or (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 |
10/01/1701/22 - 10/01/31/1722 | — | $— | — | — | — |
| | 2,431,0531,685,053 |
11/02/01/1722 - 11/30/1702/28/22 | — | — |
| — |
| | 2,431,0531,685,053 |
12/03/01/1722 - 12/03/31/1722 | — | — |
| — |
| | 2,431,0531,685,053 |
Total | — | $ | — |
| — |
| | 2,431,0531,685,053 |
The stock repurchase plan, which was authorized by our Board of Directors, became effective in September 1996 and as of DecemberMarch 31, 2017,2022, included 19.5 million shares of common stock for repurchase, of which, approximately 2.41.7 million shares remained available for repurchase. The stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder, unless the repurchase plan is earlier terminated by action of our Board of Directors or further shares are authorized for repurchase.
New Jersey Resources Corporation
Part II
ITEM 6. EXHIBITS
| | | | | |
Exhibit Number | Exhibit Description |
| | | | | |
| |
Exhibit
Number
| Exhibit Description |
|
| |
2.1 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
10.1+ | |
| |
10.2 | $150,000,000 Term Loan Credit Agreement, dated as of October 27, 2017,February 8, 2022, by and between Talen Generation, LLC,among NJR, the guarantors thereto and Adelphia Gateway, LLCPNC Bank, National Association, as Lender (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, as filed on November 2, 2017) |
| |
10.1 | |
| |
10.231.1+ | |
| |
10.3 | |
| |
10.4 | |
| |
10.5 | |
| |
10.6+ | |
| |
10.7+ | |
| |
10.8+ | |
| |
10.9+ | |
| |
10.10+ | |
| |
31.1+ | |
| |
31.2+ | |
| |
32.1+ † | |
| |
32.2+ † | |
| |
101+ | Interactive Data File (Form 10-Q, for the fiscal period ended June 30, 2017,March 31, 2022, furnished in XBRL (eXtensibleiXBRL (Inline eXtensible Business Reporting Language)). |
| |
+104+ | Filed herewith.Cover Page Interactive Data File included in Exhibit 101 |
+ Filed herewith.
† 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.Act.
New Jersey Resources Corporation
Part II
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | |
| | NEW JERSEY RESOURCES CORPORATION |
| | (Registrant) |
Date: | February 8, 2018May 5, 2022 | |
| | By:/s/ Patrick MigliaccioRoberto F. Bel |
| | Patrick MigliaccioRoberto F. Bel |
| | Senior Vice President and |
| | Chief Financial Officer |