Company Quick10K Filing
Quick10K
New Jersey Resources
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$49.00 89 $4,350
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-02-07 M&A
8-K 2019-02-06 Earnings, Regulation FD, Exhibits
8-K 2019-01-24 Shareholder Vote
8-K 2019-01-24 Shareholder Vote
8-K 2018-12-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-12-05 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-21 Enter Agreement, Regulation FD, Exhibits
8-K 2018-11-20 Earnings, Regulation FD, Exhibits
8-K 2018-11-13 Enter Agreement, Officers, Exhibits
8-K 2018-09-10 Officers, Exhibits
8-K 2018-08-17 Other Events, Exhibits
8-K 2018-08-07 Earnings, Regulation FD, Exhibits
8-K 2018-07-17 Enter Agreement, Exhibits
8-K 2018-07-10 Amend Bylaw, Exhibits
8-K 2018-06-25 Enter Agreement, Exhibits
8-K 2018-06-08 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-11 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-01-24 Shareholder Vote
8-K 2018-01-19 Enter Agreement, Off-BS Arrangement, Exhibits
CRM Salesforce.com 122,310
MNST Monster Beverage 29,440
MATX Matson 1,700
EFII Electronics For Imaging 1,610
CBM Cambrex 1,320
AKRX Akorn 388
FGP Ferrellgas Partners 118
DAVE Famous Daves 53
MBCQ Madison Bank 0
CIRT Cirtran 0
NJR 2018-12-31
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results Of
Part I
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Part II
Item 6. Exhibits
EX-10.6 njrex106dec2018nfe.htm
EX-10.7 njrex107dec2018dsr.htm
EX-10.8 njrex108dec2018tsr.htm
EX-10.9 njrex109dec2018rsu.htm
EX-10.10 njrex1010dec2018pbrs.htm
EX-10.11 njrex1011dec2018nfelmd.htm
EX-10.12 njrex1012dec2018tsrlmd.htm
EX-10.13 njrex1013dec2018prbslmd.htm
EX-31.1 njrex311dec2018.htm
EX-31.2 njrex312dec2018.htm
EX-32.1 njrex321dec2018.htm
EX-32.2 njrex322dec2018.htm

New Jersey Resources Earnings 2018-12-31

NJR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 njr10qdec2018.htm 10-Q DECEMBER 2018 Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10‑Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM             TO             
 
Commission file number 001‑08359
 
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
New Jersey
 
22‑2376465
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
1415 Wyckoff Road, Wall, New Jersey 07719
 
732‑938‑1480
(Address of principal
executive offices)
 
(Registrant's telephone number,
including area code)
 
 
 
Securities registered pursuant to Section 12 (b) of the Act:
Common Stock ‑ $2.50 Par Value
 
New York Stock Exchange
(Title of each class)
 
(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes: x            No: o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes: x            No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer:  x
 
Accelerated filer:  o
Non-accelerated filer: o
 
Smaller reporting company: o
 
 
Emerging growth company: o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes: o            No: x

The number of shares outstanding of $2.50 par value Common Stock as of February 1, 2019 was 88,772,393.

 


New Jersey Resources Corporation

TABLE OF CONTENTS
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
ITEM 1.
 
 
 
 
 
 
Note 2. Summary of Significant Accounting Policies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
ITEM 3.
 
ITEM 4.
PART II. OTHER INFORMATION
 
 
ITEM 1.
 
ITEM 1A.
 
ITEM 2.
 
ITEM 6.
 
 



New Jersey Resources Corporation

GLOSSARY OF KEY TERMS                                                                                                                                                        
Adelphia
Adelphia Gateway, LLC
AFUDC
Allowance for Funds Used During Construction
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bcf
Billion Cubic Feet
BGSS
Basic Gas Supply Service
BPU
New Jersey Board of Public Utilities
CIP
Conservation Incentive Program
CME
Chicago Mercantile Exchange
CR&R
Commercial Realty & Resources Corp.
Dominion
Dominion Energy, Inc.
DM
Dominion Energy Midstream Partners, L.P., a master limited partnership
DM Common Units
Common units representing limited partnership interests in DM
DRP
NJR Direct Stock Purchase and Dividend Reinvestment Plan
Dths
Dekatherms
EE
Energy Efficiency
FASB
Financial Accounting Standards Board
FCM
Futures Commission Merchant
FERC
Federal Energy Regulatory Commission
Financial margin
A non-GAAP financial measure, which represents revenues earned from the sale of natural gas less costs of natural gas sold including any transportation and storage costs, and excludes any accounting impact from the change in the fair value of certain derivative instruments
Fitch
Fitch Ratings Company
FMB
First Mortgage Bond
GAAP
Generally Accepted Accounting Principles of the United States
Home Services and Other
Home Services and Other Operations
ICE
Intercontinental Exchange
IEC
Interstate Energy Company, LLC
Iroquois
Iroquois Gas Transmission L.P.
ISDA
The International Swaps and Derivatives Association
ITC
Federal Investment Tax Credit
MGP
Manufactured Gas Plant
MLP
Master Limited Partnership
Moody's
Moody's Investors Service, Inc.
Mortgage Indenture
The Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement between NJNG and U.S. Bank National Association dated as of September 1, 2014
MW
Megawatts
MWh
Megawatt Hour
NAESB
The North American Energy Standards Board
NFE
Net Financial Earnings
NJ RISE
New Jersey Reinvestment in System Enhancement
NJCEP
New Jersey's Clean Energy Program
NJDEP
New Jersey Department of Environmental Protection
NJNG
New Jersey Natural Gas Company
NJNG Credit Facility
NJNG's $250 million unsecured committed credit facility expiring in December 2023
NJR Credit Facility
NJR's $425 million unsecured committed credit facility expiring in December 2023

1

New Jersey Resources Corporation

GLOSSARY OF KEY TERMS (cont.)                                                                                                                                           
 
 
NJR or The Company
New Jersey Resources Corporation
NJRHS
NJR Home Services Company
Non-GAAP
Not in accordance with Generally Accepted Accounting Principles of the United States
NPNS
Normal Purchase/Normal Sale
NYMEX
New York Mercantile Exchange
O&M
Operation and Maintenance
OPEB
Other Postemployment Benefit Plans
PennEast
PennEast Pipeline Company, LLC
PPA
Power Purchase Agreement
PTC
Federal Production Tax Credit
RAC
Remediation Adjustment Clause
REC
Renewable Energy Certificate
S&P
Standard & Poor's Financial Services, LLC
SAFE
Safety Acceleration and Facility Enhancement
SAVEGREEN
The SAVEGREEN Project®
SBC
Societal Benefits Charge
SEC
U.S. Securities and Exchange Commission
SREC
Solar Renewable Energy Certificate
SRL
Southern Reliability Link
Steckman Ridge
Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
Talen
Talen Energy Marketing, LLC
Tetco
Texas Eastern Transmission
The Exchange Act
The Securities Exchange Act of 1934, as amended
The Tax Act
An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, previously known as The Tax Cuts and Jobs Act of 2017
Trustee
U.S. Bank National Association
U.S.
The United States of America
USF
Universal Service Fund


2

New Jersey Resources Corporation

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS                                                                           

Certain statements contained in this report, including, without limitation, statements as to management expectations, assumptions and beliefs presented in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations,” Part I, Item 3. “Quantitative and Qualitative Disclosures About Market Risk,” Part II, Item I. “Legal Proceedings” and in the notes to the financial statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “anticipate,” “estimate,” “may,” “could,” “might,” “intend,” “expect,” “believe,” “will” “plan,” or “should,” or comparable terminology and are made based upon management's current expectations, assumptions and beliefs as of this date concerning future developments and their potential effect on us. There can be no assurance that future developments will be in accordance with management's expectations, assumptions or beliefs, or that the effect of future developments on us will be those anticipated by management.

We caution readers that the expectations, assumptions and beliefs that form the basis for forward-looking statements regarding customer growth, customer usage, qualifications for ITCs and SRECs, future rate case proceedings, completion of infrastructure projects, financial condition, results of operations, cash flows, capital requirements, future capital expenditures, market risk, effective tax rate and other matters for fiscal 2019 and thereafter include many factors that are beyond our ability to control or estimate precisely, such as estimates of future market conditions, the behavior of other market participants and changes in the debt and equity capital markets. The factors that could cause actual results to differ materially from our expectations, assumptions and beliefs include, but are not limited to, those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, as well as the following:

risks associated with our investments in clean energy projects, including the availability of regulatory incentives and federal tax credits, the availability of viable projects, our eligibility for ITCs, the future market for SRECs and electricity prices, and operational risks related to projects in service;
our ability to obtain governmental and regulatory approvals, land-use rights, electric grid connection (in the case of clean energy projects) and/or financing for the construction, development and operation of our unregulated energy investments, pipeline transportation systems and NJNG and Midstream infrastructure projects, including NJ RISE, SRL, PennEast and Adelphia, in a timely manner;
risks associated with acquisitions and the related integration of acquired assets with our current operations, including our planned Adelphia acquisition;
volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNGs BGSS incentive programs, our Energy Services segment operations and our risk management efforts;
our ability to comply with current and future regulatory requirements;
the level and rate at which NJNGs costs and expenses are incurred and the extent to which they are approved for recovery from customers through the regulatory process, including through future base rate case filings;
the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;
the performance of our subsidiaries;
operating risks incidental to handling, storing, transporting and providing customers with natural gas;
access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;
the regulatory and pricing policies of federal and state regulatory agencies;
timing of qualifying for ITCs due to delays or failures to complete planned solar projects and the resulting effect on our effective tax rate and earnings;
the results of legal or administrative proceedings with respect to claims, rates, environmental issues, gas cost prudence reviews and other matters;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to our Company;
risks related to cyberattacks or failure of information technology systems;
the impact of volatility in the equity and credit markets on our access to capital;
the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of potential downturns in the financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection;
commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale energy trading market;
accounting effects and other risks associated with hedging activities and use of derivatives contracts;
our ability to optimize our physical assets;
weather and economic conditions;
changes to tax laws and regulations;
any potential need to record a valuation allowance for our deferred tax assets;
our ability to comply with debt covenants;
demographic changes in our service territory and their effect on our customer growth;
the impact of natural disasters, terrorist activities and other extreme events on our operations and customers;
the costs of compliance with present and future environmental laws, including potential climate change-related legislation;
environmental-related and other uncertainties related to litigation or administrative proceedings;
risks related to our employee workforce;
risks associated with the management of our joint ventures and partnerships; and
risks associated with our investment in equity securities.

While we periodically reassess material trends and uncertainties affecting our results of operations and financial condition in connection with the preparation of management's discussion and analysis of results of operations and financial condition contained in our Quarterly and Annual Reports on Form 10-Q and Form 10-K, respectively, we do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.

3

New Jersey Resources Corporation
Part I


ITEM 1. FINANCIAL STATEMENTS                                                                                                                                          

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended
 
December 31,
(Thousands, except per share data)
2018

2017
OPERATING REVENUES
 
 
 
Utility
$
199,965

 
$
209,787

Nonutility
611,802

 
495,518

Total operating revenues
811,767

 
705,305

OPERATING EXPENSES
 
 
 
Gas purchases:
 
 
 
Utility
87,649

 
77,602

Nonutility
535,383

 
445,084

Related parties
2,185

 
2,149

Operation and maintenance
60,102

 
54,160

Regulatory rider expenses
12,632

 
11,769

Depreciation and amortization
21,832

 
21,854

Energy and other taxes
3,241

 
16,491

Total operating expenses
723,024

 
629,109

OPERATING INCOME
88,743

 
76,196

Other income, net
869

 
5,976

Interest expense, net of capitalized interest
13,486

 
11,905

INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES
76,126

 
70,267

Income tax benefit
(6,961
)
 
(50,168
)
Equity in earnings of affiliates
3,161

 
3,264

NET INCOME
$
86,248

 
$
123,699

 
 
 
 
EARNINGS PER COMMON SHARE
 
 
 
Basic
$0.97
 
$1.42
Diluted
$0.97
 
$1.42
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
Basic
88,547

 
86,996

Diluted
88,946

 
87,347


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
Three Months Ended
 
 
December 31,
(Thousands)
 
2018
2017
Net income
 
$
86,248

$
123,699

Other comprehensive income (loss), net of tax
 
 
 
Unrealized loss on investments in equity securities, net of tax of $0 and $851, respectively
 

(2,290
)
Reclassifications of losses to net income on investments in equity securities, net of tax of $0 and $2,178, respectively
 

(3,154
)
Adjustment to postemployment benefit obligation, net of tax of $(96) and $(136), respectively
 
234

240

Other comprehensive income (loss)
 
$
234

$
(5,204
)
Comprehensive income
 
$
86,482

$
118,495


See Notes to Unaudited Condensed Consolidated Financial Statements


4

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended
 
December 31,
(Thousands)
2018
 
2017
CASH FLOWS USED IN OPERATING ACTIVITIES
 
 
 
Net income
$
86,248

 
$
123,699

Adjustments to reconcile net income to cash flows from operating activities
 
 
 
Unrealized (gain) loss on derivative instruments
(10,932
)
 
34,855

Realized and unrealized gain on investments in equity securities
(257
)
 
(5,332
)
Depreciation and amortization
21,832

 
21,854

Amortization of acquired wholesale energy contracts
370

 
3,391

Allowance for equity used during construction
(1,751
)
 
(852
)
Allowance for doubtful accounts
643

 
471

Deferred income taxes
(8,733
)
 
13,451

Deferred income tax benefit due to the Tax Act

 
(57,565
)
Manufactured gas plant remediation costs
(2,593
)
 
(5,147
)
Equity in earnings, net of distributions received from equity investees
(830
)
 
(257
)
Cost of removal - asset retirement obligations
(65
)
 
(332
)
Contributions to postemployment benefit plans
(1,666
)
 
(1,467
)
Tax benefit from stock-based compensation
1,279

 
2,831

Changes in:
 
 
 
Components of working capital
(206,728
)
 
(189,528
)
Other noncurrent assets
9,710

 
31,038

Other noncurrent liabilities
8,718

 
5,388

Cash flows used in operating activities
(104,755
)
 
(23,502
)
CASH FLOWS USED IN INVESTING ACTIVITIES
 
 
 
Expenditures for:
 
 
 
Utility plant
(51,359
)
 
(34,638
)
Solar equipment
(32,126
)
 
(18,387
)
Midstream and other
(2,420
)
 
(1,313
)
Cost of removal
(8,396
)
 
(12,752
)
Distribution from equity investees in excess of equity in earnings
619

 
793

Investments in equity investees

 
(7,202
)
Cash paid related to acquisition

 
(10,000
)
Proceeds from sale of investments in equity securities, net

 
6,616

Cash flows used in investing activities
(93,682
)
 
(76,883
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Payments of long-term debt
(4,723
)
 
(1,690
)
Proceeds from short-term debt, net
219,750

 
107,200

Proceeds from sale-leaseback transaction
9,895

 
7,820

Payments of common stock dividends
(25,812
)
 
(23,607
)
Proceeds from waiver discount issuance of common stock
7,964

 
22,690

Proceeds from issuance of common stock
3,749

 
3,846

Tax withholding payments related to net settled stock compensation
(6,087
)
 
(13,319
)
Cash flows from financing activities
204,736

 
102,940

Change in cash, cash equivalents and restricted cash
6,299

 
2,555

Cash, cash equivalents and restricted cash at beginning of period
1,710

 
2,469

Cash, cash equivalents and restricted cash at end of period
$
8,009

 
$
5,024

CHANGES IN COMPONENTS OF WORKING CAPITAL
 
 
 
Receivables
$
(161,039
)
 
$
(192,253
)
Inventories
(58,061
)
 
(2,561
)
Recovery of gas costs
(1,142
)
 
17,102

Gas purchases payable
58,663

 
43,284

Prepaid and accrued taxes
17,027

 
(12,418
)
Accounts payable and other
(47,498
)
 
(25,527
)
Restricted broker margin accounts
(9,963
)
 
(21,694
)
Customers' credit balances and deposits
2,304

 
6,093

Other current assets
(7,019
)
 
(1,554
)
Total
$
(206,728
)
 
$
(189,528
)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
 
 
 
Cash paid (received) for:
 
 
 
Interest (net of amounts capitalized)
$
16,002

 
$
9,758

Income taxes
$
130

 
$
(191
)
Accrued capital expenditures
$
19,791

 
$
26,034

 
See Notes to Unaudited Condensed Consolidated Financial Statements

5

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS
(Thousands)
December 31,
2018
September 30,
2018
PROPERTY, PLANT AND EQUIPMENT
 
 
Utility plant, at cost
$
2,400,903

$
2,368,914

Construction work in progress
210,543

192,481

Nonutility plant and equipment, at cost
749,700

697,406

Construction work in progress
19,391

45,690

Total property, plant and equipment
3,380,537

3,304,491

Accumulated depreciation and amortization, utility plant
(539,905
)
(530,753
)
Accumulated depreciation and amortization, nonutility plant and equipment
(130,560
)
(122,689
)
Property, plant and equipment, net
2,710,072

2,651,049

CURRENT ASSETS
 
 
Cash and cash equivalents
7,694

1,458

Customer accounts receivable
 
 
Billed
318,108

205,490

Unbilled revenues
55,155

7,199

Allowance for doubtful accounts
(5,882
)
(5,704
)
Regulatory assets
18,509

18,297

Gas in storage, at average cost
241,389

184,633

Materials and supplies, at average cost
15,215

13,910

Prepaid and accrued taxes
10,588

23,047

Derivatives, at fair value
55,358

27,396

Restricted broker margin accounts
85,784

53,719

Assets held for sale
207,737

206,905

Other
40,254

33,730

Total current assets
1,049,909

770,080

NONCURRENT ASSETS
 
 
Investments in equity method investees
192,188

190,866

Regulatory assets
370,024

368,592

Derivatives, at fair value
6,085

10,560

Investments in equity securities
33,174

32,917

Intangible assets, net
23,007

23,375

Other noncurrent assets
92,863

96,225

Total noncurrent assets
717,341

722,535

Total assets
$
4,477,322

$
4,143,664


See Notes to Unaudited Condensed Consolidated Financial Statements

6

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CAPITALIZATION AND LIABILITIES
(Thousands, except share data)
December 31,
2018
September 30,
2018
CAPITALIZATION
 
 
Common stock, $2.50 par value; authorized 150,000,000 shares; outstanding December 31, 2018 — 88,680,174; September 30, 2018 — 88,292,956
$
226,539

$
226,196

Premium on common stock
278,286

274,748

Accumulated other comprehensive loss, net of tax
(15,822
)
(12,610
)
Treasury stock at cost and other; shares December 31, 2018 — 1,935,229; September 30, 2018 — 2,185,013
(65,060
)
(76,473
)
Retained earnings
1,073,107

1,007,117

Common stock equity
1,497,050

1,418,978

Long-term debt
1,184,801

1,180,619

Total capitalization
2,681,851

2,599,597

CURRENT LIABILITIES
 
 
Current maturities of long-term debt
124,806

123,545

Short-term debt
371,700

151,950

Gas purchases payable
269,966

211,303

Gas purchases payable to related parties
1,150

1,150

Accounts payable and other
75,119

135,240

Dividends payable
25,938

25,824

Accrued taxes
6,137

1,568

Regulatory liabilities
12,822

8,185

New Jersey Clean Energy Program
12,359

14,052

Derivatives, at fair value
65,114

46,652

Liabilities held for sale
4,182

4,182

Customers' credit balances and deposits
29,629

27,325

Total current liabilities
998,922

750,976

NONCURRENT LIABILITIES
 
 
Deferred income taxes
233,099

242,436

Deferred investment tax credits
3,895

3,976

Deferred gain
2,144

9,104

Derivatives, at fair value
36,825

22,982

Manufactured gas plant remediation
129,556

130,800

Postemployment employee benefit liability
141,499

137,007

Regulatory liabilities
210,580

209,139

Asset retirement obligation
29,329

28,688

Other
9,622

8,959

Total noncurrent liabilities
796,549

793,091

Commitments and contingent liabilities (Note 13)



Total capitalization and liabilities
$
4,477,322

$
4,143,664


See Notes to Unaudited Condensed Consolidated Financial Statements


7

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                              

1. NATURE OF THE BUSINESS

New Jersey Resources Corporation provides regulated gas distribution services and operates certain unregulated businesses primarily through the following:

New Jersey Natural Gas Company provides natural gas utility service to approximately 543,800 retail customers in central and northern New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment.

NJR Clean Energy Ventures Corporation, the Company's clean energy subsidiary, comprises the Clean Energy Ventures segment and consists of the Company's capital investments in commercial and residential solar projects located throughout New Jersey and onshore wind investments in Iowa, Kansas, Wyoming and Pennsylvania.

NJR Energy Services Company comprises the Energy Services segment. Energy Services maintains and transacts around a portfolio of natural gas storage and transportation capacity contracts and provides physical wholesale energy, retail energy and energy management services in the U.S. and Canada.

NJR Midstream Holdings Corporation, which comprises the Midstream segment, invests in energy-related ventures through its subsidiaries, NJR Steckman Ridge Storage Company, which holds the Company's 50 percent combined ownership interest in Steckman Ridge, located in Pennsylvania; NJNR Pipeline, which held our DM Common Units; and NJR Pipeline Company, which includes Adelphia Gateway, LLC and the Company's 20 percent ownership interest in PennEast. See Note 7. Investments in Equity Investees for more information.

NJR Retail Holdings Corporation has two principal subsidiaries, NJR Home Services Company, which provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey, and Commercial Realty & Resources Corporation, which owns commercial real estate. NJR Home Services Company and Commercial Realty & Resources Corporation are included in Home Services and Other operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by NJR in accordance with the rules and regulations of the SEC and GAAP. The September 30, 2018 Balance Sheet data is derived from the audited financial statements of the Company. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in NJR's 2018 Annual Report on Form 10-K.

The Unaudited Condensed Consolidated Financial Statements include the accounts of NJR and its subsidiaries. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary for a fair presentation of the results of the interim periods presented. These adjustments are of a normal and recurring nature. Because of the seasonal nature of NJR's utility and wholesale energy services operations, in addition to other factors, the financial results for the interim periods presented are not indicative of the results that are to be expected for the fiscal year ending September 30, 2019. Intercompany transactions and accounts have been eliminated.

Sales Tax Accounting

As a result of the adoption of ASC 606, Revenue from Contracts with Customers, as of October 1, 2018, the Company elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax on a net basis in operating revenues on the Unaudited Condensed Consolidated Statements of Operations. Previously, sales tax was presented in both operating revenues and operating expenses on the Unaudited Condensed Consolidated Statements of Operations.


8

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Gas in Storage

The following table summarizes gas in storage, at average cost by segment as of:
 
December 31, 2018
September 30, 2018
($ in thousands)
Gas in Storage
 
Bcf
Gas in Storage
 
Bcf
Energy Services
 
$
148,746

38.4

 
$
90,166

34.1

Natural Gas Distribution
 
92,643

20.8

 
94,467

24.9

Total
 
$
241,389

59.2

 
$
184,633

59.0


Investments in Equity Securities

Investments in equity securities are carried at fair value on the Unaudited Condensed Consolidated Balance Sheets. For the fiscal year ended September 30, 2018, total unrealized gains and losses associated with equity securities were included as a part of accumulated other comprehensive income, a component of common stock equity, and reclassifications of realized gains or losses out of other comprehensive income into earnings were recorded in other income, net on the Unaudited Condensed Consolidated Statements of Operations, based on average cost. On October 1, 2018, the Company adopted ASU No. 2016-01, an amendment to ASC 825, Financial Instruments. As a result, unrealized gains and losses are recorded in other income, net on the Unaudited Condensed Consolidated Statements of Operations, based on average cost. As of September 30, 2018, the Company's investments in equity securities had a fair value of $32.9 million, and total unrealized gains were $4.7 million, $3.4 million, net of deferred income tax expense. These amounts were reclassified from accumulated other comprehensive income to retained earnings upon adoption of ASU No. 2016-01. As a result, unrealized gains and losses are recorded in other income, net on the Unaudited Condensed Consolidated Statements of Operations, based on average cost.

As of December 31, 2018, the Company's equity securities were comprised of its investment in DM Common Units which had a fair value of $33.2 million. During the three months ended December 31, 2018, total unrealized gains of $257,000 were recognized in other income, net on the Unaudited Condensed Consolidated Statements of Operations.

On November 26, 2018, Dominion and DM executed an agreement and plan of merger. This merger was finalized on January 28, 2019. Outstanding DM Common Units held immediately before the closing of the merger were converted into 0.2492 shares of Dominion common stock. This resulted in the conversion of the Company's 1.84 million DM Common Units into approximately 458,000 Dominion shares.

During the three months ended December 31, 2017, NJR sold shares of its equity securities in an energy company and received proceeds of approximately $6.6 million and recognized a pre-tax gain of $5.3 million. There were no sales of equity securities during the three months ended December 31, 2018.

Customer Accounts Receivable

Customer accounts receivable include outstanding billings from the following subsidiaries as of:
(Thousands)
December 31,
2018
 
September 30,
2018
Energy Services
$
237,790

75
%
 
$
157,936

77
%
Natural Gas Distribution (1)
73,748

23

 
39,151

19

Clean Energy Ventures
3,574

1

 
3,330

2

Home Services and Other Operations
2,996

1

 
5,073

2

Total
$
318,108

100
%
 
$
205,490

100
%
(1)
Does not include unbilled revenues of $55.2 million and $7.2 million as of December 31, 2018 and September 30, 2018, respectively.

Loans Receivable

NJNG currently provides loans, with terms ranging from three to 10 years, to customers that elect to purchase and install certain energy-efficient equipment in accordance with its BPU-approved SAVEGREEN program. The loans are recognized at net present value on the Unaudited Condensed Consolidated Balance Sheets. The Company recorded $10.8 million and $10.4 million

9

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


in other current assets and $39.4 million and $39.5 million in other noncurrent assets as of December 31, 2018 and September 30, 2018, respectively, on the Unaudited Condensed Consolidated Balance Sheets, related to the loans. If NJNG determines a loan is impaired, the basis of the loan would be subject to regulatory review for recovery. As of December 31, 2018 and September 30, 2018, the Company has not recorded an allowance for doubtful accounts for SAVEGREEN loans.

Assets Held for Sale

The wind assets classified as held for sale are measured at the lower of their carrying value or fair value less cost to sell. On November 21, 2018, Clean Energy Ventures entered into a Membership Interest Purchase Agreement with a subsidiary of Skyline Renewables LLC to sell its remaining wind assets. The Company submitted a joint filing for authorization with the FERC, which was approved on December 31, 2018. The transaction is expected to close in the second quarter of fiscal 2019.

The major classes of assets and liabilities included within the disposal group as held for sale are as follows:
(Thousands)
September 30, 2018
 
Assets reclassified as held for sale
 
Assets Sold
 
Other adjustments
 
December 31, 2018
Assets held for sale:
 
 
 
 
 
 
 
 
 
Nonutility plant and equipment - wind equipment, at cost
$
224,356

 
$

 
$

 
$

 
$
224,356

Nonutility plant and equipment - accumulated depreciation, wind equipment
(18,501
)
 

 

 

 
(18,501
)
Prepaid and other current assets
789

 
1,535

 

 
(703
)
 
1,621

Other noncurrent assets
261

 

 

 

 
261

 
$
206,905

 
$
1,535

 
$

 
$
(703
)
 
$
207,737

Liabilities held for sale:
 
 
 
 
 
 
 
 
 
Accounts payable and other (1)
$
186

 
$

 
$

 
$

 
$
186

Asset retirement obligation
3,996

 

 

 

 
3,996

 
$
4,182

 
$

 
$

 
$

 
$
4,182

(1)
Transaction fee owed to broker for the sale of Two Dot wind farm.

Reclassification

Certain prior period amounts related to the deferred income tax benefit due to the Tax Act and restricted cash on the Unaudited Condensed Consolidated Statements of Cash Flows and compensation costs on the Unaudited Condensed Consolidated Statements of Operations were reclassified to conform to the current period presentation due to the adoption of various ASUs listed below.

Recently Adopted Updates to the Accounting Standards Codification

Revenue

In May 2014, the FASB issued ASU No. 2014-09, and added ASC 606, Revenue from Contracts with Customers, to the ASC. ASC 606 supersedes ASC 605, Revenue Recognition, as well as most industry-specific guidance, and prescribes a single, comprehensive revenue recognition model designed to improve financial reporting comparability across entities, industries, jurisdictions and capital markets. The Company adopted the new guidance in the first quarter of fiscal 2019 and applied the new provisions on a modified retrospective basis.

The Company recorded a cumulative-effect adjustment of $3.8 million, $2.7 million net of deferred income taxes, to retained earnings at Home Services and Other. As of October 1, 2018, NJRHS recognizes contract revenue on a straight line basis over the term of the contract. Previously, contract revenue was recognized over the term of the service contract based on expected demand for services. Revenue for the three months ended December 31, 2018 for Home Services and Other after adopting ASC 606 was $12.5 million, as opposed to $10.1 million under ASC 605, representing a $2.4 million increase in revenue recognition. The Company elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax on a net basis in operating revenues on the Unaudited Condensed Consolidated Statements of Operations. Operating revenue for the Company would have included $14.4 million related to sales tax for the three months ended December 31, 2018. There was no additional impact on the Company’s financial position, results of operations or cash flows.

10

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


The Company concluded that its tariff-based sales of natural gas are within the scope of the new guidance and the adoption did not result in any modification to the pattern of revenue recognition from such sales. Revenues from derivative instruments, such as those related to the Company’s SREC sales and natural gas purchases and sales will continue to be accounted for under ASC 815 and thus are outside the scope of ASC 606. Additionally, NJNG revenues generated by the CIP have been determined to be alternative revenue programs under ASC 980 and are also outside the scope of ASC 606, as they are deemed to be a contract with the BPU. The Company also evaluated its renewable asset PPA arrangements and determined that no modification to the pattern of revenue recognition of the related electricity, capacity and REC sales was necessary. Revenues from RECs sold as part of a bundled arrangement continue to be recognized in the same period as the related generation.

Based on the completion of the Company’s evaluation and assessment of its revenue streams, the Company concluded that the new guidance did not have a material impact on its financial position, results of operations or cash flows. ASC 606 requires expanded disclosures, including the disclosure of performance obligations, disaggregated revenues and contract balances, which is included in Note 3. Revenue.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, an amendment to ASC 230, Statement of Cash Flows, which addresses eight specific cash flow issues for which there has been diversity in practice. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a retrospective basis, which did not impact its statement of cash flows.

In November 2016, the FASB issued ASU No. 2016-18, an amendment to ASC 230, Statement of Cash Flows, which requires that any amounts that are deemed to be restricted cash or restricted cash-equivalents be included in cash and cash-equivalent balances on the cash flow statement and, therefore, transfers between cash and restricted cash accounts will no longer be recognized within the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a retrospective basis, which did not materially impact its statement of cash flows.

Accordingly, the following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Unaudited Condensed Consolidated Balance Sheets to the total amounts in the Unaudited Condensed Consolidated Statements of Cash Flows as follows:
(Thousands)
December 31,
2018
September 30,
2018
December 31,
2017
September 30,
2017
Balance Sheet
 
 
 
 
Cash and cash equivalents
$
7,694

$
1,458

$
4,738

$
2,226

Restricted cash in other noncurrent assets
315

252

286

243

Statements of Cash Flow
 
 
 
 
Cash, cash equivalents and restricted cash in the statement of cash flows
$
8,009

$
1,710

$
5,024

$
2,469


Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, an amendment to ASC 825, Financial Instruments, to address certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard affects investments in equity securities that do not result in consolidation and are not accounted for under the equity method and the presentation of certain fair value changes for financial liabilities measured at fair value. It also simplifies the impairment assessment of equity investments without a readily determinable fair value by requiring a qualitative assessment. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a modified retrospective basis which resulted in the reclassification of $4.7 million, $3.4 million net of deferred income tax expense, to the opening balance of retained earnings from accumulated other comprehensive income related to investments in equity securities. Subsequent changes to the fair value of the Company’s investments in equity securities are recorded in other income, net in the Unaudited Condensed Consolidated Statement of Operations.

11

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Business Combinations

In January 2017, the FASB issued ASU No. 2017-01, an amendment to ASC 805, Business Combinations, clarifying the definition of a business in the ASC, which is intended to reduce the complexity surrounding the assessment of a transaction as an asset acquisition or business combination. The amendment provides an initial fair value screen to reduce the number of transactions that would fit the definition of a business, and when the screen threshold is not met, provides an updated model that further clarifies the characteristics of a business. The Company adopted this guidance in the first quarter of fiscal 2019 and the new provisions will be applied on a prospective basis. The amendment could potentially have material impacts on future transactions that the Company may enter into by altering the Company’s conclusion on the accounting framework that is applied to acquisitions.

Gains and Losses from the Derecognition of Nonfinancial Assets

In February 2017, the FASB issued ASU No. 2017-05, an amendment to ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, which clarifies the scope and accounting related to the derecognition of nonfinancial assets, including partial sales and contributions of nonfinancial assets to a joint venture or other non-controlled investee. The Company adopted this guidance in the first quarter of 2019, concurrently with ASC 606, and applied the new provisions on a modified retrospective basis through a cumulative effect adjustment of $6.8 million, $5 million net of deferred income tax expense, to the opening balance of retained earnings related to a transfer of a nonfinancial asset that was previously recorded as a deferred gain on the Unaudited Condensed Consolidated Balance Sheets.

Compensation - Retirement Benefits

In March 2017, the FASB issued ASU No. 2017-07, an amendment to ASC 715, Compensation - Retirement Benefits, which changes the presentation of net periodic benefit cost on the income statement by requiring companies to present all components of net periodic benefit cost, other than service cost, outside a subtotal of income from operations. The amendment also states that only the service cost component of net periodic benefits costs is eligible for capitalization, when applicable. The amendment establishes a practical expedient that permits entities to use their previously disclosed service and other costs in their pension and other postretirement benefit plan footnotes in the prior comparative periods as the estimation basis when applying the retrospective presentation of these costs in the income statement. The Company adopted this guidance in the first quarter of 2019, and applied the new provisions on a retrospective basis for income statement presentation, and is applying the new provisions on a prospective basis for changes to capitalization of costs.

Accordingly, the following amounts on the Unaudited Condensed Consolidated Statement of Operations for the three months ended December 31, 2017, have been adjusted:
(Thousands)
As Previously Reported
Effect of Change
As Adjusted
Statements of Operations
 
 
 
Operation and maintenance
$
55,111

$
(951
)
$
54,160

Total operating expenses
$
630,060

$
(951
)
$
629,109

Operating income
$
75,245

$
951

$
76,196

Other income (expense), net
$
6,927

$
(951
)
$
5,976


The changes related to the costs that will be eligible for capitalization will not have a material impact on the Company's financial position, results of operations or cash flows upon adoption. There was no additional impact to the Company's financial position, results of operations or cash flows.

Stock Compensation

In May 2017, the FASB issued ASU No. 2017-09, an amendment to ASC 718, Compensation - Stock Compensation, which clarifies the accounting for changes to the terms or conditions of share-based payments. The Company adopted this guidance in the first quarter of fiscal 2019, and will apply the new provisions prospectively to awards modified on or after October 1, 2018. There was no impact to the Company's financial position, results of operations or cash flows upon adoption.


12

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Other Recent Updates to the Accounting Standards Codification

Leases

In February 2016, the FASB issued ASU No. 2016-02, an amendment to ASC 842, Leases, which provides for a comprehensive overhaul of the lease accounting model and changes the definition of a lease within the accounting literature. Under the new standard, all leases with a term greater than one year will be recorded on the balance sheet. Amortization of the related asset will be accounted for using one of two approaches prescribed by the guidance. Additional disclosures will be required to allow the user to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach is required for leases existing at the time of adoption.

In January 2018, the FASB issued ASU No. 2018-01, a further amendment to ASC 842, Leases, which was introduced by ASU No. 2016-02, as discussed above. This update provides an optional practical expedient that allows companies to not evaluate existing or expired land easements that were not previously accounted for under Topic 840 as leases. The Company expects to elect this practical expedient upon adoption. The guidance is effective for the Company beginning October 1, 2019.

In July 2018, the FASB issued ASU No. 2018-11, which provides an optional transition method to ASC 842 that allows the Company to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. At this time, the Company does not plan to early adopt the new guidance and expects to transition on a modified retrospective basis.

The Company is currently in the process of reviewing its contracts to identify all of its leases and evaluating its lease population. The Company’s operating leases primarily consist of office and land leases related to solar and wind assets. While the Company is currently evaluating the full impact of the standard and its related updates, it expects to recognize right-of-use assets and liabilities arising from current operating leases on its statement of financial position upon adoption, however, these amounts are not reasonably estimable at this time. The Company does not expect the amendments to the standard to have any impact on its results of operations or cash flows.

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, an amendment to ASC 326, Financial Instruments - Credit Losses, which changes the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables. The new model requires recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred. An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. The Company is currently evaluating the amendment to understand the impact on its financial position, results of operations and cash flows upon adoption and will apply the new guidance to its trade and loan receivables on a modified retrospective basis.

Derivatives and Hedging

In August 2017, the FASB issued ASU No. 2017-12, an amendment to ASC 815, Derivatives and Hedging, which is intended to make targeted improvements to the accounting for hedging activities by better aligning an entity’s risk management activities and financial reporting for hedging relationships. These amendments modify the accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments are intended to simplify the application of the hedge accounting guidance and provide relief to companies by easing certain hedge documentation requirements. The guidance is effective for the Company beginning October 1, 2019, with early adoption permitted. Upon adoption, the transition requirements and elections will be applied to hedging relationships existing on the date of adoption. The Company does not currently apply hedge accounting to any of its risk management activities and thus does not expect the amendments to have any impact on its financial position, results of operations and cash flows upon adoption.

In October 2018, the FASB issued ASU No. 2018-16, an amendment to ASC 815, Derivatives and Hedging, which permits the use of the Overnight Swap Index rate based on the Secured Overnight Financing Rate as an additional acceptable U.S. benchmark interest rate for hedge accounting purposes. The guidance is effective for the Company beginning October 1, 2019, with early adoption permitted. The Company does not currently apply hedge accounting to any of its risk management activities and thus does not expect the amendments to have any impact on its financial position, results of operations and cash flows upon adoption.

13

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Stock Compensation

In June 2018, the FASB issued ASU No. 2018-07, an amendment to ASC 718, Compensation - Stock Compensation, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The guidance is effective for the Company beginning October 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of the amendment on the Company’s financial position, results of operations and cash flows upon adoption.

Fair Value

In August 2018, the FASB issued ASU No. 2018-13, an amendment to ASC 820, Fair Value Measurement, which removes, modifies and adds to certain disclosure requirements of fair value measurements. Disclosure requirements removed include the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Modifications include considerations around the requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse. The additions include the requirement to disclose changes in unrealized gains and losses for the period in other comprehensive income for recurring Level 3 fair value measurements held and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. Upon adoption, the amendments will be applied on a prospective or retrospective basis depending on the specific amendments’ transition requirements. The Company is currently evaluating the amendments to understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption and will apply the new guidance.

Compensation - Retirement Benefits

In August 2018, the FASB issued ASU No. 2018-14, an amendment to ASC 715, Compensation - Retirement Benefits, which removes disclosures that no longer are considered cost-beneficial, clarifies the specific requirements of certain disclosures and adds new disclosure requirements identified as relevant. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. Upon adoption, the amendments will be applied on a retrospective basis. The Company is continuing to evaluate the amendment to fully understand the impact on the Company's disclosures upon adoption.

Intangibles

In August 2018, the FASB issued ASU No. 2018-15, an amendment to ASC 350, Intangibles - Goodwill and Other, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. Upon adoption, the amendment can be applied either on a prospective or retrospective basis. The Company is currently evaluating the amendments to understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption.

3. REVENUE

Revenue is recognized when a performance obligation is satisfied by transferring control of a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer using the output method of progress. The Company elected to apply the invoice practical expedient for recognizing revenue, whereby the amounts invoiced to customers represent the value to the customer and the Company’s performance completion as of the invoice date. Therefore we do not disclose related unsatisfied performance obligations. The Company also elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax net in operating revenues on the Unaudited Condensed Consolidated Statements of Operations.


14

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Below is a listing of performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms and the nature of the goods and services being transferred, by reporting segment and other business operations:
Revenue Recognized Over Time:
Segment
Performance Obligation
Description
Natural Gas Distribution
Natural gas utility sales
NJNG's performance obligation is to provide natural gas to residential, commercial and industrial customers as demanded, based on regulated tariff rates, which are established by the BPU. Revenues from the sale of natural gas are recognized in the period that gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period. Payment is due each month for the previous month's deliveries. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates. NJNG is entitled to be compensated for performance completed until service is terminated.

Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers. As NJNG is acting as an agent on behalf of the third party supplier, revenue is recorded for the delivery of natural gas to the customer.
Clean Energy Ventures
Commercial solar and wind electricity
Clean Energy Ventures operates wholly-owned solar and wind projects that recognize revenue as electricity is generated and transferred to the customer. The performance obligation is to provide electricity to the customer in accordance with contract terms or the interconnection agreement and is satisfied upon transfer of electricity generated.

Revenue is recognized as invoiced and the payment is due each month for the previous month's services.
Clean Energy Ventures
Residential solar electricity
Clean Energy Ventures provides access to residential rooftop and ground-mount solar equipment to customers who then pay the Company a monthly fee. The performance obligation is to provide electricity to the customer based on generation from the underlying residential solar asset and is satisfied upon transfer of electricity generated.

Revenue is derived from the contract terms and is recognized as invoiced, with the payment due each month for the previous month's services.
Energy Services
Wholesale natural gas services
The performance obligation of Energy Services is to provide the customer transportation, storage and asset management services on an as needed basis. Energy Services generates revenue through management fees, demand charges, reservation fees and transportation charges centered around the buying and selling of the natural gas commodity, representing one series of distinct performance obligations.

Revenue is recognized based upon the underlying natural gas quantities physically delivered and the customer obtaining control. Energy Services invoices customers on a monthly basis in line with the terms of the contract and based on the services provided. Payment is due each month for the previous month's invoiced services.
Home Services and Other
Service contracts
Home Services enters into service contracts with homeowners to provide maintenance and replacement services of applicable heating, cooling or ventilation equipment. All services provided relate to a distinct performance obligation which is to provide services for the specific equipment over the term of the contract.

Revenue is recognized on a straight line basis over the term of the contract and payment is due upon receipt of the invoice.
Revenue Recognized at a Point in Time:
Home Services and Other
Installations
Home Services installs appliances, including but not limited to, furnaces, air conditioning units, boilers and generators to customers. The distinct performance obligation is the installation of the contracted appliance, which is satisfied at the point in time the item is installed.

The transaction price for each installation differs accordingly. Revenue is recognition at a point in time upon completion of the installation, which is when the customer is billed.

15

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during the three months ended December 31, 2018 is as follows:
 
Regulated
Unregulated
 
(Thousands)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Home Services
and Other
Total
Natural gas utility sales
$
194,983




$
194,983

Wholesale natural gas services


10,080


10,080

Service contracts



7,796

7,796

Installations and maintenance



4,694

4,694

Electricity sales

7,141



7,141

Eliminations(1)



(545
)
(545
)
Revenues from contracts with customers
194,983

7,141

10,080

11,945

224,149

Alternative revenue programs
(867
)



(867
)
Derivative Instruments
5,849

7,756

577,187


590,792

Eliminations(1)


(2,307
)

(2,307
)
Revenues out of scope
4,982

7,756

574,880


587,618

Total operating revenues
$
199,965

14,897

584,960

11,945

$
811,767

(1)
Consists of transactions between subsidiaries that are eliminated in consolidation.

Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the three months ended December 31, 2018 is as follows:
 
Regulated
Unregulated
 
(Thousands)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Home Services
and Other
Total
Residential
$
133,690

2,132


11,717

$
147,539

Commercial and industrial
40,728

5,009

10,080

228

56,045

Firm transportation
18,934




18,934

Interruptible and off-tariff
1,631




1,631

Revenues out of scope
4,982

7,756

574,880


587,618

Total operating revenues
$
199,965

14,897

584,960

11,945

$
811,767


Customer Accounts Receivable/Credit Balances and Deposits

The timing of revenue recognition, customer billings and cash collections result in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Unaudited Condensed Consolidated Balance Sheets during the three months ended December 31, 2018 are as follows:
 
Customer Accounts Receivable
Customers' Credit
(Thousands)
Billed
Unbilled
Balances and Deposits
Balance as of October 1, 2018
$
205,490

$
7,199

$
27,325

Increase
112,618

47,956

2,304

Balance as of December 31, 2018
$
318,108

$
55,155

$
29,629


The following table provides information about receivables and revenue earned on contracts in progress in excess of billings, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits, respectively, on the Unaudited Condensed Consolidated Balance Sheets as of December 31, 2018:
(Thousands)
Natural Gas Distribution
Clean Energy Ventures
Energy Services
Home Services
and Other
Eliminations
Total
Customer accounts receivable
 
 
 
 
 
 
Billed
$
73,748

3,574

239,542

2,996

(1,752
)
$
318,108

Unbilled
55,155





55,155

Customers' credit balances and deposits
(29,627
)


(2
)

(29,629
)
Total
$
99,276

3,574

239,542

2,994

(1,752
)
$
343,634


16

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


4. REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility capital investments based on the BPU's approval. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations.

NJNG's recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to make annual filings to the BPU for review of its BGSS, CIP and various other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. All rate and program changes are subject to proper notification and BPU review and approval. In addition, NJNG is also permitted to implement certain BGSS rate changes on an interim basis with proper notification to the BPU.

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:
(Thousands)
December 31,
2018
September 30,
2018
Regulatory assets-current
 
 
New Jersey Clean Energy Program
$
12,359

$
14,052

Underrecovered gas costs
6,149

4,137

Derivatives at fair value, net
1

108

Total current regulatory assets
$
18,509

$
18,297

Regulatory assets-noncurrent
 
 
Environmental remediation costs
 
 
Expended, net of recoveries
$
32,764

$
33,017

Liability for future expenditures
129,556

130,800

Deferred income taxes
17,842

17,225

SAVEGREEN
5,888

8,636

Postemployment and other benefit costs
138,027

136,716

Deferred storm damage costs
10,315

10,858

Cost of removal
26,587

22,339

Other noncurrent regulatory assets
9,045

9,001

Total noncurrent regulatory assets
$
370,024

$
368,592

Regulatory liabilities-current
 
 
Conservation Incentive Program
$
7,861

$
6,994

Derivatives at fair value, net
4,961

1,191

Total current regulatory liabilities
$
12,822

$
8,185

Regulatory liabilities-noncurrent
 
 
Tax Act impact (1)
$
204,161

$
205,410

New Jersey Clean Energy Program
4,722

1,902

Other noncurrent regulatory liabilities
1,697

1,827

Total noncurrent regulatory liabilities
$
210,580

$
209,139

(1)
Reflects the re-measurement and subsequent amortization of NJNG's net deferred tax liabilities as a result of the change in federal tax rates enacted in the Tax Act.

Regulatory filings and/or actions that occurred during the current fiscal year include the following:

On December 18, 2018, the BPU approved a decrease in NJNG's EE recovery rate reflecting costs incurred through December 31, 2018, which will result in an annual decrease of $8.8 million, effective January 1, 2019.

On December 28, 2018, NJNG notified the BPU that it will increase the BGSS rate resulting in a $10.9 million increase to the annual revenues credited to BGSS effective February 1, 2019.

17

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


5. DERIVATIVE INSTRUMENTS

The Company is subject primarily to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company is exposed to foreign currency and interest rate risk, the Company may utilize foreign currency derivatives to hedge Canadian dollar denominated gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations in interest rates. All of these types of contracts are accounted for as derivatives. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. For a more detailed discussion of the Company's fair value measurement policies and level disclosures associated with NJR's derivative instruments, see Note 6. Fair Value.

Energy Services

Energy Services chooses not to designate its financial commodity and physical forward commodity derivatives as accounting hedges or to elect NPNS. The changes in the fair value of these derivatives are recorded as a component of gas purchases or operating revenues, as appropriate for Energy Services, on the Unaudited Condensed Consolidated Statements of Operations as unrealized gains or losses. For Energy Services at settlement, realized gains and losses on all financial derivative instruments are recognized as a component of gas purchases and realized gains and losses on all physical derivatives follow the presentation of the related unrealized gains and losses as a component of either gas purchases or operating revenues.

Energy Services also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of Canadian currency relative to the U.S. dollar. Energy Services may utilize foreign currency derivatives to lock in the exchange rate associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures, or swaps and are accounted for as derivatives. These derivatives are typically used to hedge demand fee payments on pipeline capacity, storage and gas purchase agreements.

As a result of Energy Services entering into transactions to borrow natural gas, commonly referred to as “park and loans,” an embedded derivative is recognized relating to differences between the fair value of the amount borrowed and the fair value of the amount that will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location over the contract term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed gas is expected to occur, and is considered a derivative transaction that is recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets, with changes in value recognized in current period earnings.

Expected production of SRECs is hedged through the use of forward and futures contracts. All contracts require the Company to physically deliver SRECs through the transfer of certificates as per contractual settlement schedules. For transactions occurring on or before December 31, 2015, the Company elected NPNS accounting treatment on SREC forward and futures contracts. Effective January 1, 2016, on a prospective basis, Energy Services no longer elects NPNS accounting treatment on SREC contracts entered into from January 1, 2016, and recognizes changes in the fair value of these derivatives as a component of operating revenues. Upon settlement of the contract, the related revenue is recognized when the SREC is transferred to the counterparty. NPNS is a contract-by-contract election and, where appropriate, the Company can and may elect normal accounting for certain contracts.

Natural Gas Distribution

Changes in fair value of NJNG's financial commodity derivatives are recorded as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets. The Company elects NPNS accounting treatment on all physical commodity contracts that NJNG entered into on or before December 31, 2015, and accounts for these contracts on an accrual basis. Accordingly, physical natural gas purchases are recognized in regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets when the contract settles and the natural gas is delivered. The average cost of natural gas is charged to expense in the current period earnings based on the BGSS factor times the therm sales. Effective for contracts executed on or after January 1, 2016, NJNG no longer elects NPNS accounting treatment on all physical forward commodity contracts. However, since NPNS is a contract-by-contract election, where it makes sense to do so, NJNG can and may elect certain contracts to be normal. Because NJNG recovers these amounts through future BGSS rates as increases or decreases to the cost of natural gas in NJNG’s tariff for gas service, the changes in fair value of these contracts are deferred as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets.


18

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


In June 2015, NJNG entered into a treasury lock transaction to fix a benchmark treasury rate of 3.26 percent associated with a $125 million debt issuance that was finalized in May 2018. This debt issuance coincided with the maturity of NJNG's $125 million, 5.6 percent notes that came due May 15, 2018. This treasury lock was settled on March 13, 2018, which coincided with the pricing of the new debt being issued. Settlement of the treasury lock resulted in a $2.6 million loss, which is recorded as a component of regulatory assets on the Unaudited Condensed Consolidated Balance Sheets and will be amortized in earnings over the term of the $125 million, 4.01 percent notes that were issued on May 11, 2018.

Clean Energy Ventures

The Company elects NPNS accounting treatment on PPA contracts that Clean Energy Ventures enters into that meet the definition of a derivative and accounts for the contract on an accrual basis. Accordingly, electricity sales are recognized in revenues throughout the term of the PPA as electricity is delivered. NPNS is a contract-by-contract election and where it makes sense to do so, the Company can and may elect certain contracts to be normal.

Home Services and Other

In January 2018, NJR entered into a variable-for-fixed interest rate swap on its existing $100 million variable rate term loan, which fixed the variable rate at 2.84 percent. The swap will terminate on August 16, 2019, which coincides with the maturity of the debt. The change in the fair value of the interest rate swap is recorded as a component of interest expense on the Unaudited Condensed Consolidated Statements of Operations.

Fair Value of Derivatives

The following table reflects the fair value of NJR's derivative assets and liabilities recognized on the Unaudited Condensed Consolidated Balance Sheets as of:
 
 
 
Fair Value
 
 
December 31, 2018
 
September 30, 2018
(Thousands)
Balance Sheet Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Natural Gas Distribution:
 
 
 
 
 
 
 
 
 
Physical commodity contracts
Derivatives - current
 
$
1,555

 
$
325

 
$
85

 
$
192

Financial commodity contracts
Derivatives - current
 
3,529

 
2,335

 
94

 

Energy Services:
 
 
 
 
 
 
 
 
 
Physical commodity contracts
Derivatives - current
 
10,626

 
26,976

 
7,667

 
18,158

 
Derivatives - noncurrent
 
1,255

 
19,947

 
3,930

 
11,316

Financial commodity contracts
Derivatives - current
 
39,409

 
35,219

 
19,169

 
28,176

 
Derivatives - noncurrent
 
4,830

 
16,618

 
6,630

 
11,548

Foreign currency contracts
Derivatives - current
 

 
259

 

 
126

 
Derivatives - noncurrent
 

 
260

 

 
118

Home Services and Other:
 
 
 
 
 
 
 
 
 
Interest rate contracts
Derivatives - current
 
239

 

 
381

 

Total fair value of derivatives
 
 
$
61,443

 
$
101,939

 
$
37,956

 
$
69,634


Offsetting of Derivatives

The Company transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets and liabilities with the same counterparty. However, the Company’s policy is to present its derivative assets and liabilities on a gross basis at the contract level unit of account on the Unaudited Condensed Consolidated Balance Sheets.


19

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but elects not to, financial collateral, as well as the net amounts the Company could present on the Unaudited Condensed Consolidated Balance Sheets but elects not to.
(Thousands)
Amounts Presented on Balance Sheets (1)
Offsetting Derivative Instruments (2)
Financial Collateral Received/Pledged (3)
Net Amounts (4)
As of December 31, 2018:
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
Energy Services
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
11,881

 
$
(3,916
)
 
$
(200
)
 
$
7,765

Financial commodity contracts
 
44,239

 
(35,549
)
 
3,581

 
12,271

Total Energy Services
 
$
56,120

 
$
(39,465
)
 
$
3,381

 
$
20,036

Natural Gas Distribution
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
1,555

 
$

 
$

 
$
1,555

Financial commodity contracts
 
3,529

 
(2,335
)
 
(1,194
)
 

Total Natural Gas Distribution
 
$
5,084

 
$
(2,335
)
 
$
(1,194
)
 
$
1,555

Home Services and Other
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
239

 
$

 
$

 
$
239

Total Home Services and Other
 
$
239

 
$

 
$

 
$
239

Derivative liabilities:
 
 
 
 
 
 
 
 
Energy Services
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
46,923

 
$
(3,915
)
 
$

 
$
43,008

Financial commodity contracts
 
51,837

 
(35,549
)
 
(16,288
)
 

Foreign currency contracts
 
519

 

 

 
519

Total Energy Services
 
$
99,279

 
$
(39,464
)
 
$
(16,288
)
 
$
43,527

Natural Gas Distribution
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
325

 
$

 
$

 
$
325

Financial commodity contracts
 
2,335

 
(2,335
)
 

 

Total Natural Gas Distribution
 
$
2,660

 
$
(2,335
)
 
$

 
$
325

As of September 30, 2018:
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
Energy Services
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
11,597

 
$
(3,944
)
 
$
(200
)
 
$
7,453

Financial commodity contracts
 
25,799

 
(18,775
)
 

 
7,024

Total Energy Services
 
$
37,396

 
$
(22,719
)
 
$
(200
)
 
$
14,477

Natural Gas Distribution
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
85

 
$
(3
)
 
$

 
$
82

Financial commodity contracts
 
94

 

 
(94
)
 

Total Natural Gas Distribution
 
$
179

 
$
(3
)
 
$
(94
)
 
$
82

Home Services and Other
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
381

 
$

 
$

 
$
381

Total Home Services and Other
 
$
381

 
$

 
$

 
$
381

Derivative liabilities:
 
 
 
 
 
 
 
 
Energy Services
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
29,474

 
$
(3,944
)
 
$

 
$
25,530

Financial commodity contracts
 
39,724

 
(18,775
)
 
(20,949
)
 

Foreign currency contracts
 
244

 

 

 
244

Total Energy Services
 
$
69,442

 
$
(22,719
)
 
$
(20,949
)
 
$
25,774

Natural Gas Distribution
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$
192

 
$
(3
)
 
$

 
$
189

Total Natural Gas Distribution
 
$
192

 
$
(3
)
 
$

 
$
189

(1)
Derivative assets and liabilities are presented on a gross basis on the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.
(2)
Includes transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with ISDA netting.
(3)
Financial collateral includes cash balances at FCMs as well as cash received from or pledged to other counterparties.
(4)
Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.


20

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Energy Services utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical gas to be used for storage injection and its subsequent sale at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased gas are recognized prior to the gains or (losses) on the physical transaction, which are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged along with fair value changes in derivative instruments creates volatility in the results of Energy Services, although the Company's intended economic results relating to the entire transaction are unaffected.

The following table reflects the effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations as of:
(Thousands)
Location of gain (loss) recognized in income on derivatives
Amount of gain (loss) recognized
in income on derivatives
 
 
Three Months Ended
 
 
December 31,
Derivatives not designated as hedging instruments:
2018
 
2017
Energy Services:
 
 
 
 
Physical commodity contracts
Operating revenues
$
(1,532
)
 
$
1,210

Physical commodity contracts
Gas purchases
(5,432
)
 
(22,697
)
Financial commodity contracts
Gas purchases
(2,956
)
 
(25,997
)
Foreign currency contracts
Gas purchases
(346
)
 
(48
)
Home Services and Other:
 
 
 
 
Interest rate contracts
Interest expense
(123
)
 

Total unrealized and realized losses
$
(10,389
)
 
$
(47,532
)

NJNG’s derivative contracts are part of the Company's risk management activities that relate to its natural gas purchases, BGSS incentive programs and debt financing. These transactions are entered into pursuant to regulatory approval. At settlement, the resulting gains and/or losses are payable to or recoverable from utility customers and are deferred in regulatory assets or liabilities resulting in no impact to earnings. The following table reflects the (losses) gains associated with NJNG's derivative instruments as of:
 
Three Months Ended
 
December 31,
(Thousands)
2018
 
2017
Natural Gas Distribution:
 
 
 
Physical commodity contracts
$
2,977

 
$
(2,976
)
Financial commodity contracts
4,396

 
(8,808
)
Interest rate contracts

 
(4,067
)
Total unrealized and realized gains (losses)
$
7,373

 
$
(15,851
)

NJNG and Energy Services had the following outstanding long (short) derivatives as of:
 
 
 
Volume (Bcf)
 
 
 
December 31,
2018
 
September 30,
2018
Natural Gas Distribution
Futures
 
30.6

 
27.9

 
Physical
 
15.5

 
23.1

Energy Services
Futures
 
(5.9
)
 
(7.0
)
 
Physical
 
19.8

 
51.2


Not included in the previous table are Energy Services' gross notional amount of foreign currency transactions of approximately $7.3 million, NJR's interest rate swap, as previously discussed, and 748,000 SRECs at Energy Services that are open as of December 31, 2018.

Broker Margin

Futures exchanges have contract specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily marked-to-market

21

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


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:
(Thousands)
Balance Sheet Location
December 31,
2018
September 30,
2018
Natural Gas Distribution
Restricted broker margin accounts
$

$
2,038

 
Accounts payable and other
$
(757
)
$

Energy Services
Restricted broker margin accounts
$
85,784

$
51,681


Wholesale Credit Risk

NJNG, Energy Services and Clean Energy Ventures are exposed to credit risk as a result of their sales/wholesale marketing activities. As a result of the inherent volatility in the prices of natural gas commodities, derivatives, SRECs, electricity and RECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty fails to perform the obligations under its contract (e.g., failed to deliver or pay for natural gas, SRECs, electricity or RECs), then the Company could sustain a loss.

NJR monitors and manages the credit risk of its wholesale operations through credit policies and procedures that management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties' financial statements and/or credit ratings, daily monitoring of counterparties' credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to NJR's election not to extend credit or because exposure exceeds defined thresholds. Most of NJR's wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due.

Internally-rated exposure applies to counterparties that are not rated by S&P or Moody's. In these cases, the counterparty's or guarantor's financial statements are reviewed, and similar methodologies and ratios used by S&P and/or Moody's are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received.

The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of December 31, 2018. The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services and Clean Energy Ventures residential solar installations.
(Thousands)
Gross Credit Exposure
Investment grade
 
$
256,383

 
Noninvestment grade
 
51,076

 
Internally rated investment grade
 
51,914

 
Internally rated noninvestment grade
 
57,287

 
Total
 
$
416,660

 

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 all derivative instruments with credit-risk-related contingent features that were in a liability position on December 31, 2018 and September 30, 2018, was $382,000 and $124,000, 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 December 31, 2018 and September 30, 2018, the Company would have been required to post an additional $166,000 and $33,000, respectively, to its counterparties. 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

22

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.
 
6. FAIR VALUE

Fair Value of Assets and Liabilities

The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the Company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.

The estimated fair value of long-term debt at NJNG and NJR, including current maturities, excluding capital leases, debt issuance costs and solar asset financing obligations, is as follows:
(Thousands)
December 31,
2018
September 30,
2018
Carrying value (1) (2) (3)
$
1,172,045

$
1,172,045

Fair market value
$
1,163,321

$
1,158,051

(1)
Excludes capital leases of $43.3 million and $35.9 million as of December 31, 2018 and September 30, 2018, respectively.
(2)
Excludes NJNG's debt issuance costs of $6.4 million and $6.5 million as of December 31, 2018 and September 30, 2018, respectively.
(3)
Excludes NJR's debt issuance costs of $1.1 million and $1.1 million as of December 31, 2018 and September 30, 2018, respectively.

NJR utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate for the maturity of the specific issue and the Company's credit rating. As of December 31, 2018, NJR discloses its debt within Level 2 of the fair value hierarchy.

Fair Value Hierarchy

NJR applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, investments in equity securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and include the following:

Level 1
Unadjusted quoted prices for identical assets or liabilities in active markets. NJR's Level 1 assets and liabilities include exchange traded natural gas futures and options contracts, listed equities and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that NJR refers internally to as basis swaps, fixed swaps, futures and financial options that are cleared through a FCM.

Level 2
Other significant observable inputs such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. NJR's Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). NJNG's treasury lock is also considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation model. Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:

widely accepted and public;
non-proprietary and sourced from an independent third party; and
observable and published.

These additional adjustments are generally not considered to be significant to the ultimate recognized values.

Level 3
Inputs derived from a significant amount of unobservable market data. These include NJR's best estimate of fair value and are derived primarily through the use of internal valuation methodologies.


23

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
 
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
 
(Thousands)
(Level 1)
(Level 2)
(Level 3)
Total
As of December 30, 2018:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$

 
 
$
13,436

 
 
$

 
$
13,436

Financial commodity contracts
 
42,658

 
 
5,110

 
 

 
47,768

Interest rate contracts
 

 
 
239

 
 

 
239

Investments in equity securities
 
33,174

 
 

 
 

 
33,174

Other (1)
 
1,589

 
 

 
 

 
1,589

Total assets at fair value
 
$
77,421

 
 
$
18,785

 
 
$

 
$
96,206

Liabilities:
 
 
 
 
 
 
 
 
 
 
Physical commodity contracts
 
$