NEW JERSEY RESOURCES CORP [NJR] Filings

10-Q 1 njr-20220331.htm 10-Q njr-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

☐ 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

(732)

938‑1480

Wall

New Jersey

07719

(Registrant's telephone number,
including area code)

(Address of principal executive offices)

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock - $2.50 Par Value

NJR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes: ☒ No: ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes: ☒ No: ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes: ☐ No: ☒

The number of shares outstanding of $2.50 par value Common Stock as of May 2, 2022 was 96,152,712.

New Jersey Resources Corporation

TABLE OF CONTENTS


			Page
Glossary of Key Terms			1
Information Concerning Forward-Looking Statements			3
PART I. FINANCIAL INFORMATION
	ITEM 1.	Unaudited Condensed Consolidated Financial Statements	4
		Notes to Unaudited Condensed Consolidated Financial Statements	9
		Note 1. Nature of the Business	9
		Note 2. Summary of Significant Accounting Policies	9
		Note 3. Revenue	11
		Note 4. Regulation	16
		Note 5. Derivative Instruments	18
		Note 6. Fair Value	23
		Note 7. Investments in Equity Investees	24
		Note 8. Earnings Per Share	25
		Note 9. Debt	25
		Note 10. Employee Benefit Plans	27
		Note 11. Income Taxes	27
		Note 12. Leases	28
		Note 13. Commitments and Contingent Liabilities	30

		Note 14. Reporting Segment and Other Operations Data	32
		Note 15. Related Party Transactions	36

	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	64
	ITEM 4.	Controls and Procedures	67
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings	68
	ITEM 1A.	Risk Factors	68
	ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	68
	ITEM 6.	Exhibits	69
		Signatures	70

New Jersey Resources Corporation

GLOSSARY OF KEY TERMS


Adelphia Gateway			Adelphia Gateway, LLC
AFUDC			Allowance for Funds Used During Construction
AMA			Asset Management Agreement
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
Clean Energy Ventures			Clean Energy Ventures segment
CME			Chicago Mercantile Exchange
COVID-19			Novel coronavirus disease
CR&R			Commercial Realty & Resources Corp.
DRP			NJR Direct Stock Purchase and Dividend Reinvestment Plan
EE			Energy Efficiency
Energy Services			Energy Services segment
Exchange Act			Securities Exchange Act of 1934, as amended
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 certain operations and maintenance expense and depreciation and amortization, as well as 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
IIP			Infrastructure Investment Program
IRS			Internal Revenue Service
ISDA			The International Swaps and Derivatives Association
ITC			Federal Investment Tax Credit
Leaf River			Leaf River Energy Center LLC
MGP			Manufactured Gas Plant
MMBtu			Million British Thermal Units
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
Natural Gas Distribution			Natural Gas Distribution segment
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

New Jersey Resources Corporation


GLOSSARY OF KEY TERMS (cont.)

NJNG			New Jersey Natural Gas Company
NJNG Credit Facility			The $250 million unsecured committed credit facility expiring in September 2026
NJR Credit Facility			The $500 million unsecured committed credit facility expiring in September 2026
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
OCI			Other Comprehensive Income
O&M			Operation and Maintenance
OPEB			Other Postemployment Benefit Plans
PennEast			PennEast Pipeline Company, LLC
PPA			Power Purchase Agreement
RAC			Remediation Adjustment Clause
REC			Renewable Energy Certificate
SAFE II			Safety Acceleration and Facility Enhancement Program, Phase II
SAVEGREEN			The SAVEGREEN Project®
SBC			Societal Benefits Charge
SOFR			A rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate)
SREC			Solar Renewable Energy Certificate
Steckman Ridge			Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
Storage and Transportation			Storage and Transportation segment
TETCO			Texas Eastern Transmission
TREC			Transition Renewable Energy Certificate
Trustee			U.S. Bank National Association
U.S.			The United States of America
USF			Universal Service Fund
Utility Gross Margin			A non-GAAP financial measure, which represents operating revenues less natural gas purchases, sales tax, and regulatory rider expense, and excludes certain operations and maintenance expense and depreciation and amortization

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 1. “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 Exchange Act and the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “anticipate,” “estimate,” “may,” “could,” “might,” “intend,” “expect,” “believe,” “will” “plan,” or “should,” or comparable terminology and are made based upon management's current expectations, assumptions and beliefs as of this date concerning future developments and their potential effect on us. There can be no assurance that future developments will be in accordance with management's expectations, assumptions or beliefs, or that the effect of future developments on us will be those anticipated by management.

We caution readers that the expectations, assumptions and beliefs that form the basis for forward-looking statements regarding customer growth, customer usage, qualifications for ITCs, RECs, future rate case proceedings, financial condition, results of operations, cash flows, capital requirements, future capital expenditures, market risk, effective tax rate and other matters for fiscal 2022 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, 2021, as well as the following:

•risks related to the impact of COVID-19, including the rise of COVID-19 mutations that have resulted in increased rates of reported cases, as well as impacts on business operations, supply chain, financial performance and condition and cash flows;

•our ability to obtain governmental and regulatory approvals, land-use rights, electric grid connection (in the case of clean energy projects) and/or financing for the construction, development and operation of our unregulated energy investments, pipeline transportation systems and NJNG and Storage and Transportation infrastructure projects, including Adelphia Gateway, in a timely manner;

•risks associated with our investments in clean energy projects, including the availability of regulatory incentives and federal tax credits, the availability of viable projects, our eligibility for ITCs, the future market for RECs and electricity prices, our ability to complete construction of the projects and operational risks related to projects in service;

•risks associated with acquisitions and the related integration of acquired assets with our current operations, including the acquisition of Adelphia Gateway;

•our ability to comply with current and future regulatory requirements;

•volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG’s BGSS incentive programs, our Energy Services segment operations and our risk management efforts;

•the performance of our subsidiaries;

•access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;

•the level and rate at which NJNG’s costs and expenses are incurred and the extent to which they are approved for recovery from customers through the regulatory process, including through future base rate case filings;

•the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;

•the regulatory and pricing policies of federal and state regulatory agencies;

•operating risks incidental to handling, storing, transporting and providing customers with natural gas;

•demographic changes in our service territory and their effect on our customer growth;

•changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the Company;

•the impact of volatility in the equity and credit markets on our access to capital, including the risks, political and economic disruption and uncertainty related to Russia's recent military invasion of Ukraine, and the international community’s responses;

•our ability to comply with debt covenants;

•the results of legal or administrative proceedings with respect to claims, rates, environmental issues, natural gas cost prudence reviews and other matters;

•risks related to cyberattacks or failure of information technology systems;

•the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of potential downturns in the financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection and Affordable Care Act;

•commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale energy trading market;

•accounting effects and other risks associated with hedging activities and use of derivatives contracts;

•our ability to optimize our physical assets;

•weather and economic conditions, including those changes in weather and weather patterns that could be attributable to climate change;

•the costs of compliance with present and future environmental laws, potential climate change-related legislation or any legislation resulting from the 2019 New Jersey Energy Master Plan;

•uncertainties related to litigation, regulatory, administrative or environmental proceedings;

•changes to tax laws and regulations;

•impacts of inflation and increased natural gas costs;

•any potential need to record a valuation allowance for our deferred tax assets;

•the impact of natural disasters, terrorist activities and other extreme events on our operations and customers;

•risks related to our employee workforce and succession planning;

•risks associated with the management of our joint ventures and partnerships; and

•risks associated with keeping pace with technological change.

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

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands, except per share data)	2022		2021		2022		2021
OPERATING REVENUES
Utility	$	463,474	$	310,167	$	737,909	$	505,896
Nonutility	448,842		492,020		850,249		750,596
Total operating revenues	912,316		802,187		1,588,158		1,256,492
OPERATING EXPENSES
Natural gas purchases:
Utility	212,892		113,235		335,161		169,380
Nonutility	410,535		330,488		689,329		503,735
Related parties	1,883		1,730		3,729		3,464
Operation and maintenance	85,786		110,265		154,770		183,901
Regulatory rider expenses	30,910		18,413		47,581		29,114
Depreciation and amortization	31,435		26,848		61,828		54,210
Total operating expenses	773,441		600,979		1,292,398		943,804
OPERATING INCOME	138,875		201,208		295,760		312,688
Other income, net	4,127		5,007		8,263		9,124
Interest expense, net of capitalized interest	18,926		20,153		38,403		39,939
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES	124,076		186,062		265,620		281,873
Income tax provision	28,810		39,057		59,617		56,498
Equity in earnings of affiliates	769		2,804		1,344		5,479
NET INCOME	$	96,035	$	149,809	$	207,347	$	230,854

EARNINGS PER COMMON SHARE
Basic	$1.00		$1.56		$2.16		$2.40
Diluted	$1.00		$1.55		$2.15		$2.39
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	96,068		96,248		96,006		96,181
Diluted	96,516		96,618		96,480		96,598

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2022		2021		2022		2021
Net income	$	96,035	$	149,809	$	207,347	$	230,854
Other comprehensive income, net of tax
Reclassifications of losses to net income on derivatives designated as hedging instruments, net of tax of $(80), $(79), $(159) and $(191), respectively	263		263		527		494

Adjustment to postemployment benefit obligation, net of tax of $(232), $(244), $(465) and $(489), respectively	768		813		1,534		1,625
Other comprehensive income	$	1,031	$	1,076	$	2,061	$	2,119
Comprehensive income	$	97,066	$	150,885	$	209,408	$	232,973

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended
	March 31,
(Thousands)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	207,347	$	230,854
Adjustments to reconcile net income to cash flows from operating activities
Unrealized (gain) on derivative instruments	(40,169)		(8,235)



Depreciation and amortization	61,828		54,210
Amortization of acquired wholesale energy contracts	1,464		3,401
Allowance for equity used during construction	(6,133)		(10,603)
Allowance for doubtful accounts	1,139		10,607
Non cash lease expense	2,559		1,957
Deferred income taxes	16,912		20,909
Equivalent value of ITCs recognized on equipment financing	(727)		—
Manufactured gas plant remediation costs	(14,677)		(6,284)
Equity in earnings, net of distributions received from equity investees	968		(3,543)
Cost of removal - asset retirement obligations	(565)		(512)
Contributions to postemployment benefit plans	(2,324)		(2,018)
Taxes related to stock-based compensation	(166)		(145)
Changes in:
Components of working capital	74,290		6,846
Other noncurrent assets	4,870		18,854
Other noncurrent liabilities	23,836		39,993
Cash flows from operating activities	330,452		356,291
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for:
Utility plant	(108,434)		(152,496)
Solar equipment	(66,556)		(40,884)
Storage and Transportation and other	(109,290)		(28,518)
Cost of removal	(17,030)		(23,989)

Distribution from equity investees in excess of equity in earnings	478		871
Investments in equity investees, net of return of capital	4,000		(482)



Cash flows used in investing activities	(296,832)		(245,498)
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from long-term debt	100,000		—
Payments of long-term debt	(10,032)		(11,001)
Proceeds from term loan	150,000		—

Payments of short-term debt, net	(225,090)		(116,850)
Proceeds from sale leaseback transactions - solar	3,300		12,124
Proceeds from sale leaseback transactions	17,300		—
Payments of common stock dividends	(63,725)		(60,894)

Cash settlement of equity forward agreement	—		(388)

Proceeds from issuance of common stock - DRP	7,521		7,540

Tax withholding payments related to net settled stock compensation	(3,737)		(1,772)
Cash flows used in financing activities	(24,463)		(171,241)
Change in cash, cash equivalents and restricted cash	9,157		(60,448)
Cash, cash equivalents and restricted cash at beginning of period	6,043		119,423
Cash, cash equivalents and restricted cash at end of period	$	15,200	$	58,975
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables	$	(107,479)	$	(136,295)
Inventories	125,012		94,233
Recovery of natural gas costs	8,465		(20,279)
Natural gas purchases payable	(25,964)		33,191
Natural gas purchases payable - related parties	(6)		62
Deferred revenue	52,368		(970)
Accounts payable and other	(88,866)		(18,651)
Prepaid expenses	(5,548)		(8,170)
Prepaid and accrued taxes	75,921		59,614
Restricted broker margin accounts	53,708		7,644
Customers' credit balances and deposits	(12,302)		(5,171)
Other current assets	(1,019)		1,638
Total	$	74,290	$	6,846
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Interest (net of amounts capitalized)	$	42,754	$	40,465
Income taxes	$	1,263	$	3,733
Accrued capital expenditures	$	53,245	$	22,840

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS


	(Unaudited)
(Thousands)	March 31, 2022		September 30, 2021
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost	$	3,451,038	$	3,324,611
Construction work in progress	154,978		182,196
Nonutility plant and equipment, at cost	1,154,104		1,124,896
Construction work in progress	511,351		365,346
Total property, plant and equipment	5,271,471		4,997,049
Accumulated depreciation and amortization, utility plant	(637,491)		(611,827)
Accumulated depreciation and amortization, nonutility plant and equipment	(187,141)		(171,709)
Property, plant and equipment, net	4,446,839		4,213,513
CURRENT ASSETS
Cash and cash equivalents	13,906		4,749
Customer accounts receivable
Billed	273,313		212,838
Unbilled revenues	56,270		10,351
Allowance for doubtful accounts	(21,470)		(24,652)
Regulatory assets	33,717		30,118
Natural gas in storage, at average cost	66,300		193,606
Materials and supplies, at average cost	21,855		19,561
Prepaid expenses	13,714		8,166
Prepaid and accrued taxes	4,087		51,211
Derivatives, at fair value	21,586		35,251
Restricted broker margin accounts	49,901		72,840

Other current assets	22,857		20,235
Total current assets	556,036		634,274
NONCURRENT ASSETS
Investments in equity method investees	109,980		114,529
Regulatory assets	513,006		522,099
Operating lease assets	171,207		173,928
Derivatives, at fair value	4,140		3,403

Intangible assets, net	3,445		5,029
Software costs	5,714		5,582
Other noncurrent assets	59,637		49,921
Total noncurrent assets	867,129		874,491
Total assets	$	5,870,004	$	5,722,278

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CAPITALIZATION AND LIABILITIES


	(Unaudited)
(Thousands, except share data)	March 31, 2022		September 30, 2021
CAPITALIZATION
Common stock, $2.50 par value; authorized 150,000,000 shares; outstanding March 31, 2022 — 96,081,796; September 30, 2021 — 95,709,662	$	241,593	$	240,644
Premium on common stock	517,843		502,584
Accumulated other comprehensive loss, net of tax	(32,467)		(34,528)
Treasury stock at cost and other; shares March 31, 2022 — 769,835; September 30, 2021 — 762,313	(15,025)		(12,448)
Retained earnings	1,072,343		934,610
Common stock equity	1,784,287		1,630,862
Long-term debt	2,319,434		2,162,164
Total capitalization	4,103,721		3,793,026
CURRENT LIABILITIES
Current maturities of long-term debt	24,539		72,840
Short-term debt	302,210		377,300
Natural gas purchases payable	142,733		168,697
Natural gas purchases payable to related parties	855		861
Deferred revenue	54,113		1,745
Accounts payable and other	123,190		223,497
Dividends payable	34,830		34,768
Accrued taxes	32,153		3,356
Regulatory liabilities	88,064		28,007
New Jersey Clean Energy Program	6,608		16,308
Derivatives, at fair value	45,216		87,145
Operating lease liabilities	4,878		4,300

Restricted broker margin accounts	2,464		—
Customers' credit balances and deposits	20,284		32,586
Total current liabilities	882,137		1,051,410
NONCURRENT LIABILITIES
Deferred income taxes	181,875		163,530
Deferred investment tax credits	2,849		3,010
Deferred revenue	5,088		847
Derivatives, at fair value	19,632		13,497
Manufactured gas plant remediation	121,605		135,012
Postemployment employee benefit liability	166,887		169,267
Regulatory liabilities	191,450		193,051
Operating lease liabilities	140,036		141,363
Asset retirement obligation	46,753		46,306
Other noncurrent liabilities	7,971		11,959
Total noncurrent liabilities	884,146		877,842
Commitments and contingent liabilities (Note 13)
Total capitalization and liabilities	$	5,870,004	$	5,722,278

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY (Unaudited)


(Thousands)	Number of Shares	Common Stock		Premium on Common Stock		Accumulated Other Comprehensive (Loss) Income			Treasury Stock and Other		Retained Earnings		Total
Balance at September 30, 2021	95,710	$	240,644	$	502,584		$	(34,528)	$	(12,448)	$	934,610	$	1,630,862
Net income	—	—		—			—		—		111,312		111,312
Other comprehensive income	—	—		—			1,030		—		—		1,030
Common stock issued:

Incentive compensation plan	147