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Item 1A. Risk Factors

2022-11-17 compared with 2021-11-18 · 150 added, 70 removed, 190 unchanged (54% of the section changed)

RISK FACTORS (Continued)

In addition, there are risks associated with our ability to execute on our investment strategy of clean energy projects, which includes our ability to develop and manage such projects profitably, including logistical risks and potential delays related to construction, permitting, regulatory approvals (including any approvals by the BPU required pursuant to solar energy legislation in the State of New Jersey, and similar approvals required by the States of Connecticut, Rhode Island and New York) and electric grid interconnection, as well as the operational risk that the projects in service will not perform according to expectations due to equipment failure, suboptimal weather conditions or other economic factors beyond our control.

Risk Related to Our Business Operations

Our investments in solar energy projects are subject to substantial risks and uncertainties.

Our investments in commercial and residential solar energy projects are dependent, in part, upon current state regulatory incentives and federal tax credits in order for the projects to be economically viable.

Our return on investment for these solar projects is based substantially on our eligibility for ITCs and the future market value of SRECs that are traded in a competitive marketplace in the State of New Jersey.

These projects face the risk that the current state regulatory programs and tax laws may expire or be adversely modified.

A sustained decrease in the value of SRECs could negatively impact the return on our investments and could impair our portfolio of solar assets.

In addition, there are risks associated with our ability to execute on our investment strategy of clean energy projects, which includes our ability to develop and manage such projects profitably, including logistical risks and potential delays related to construction, permitting, regulatory approvals (including any approvals by the BPU required pursuant to solar energy legislation in the State of New Jersey, and similar approvals required by the States of Connecticut, Rhode Island and New York) and electric grid interconnection delays associated with the PJM Interconnection, LLC queue reform process, as well as the operational risk that the projects in service will not perform according to expectations due to equipment failure, suboptimal weather conditions or other economic factors beyond our control.

All of the aforementioned risks could reduce the availability of viable solar energy projects for development.

Furthermore, at the development or acquisition stage, our ability to predict actual performance results may be hindered or inaccurate and the projects may not perform as predicted.

We may be unable to obtain governmental approvals, property rights and/or financing for the construction, development and operation of our proposed energy investments and projects in a timely manner or at all.

Construction, development and operation of energy investments, such as Leaf River and other natural gas storage facilities, NJNG infrastructure improvements, pipeline transportation systems, such as the Adelphia Gateway pipeline project, and solar energy projects, are subject to federal and state regulatory oversight and require certain property rights, such as easements and rights-of-way from public and private property owners, as well as regulatory approvals, including environmental and other permits and licenses for such facilities and systems.

We or our joint venture partnerships may be unable to obtain, in a cost-efficient or timely manner, all such needed property rights, permits and licenses to successfully construct and develop our energy facilities and systems.

Successful financing of our energy investments requires participation by willing financial institutions and lenders, as well as acquisition of capital at favorable interest rates.

If we do not obtain the necessary regulatory approvals, property rights and financing, our equity method investments could be impaired.

Such impairment could have a materially adverse effect on our financial condition, results of operations and cash flows.

NJNG and Energy Services rely on storage, transportation assets and suppliers, which they do not own or control, to deliver natural gas.

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Factors beyond the control of NJNG, its suppliers and the independent suppliers that have obligations to provide natural gas to certain NJNG customers may affect NJNG’s ability to deliver such supplies.

These factors include other parties’ control over the drilling of new wells and the facilities to transport natural gas to NJNG’s citygate stations, development of additional interstate pipeline infrastructure, availability of supply sources, third-party pipelines or other midstream facilities interconnected to our gathering or transportation system, such as the Texas Eastern Transmission Pipeline or Transcontinental Pipeline, becoming partially or fully unavailable, competition for the acquisition of natural gas, priority allocations, impact of severe weather disruptions to natural gas supplies and the regulatory and pricing policies of federal and state regulatory agencies, as well as the availability of Canadian reserves for export to the U.S.

These factors include other parties’ control over the drilling of new wells and the facilities to transport natural gas to NJNG’s citygate stations;

development of additional interstate pipeline infrastructure;

availability of supply sources;

third-party pipelines or other midstream facilities interconnected to our gathering or transportation system, such as the TETCO or Transcontinental Pipeline, becoming partially or fully unavailable;

competition for the acquisition of natural gas;

priority allocations;

impact of severe weather disruptions to natural gas supplies;

and the regulatory and pricing policies of federal and state regulatory agencies, as well as the availability of Canadian reserves for export to the U.S.

Energy deregulation legislation may increase competition among natural gas utilities and impact the quantities of natural gas requirements needed for sales service.

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Particularly for Energy Services, these conditions could have a material impact on our financial condition, results of operations and cash flows.

New Jersey Resources Corporation

RISK FACTORS (Continued)

Energy Services’ earnings and cash flows are dependent upon optimization of its physical assets.

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Unusually mild winters or cool summers could adversely affect our results of operations and financial position.

In addition, exceptionally hot summer weather or unusually cold winter weather could add

New Jersey Resources Corporation

RISK FACTORS (Continued)

significantly to working capital needs to fund higher than normal supply purchases to meet customer demand for natural gas.

Our sensitivity to weather volatility is significant due to the absence of regulatory mechanisms, such as those authorizing revenue decoupling, lost margin recovery, and other innovative rate designs.

In addition, exceptionally hot summer weather or unusually cold winter weather could add significantly to working capital needs to fund higher than normal supply purchases to meet customer demand for natural gas.

While we believe the CIP mitigates the impact of weather variations on NJNG’s Utility Gross Margin, severe weather conditions may have an impact on the ability of suppliers and pipelines to deliver the natural gas to NJNG, which can negatively affect our earnings.

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During periods of milder temperatures, demand and volatility in the natural gas market may decrease, which can negatively impact Energy Services’ earnings and cash flows.

Severe weather impacts, including but not limited to, blizzards, thunderstorms, high winds, microbursts, fires, tornadoes and snow or ice storms can disrupt energy generation, transmission and distribution.

Extreme weather conditions, especially those of prolonged duration, create high energy demand on our own and/or other systems and increase the risk we may be unable to reliably serve customers, causing loss of gas supply.

Severe weather impacts, including but not limited to, hurricanes, thunderstorms, high winds, microbursts, fires, tornadoes, blizzards, and snow or ice storms, can disrupt energy generation, transmission and distribution.

Extreme weather conditions, especially those of prolonged duration, create high energy demand on our own and/or other systems and increase the risk we may be unable to reliably serve customers.

Risk of losing gas supply during extreme weather carries significant consequences, as without our services our customers may be subjected to dire circumstances.

Additionally, extreme weather conditions may raise market prices as we buy short-term energy to serve our own system.

Additionally, extreme weather conditions may cause the breakdown of or damage to equipment essential to the operation of our assets, and could also raise market prices as we buy short-term energy to serve our own system.

To the extent the frequency of extreme weather events increases, this could increase our cost of providing service.

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Climate change and the costs that may be associated with its impacts have the potential to affect our business in many ways, including increasing the cost incurred in providing natural gas, impacting the demand for and consumption of natural gas (due to change in both costs and weather patterns) and affecting the economic health of the regions in which we operate.

New Jersey Resources Corporation

RISK FACTORS (Continued)

Failure to attract and retain an appropriately qualified employee workforce could adversely affect operations.

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Disputes with the Union over terms and conditions of the agreements could result in instability in our labor relationship and work stoppages that could impair the timely delivery of natural gas and other services from our utility and Home Services business, which could strain relationships with customers and state regulators and cause a loss of revenues that could adversely affect our results of operations.

Our collective bargaining agreements may also increase the cost of employing our natural gas distribution segment and Home Services workforce, affect our ability to continue offering market-based salaries and employee benefits, limit our flexibility in dealing with our workforce and limit our ability to change work rules and practices and implement other efficiency-related improvements to successfully compete in today’s challenging marketplace.

Our collective bargaining agreements may also increase the cost of employing Natural Gas Distribution and Home Services workforce, affect our ability to continue offering market-based salaries and employee benefits, limit our flexibility in dealing with our workforce and limit our ability to change work rules and practices and implement other efficiency-related improvements to successfully compete in today’s challenging marketplace.

Our success as a company depends upon our ability to attract, effectively transition, motivate and retain key employees and identify and develop talent to succeed senior management.

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The failure of, or security breaches related to, these technologies could materially adversely affect our business operations, financial position, results of operations and cash flows.

New Jersey Resources Corporation

RISK FACTORS (Continued)

We rely on information technology to manage our natural gas distribution and storage, energy trading and other corporate operations;

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New technologies may require us to make significant expenditures to remain competitive and may result in the obsolescence of certain of our operating assets.

New Jersey Resources Corporation

RISK FACTORS (Continued)

Our future success will depend, in part, on our ability to anticipate and successfully adapt to technological changes and to offer services that meet customer demand.

Failure to adapt to advances in technology and manage the related costs could make us less competitive and negatively impact our financial condition, results of operations and cash flows.

Risk Related to Acquisition and Investment Strategies

Any acquisitions that we may undertake involve risks and uncertainties.

We may not realize the anticipated synergies, cost savings and growth opportunities as a result of these transactions.

The integration of acquisitions require significant time and resources.

Investments of resources are required to support any acquisition, which could result in significant ongoing operating expenses, and we may experience challenges when combining separate business cultures, information technology systems and employees, and those challenges may divert senior management’s time and attention.

If we fail to successfully integrate assets and liabilities through the entities which we acquire, we may not fully realize all of the growth opportunities, benefits expected from the transaction, cost savings and other synergies and, as a result, the fair value of assets acquired could be impaired.

We assess long-lived assets, including intangible assets associated with acquisitions, for impairment whenever events or circumstances indicate that an asset’s carrying amount may not be recoverable.

To the extent the value of long-lived assets become impaired, the impairment charges could have a material impact on our financial condition and results of operations.

The benefits that we expect to achieve from acquisitions will depend, in part, on our ability to realize anticipated growth opportunities and other synergies with our existing businesses.

The success of these transactions will depend on our ability to integrate these transactions within our existing businesses in a timely and seamless manner.

We may experience challenges when combining separate business cultures, information technology systems and employees.

Even if we are able to complete an integration successfully, we may not fully realize all the growth opportunities, cost savings and other synergies that we expect.

Investing through partnerships or joint ventures decreases our ability to manage risk.

We have utilized joint ventures through partnerships for certain Storage and Transportation investments, including Steckman Ridge and PennEast.

Although we currently have no specific plans to do so, we may acquire interests in other joint ventures or partnerships in the future.

In these joint ventures or partnerships, we may not have the right or power to direct the management and policies of the joint ventures or partnerships, and other participants or investors may take action contrary to our instructions or requests and against our policies and objectives.

In addition, the other participants may become bankrupt or have economic or other business interests or goals that are inconsistent with those of NJR and our subsidiaries and affiliates.

Our financial condition, results of operations or cash flows could be harmed if a joint venture participant acts contrary to our interests.

Risks Related to the Ongoing COVID-19 Pandemic and Other Extreme Events

The Company and our subsidiaries and affiliates are subject to risk associated with the ongoing COVID-19 pandemic, which could materially and adversely impact our business, including our financial condition, results from operations, liquidity, cash flows and the market value of our common stock.

The effects of the ongoing COVID-19 pandemic, including the rise of COVID-19 mutations and related government responses, could include, and have at times included, extended disruptions to supply chains and capital markets, reduced labor availability and productivity and a prolonged reduction in economic activity.

The potential prolonged impacts that the ongoing COVID-19 pandemic may have on our future operating results and liquidity include the following:

• impacts related to the health, safety, productivity and availability of our employees and contractors;

• reduced demand for energy and forecasted customer growth;

• our ability to develop, construct and operate facilities;

• impacts of a resurgence of infections, including the risk that a large proportion of our employees in essential capacities contract COVID-19

• suspension of collection activities and the inability to shutoff natural gas services for nonpayment;

• reduced demand for commercial, industrial and residential natural gas services;

• deterioration of the credit quality of our counterparties;

• increases in costs and supply chain delays and disruptions;

• delays and disruptions to capital construction and infrastructure operations and maintenance programs, including delays in the permitting process and base rate cases;

• delays and disruptions to financing plans and increasing costs related thereto;

• impacts on pension valuations and increased pension and post-retirement plan costs and funding requirements;

• deterioration in our financial metrics or the business environment that impacts our credit ratings;

• impacts to our liquidity position and the cost of and ability to access funds from financial institutions and capital markets;

• impacts on our legal and regulatory matters, including the potential for delayed state regulatory filings and recovery of invested capital, as well as delays in newly enacted and proposed state regulatory actions and federal laws;

• exacerbation of other risks that may impact us;

• other unpredictable events.

These uncertain economic conditions have also impacted the ability of certain customers to pay for utility and certain nonutility services, which could affect the collectability and recognition of our revenues and adversely affect our financial results.

The situation surrounding the ongoing COVID-19 pandemic remains fluid, and the likelihood of material impacts may increase the longer the pandemic impacts activity levels in the U.S.

The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict.

As of September 30, 2022, the ongoing COVID-19 pandemic has not had a material impact on the Company and our subsidiaries and affiliates;

however, the ultimate severity and duration of the COVID-19 pandemic and the responses thereto are uncertain and we cannot predict whether they will have a material impact on our liquidity, financial condition, results of operations or cash flows and when and to what extent normal economic and operating conditions can resume.

We may be adversely impacted by natural disasters, pandemic illness (including COVID-19), war or terrorist activities and other extreme events to which we may be unable to promptly respond.

Local or national natural disasters, pandemic illness (including COVID-19), actual or threatened acts of war or terrorist activities, including the political and economic disruption and uncertainty related to Russia's military invasion of Ukraine, catastrophic failure of the interstate pipeline system and other extreme events are a threat to our assets and operations.

Companies in our industry that are located in our service territory may face a heightened risk due to exposure to acts of terrorism that could target or impact our natural gas distribution, transmission and storage facilities and disrupt our operations and ability to meet customer requirements.

In addition, the threat of terrorist activities could lead to increased economic instability and volatility in the price of natural gas that could affect our operations.

Natural disasters, political unrest or actual or

New Jersey Resources Corporation

RISK FACTORS (Continued)

threatened terrorist activities may also disrupt capital markets and our ability to raise capital or may impact our suppliers or our customers directly.

A local disaster or pandemic illness (including COVID-19) could result in part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business.

In addition, these risks could result in loss of human life, significant damage to property, environmental damage, impairment of our operations and substantial loss to the Company.

Our regulators may not allow us to recover from our customers part or all of the increased cost related to the foregoing events, which could negatively affect our financial condition, results of operations and cash flows.

A slow or inadequate response to events that could cause business interruption may have an adverse impact on operations and earnings.

We may be unable to obtain sufficient insurance to cover all risks associated with local and national disasters, pandemic illness, terrorist activities, catastrophic failure of the interstate pipeline system and other events, which could increase the risk that an event adversely affects our financial condition, results of operations and cash flows.

Risk Related to Regulations and Litigation

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In addition, changes in and compliance with laws such as the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011 could increase federal regulatory oversight and administrative costs that may not be recovered in rates from customers, which could have an adverse effect on our earnings.

We cannot predict the impact of any future revisions or changes in interpretations of existing regulations or the adoption of new laws and applicable regulations, including the Infrastructure Investment and Jobs Act signed into law on November 15, 2021.

We are evaluating the impacts of the Infrastructure Investment and Jobs Act, which seeks to provide significant public investment in transportation, broadband, and public works projects, may have on our operations, as well as our financial condition, results from operations and cash flows.

We cannot predict the impact of any future revisions or changes in interpretations of existing regulations or the adoption of new laws and applicable regulations.

Changes in regulations or the imposition of additional regulations could influence our operating environment and may result in substantial costs to us.

Our costs of compliance with present and future environmental laws are significant and could adversely affect our cash flows and profitability.

Our operations are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, natural resources and site remediation.

Compliance with these laws and regulations may require us to expend significant financial resources to, among other things, conduct site remediation and perform environmental monitoring.

If we fail to comply with applicable environmental laws and regulations, even if we are unable to do so due to factors beyond our control, we may be subject to civil liabilities or criminal penalties and may be required to incur significant expenditures to come into compliance.

Additionally, any alleged violations of environmental laws and regulations may require us to expend significant resources in our defense against alleged violations.

Our operations are subject to federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, natural resources and site remediation.

Compliance with these laws and regulations may require us to expend financial resources to, among other things, conduct site remediation and perform environmental monitoring.

Additionally, any alleged violations of environmental laws and regulations may require us to expend resources in our defense against alleged violations.

Furthermore, the U.S.

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In addition, in July 2019, the State of New Jersey amended the GWRA, which targets 80 percent reduction in greenhouse gas emissions below 2006 levels economy-wide by 2050.

On January 27, 2020, Governor Murphy released the New Jersey Energy Master Plan (“EMP”) confirming his commitment to achieve 100 percent clean energy by 2050, and the GWRA mandate of reducing state greenhouse gas emissions.

In January 2020, Governor Murphy released the EMP confirming his commitment to achieve 100 percent clean energy by 2050, and the GWRA mandate of reducing state greenhouse gas emissions.

The EMP addressed New Jersey’s energy system, including electric generation, transportation and buildings, and their associated greenhouse gas emissions and related air pollutants.

The EMP defines 100 percent clean energy by 2050 as 100 percent carbon-neutral electric generation and maximum electrification of the transportation and building sectors, which are the greatest carbon emission producing sectors in the state, to meet or exceed the GWRA mandates.

The EMP defines 100 percent clean energy by 2050 to mean 100 percent carbon-neutral electric generation and maximum electrification of the transportation and building sectors, which are the greatest carbon emission producing sectors in the state, to meet or exceed the GWRA emissions reductions by 2050.

Our goals, to reduce our New Jersey operational emissions by 50 percent from 2006 levels by 2030 and to achieve net-zero carbon emissions from our New Jersey operations by 2050, may require additional technological, legislative and regulatory developments, the impacts and costs of which may not be fully known at this time.

New Jersey Resources Corporation

RISK FACTORS (Continued)

To underpin the initiatives in the EMP, Governor Murphy issued Executive Order No.

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Higher cost levels could impact the competitive position of natural gas and negatively affect our growth opportunities, cash flows and earnings.

New Jersey Resources Corporation

RISK FACTORS (Continued)

Risks related to the regulation of NJNG could affect the rates it is able to charge, its costs and its profitability.

Risks related to regulation could affect the rates we are able to charge, various costs and our profitability.

NJNG is subject to regulation by federal, state and local authorities.

These authorities regulate many aspects of NJNG’s distribution and transmission operations, including construction and maintenance of facilities, operations, safety, tariff rates that NJNG can charge customers, rates of return, the authorized cost of capital, recovery of pipeline replacement, environmental remediation costs and relationships with its affiliates.

NJNG’s ability to construct rate-based assets timely and obtain rate increases, including base rate increases, extend its BGSS incentive and CIP programs and maintain its currently authorized rates of return may be impacted by events, including regulatory or legislative actions.

NJNG’s ability to timely construct rate-based assets and obtain rate increases, including base rate increases, extend its BGSS incentive and CIP programs and maintain its currently authorized rates of return may be impacted by events, including regulatory or legislative actions.

Additionally, in fiscal 2019, NJR began the process of transitioning away from its enterprise platform, which will no longer receive extended support after 2025.

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The remaining phases of planned upgrades relate to work order and asset management and customer information systems and experience which are expected to require significant capital investment through fiscal year 2024.

There can be no assurance that NJNG will be able to obtain rate increases and continue its BGSS incentive, CIP, RAC, SAVEGREEN programs and IT upgrades and enhancements or continue to earn its currently authorized rates of return.

There can be no assurance that NJNG will be able to obtain rate increases and continue its BGSS incentive, CIP, RAC, or SAVEGREEN programs and IT upgrades and enhancements or continue to earn its currently authorized rates of return.

Adelphia is subject to regulation by FERC.

FERC regulates many aspects of Adelphia’s transmission operations, including construction and maintenance of facilities, operations, safety tariff rates that Adelphia can charge customers, rates of return, the authorized cost of capital, recovery of pipeline replacement and relations with its affiliates.

Adelphia’s ability to obtain rate increases and maintain its currently authorized rates of return may be impacted by events, including regulatory or legislative actions.

There can be no assurance that Adelphia will be able to obtain rate increases or continue to earn its currently authorized rate of return.

Our regulated operations are subject to certain operating risks incidental to handling, storing, transporting and providing customers with natural gas.

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We could suffer substantial losses should any of these events occur.

Moreover, as a result, NJNG has been, and likely will be, a defendant in legal proceedings and litigation arising in the ordinary course of business.

Although NJNG maintains insurance coverage, insurance may not be sufficient to cover all material expenses related to these risks.

Moreover, as a result, we have been, and likely will be, a defendant in legal proceedings and litigation arising in the ordinary course of business.

Although we maintain insurance coverage, insurance may not be sufficient to cover all material expenses related to these risks.

We are involved in legal or administrative proceedings before various courts and governmental bodies that could adversely affect our results of operations, cash flows and financial condition.

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Adverse decisions regarding these matters, to the extent they require us to make payments in excess of amounts provided for in our financial statements or are not covered by insurance or indemnity rights, could adversely affect our results of operations, cash flows and financial condition.