What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-11-17 compared with 2021-11-18 · 46 added, 909 removed, 369 unchanged (72% of the section changed)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

Foreign Currency Market Risks

The following table reflects the changes in the fair market value of financial derivatives related to foreign currency hedges:

Balance Increase Less Balance

(Thousands) September 30,

2020 (Decrease) in Fair

Market Value Amounts

Settled September 30, 2021

Energy Services $ (23) 239 92 $ 124

There were no changes in methods of valuations during the fiscal year ended September 30, 2021.

The following is a summary of fair market value of financial derivatives related to foreign currency hedges as of September 30, 2021, by method of valuation and by maturity for each fiscal year period:

(Thousands) 2022 2023 2024 - 2026 After 2026 Total

Prices based on other external data $ 122 2 — — $ 124

Our market price risk is predominately linked with changes in the price of natural gas at the Henry Hub, the delivery point for the NYMEX natural gas futures contracts.

10 unchanged sentences

Wholesale Credit Risk

Natural Gas Distribution and Energy Services engage in wholesale marketing activities and Clean Energy Ventures engages in SREC sales.

We monitor and manage the credit risk of our operations through credit policies and procedures that management believes reduce overall credit risk.

These policies include a review and evaluation of prospective counterparties’ financial statements and/or credit ratings, daily monitoring of counterparties’ credit limits, daily communication with traders regarding credit status and the use of credit mitigation measures, such as minimum margin requirements, collateral requirements and netting agreements.

Examples of collateral include letters of credit and cash received for either prepayment or margin deposit.

Our Risk Management Committee continuously monitors our credit risk management policies and procedures and is composed of individuals from NJR-affiliated companies.

The Risk Management Committee meets at least once a month and, among other things, evaluates the effectiveness of existing credit policies and procedures, reviews material transactions and discusses emerging issues.

The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade counterparties, as of September 30, 2022.

Gross credit exposure for Energy Services is defined as the unrealized fair value of derivative and energy trading contracts, plus any outstanding wholesale receivable for the value of natural gas or power delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received.

Gross credit exposure for Storage and Transportation is defined as demand and estimated usage fees for contracted services and/or

New Jersey Resources Corporation

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

market value of loan balances for which payment has not yet been received.

Gross credit exposure for Storage and Transportation is defined as demand and estimated usage fees for contracted services and/or market value of loan balances for which payment has not yet been received.

Net credit exposure is defined as gross credit exposure reduced by collateral received from counterparties and/or payables, where netting agreements exist.

18 unchanged sentences

Any such loss could have a material impact on our financial condition, results of operations or cash flows.

New Jersey Resources Corporation

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

Effects of Interest Rate and Foreign Currency Rate Fluctuations

1 unchanged sentence

We do not believe an immediate 10 percent increase or decrease in interest rates or foreign currency rates would have a material effect on our operating results or cash flows.

For more information regarding the interest rate risk related to our short-term debt, please see the Liquidity and Capital Resources - Debt section of Item 7.

Information regarding NJR’s interest rate risk can be found in the Liquidity and Capital Resources - Debt section of Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Effects of Inflation

Although inflation rates have been relatively low to moderate in recent years, including the three most recent fiscal years, any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of our utility subsidiary.

Any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of our utility subsidiary.

The Company’s operations are sensitive to increases in the rate of inflation because of its operational and capital spending requirements in both its regulated and non-regulated businesses.

We attempt to minimize the effects of inflation through cost control, productivity improvements and regulatory actions, when appropriate.

Risk Factors for additional information related to the impact of recent increases in inflation rates.

New Jersey Resources Corporation

22 unchanged sentences

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 17, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Investment Tax Credit (“ITC”) Accounting Policy

As discussed in Note 2 to the financial statements, the Company has elected to change its method of accounting for ITCs at Clean Energy Ventures from the flow through method to the deferral method during the year ended September 30, 2021.

The change in accounting principle has been retrospectively applied to the consolidated financial statements for the years ended September 30, 2020 and 2019.

Basis for Opinion

12 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Regulation — Impact of Rate-Regulation on Various Account Balances and Disclosures — Refer to Notes 2 and 4 to the financial statements

3 unchanged sentences

Management has determined NJNG meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements in accordance with the ASC 980, Regulated Operations.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NJNG is subject to cost-based regulation;

8 unchanged sentences

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty around the impact of regulatory orders on the financial statements, including the probability of recovery in rates of incurred costs and a refund to customers included the following, among others:

Our audit procedures related to the uncertainty around the impact of regulatory orders on the financial statements, including the probability of both recovery in rates of incurred costs, and refunds to customers, included the following, among others:

• We tested the effectiveness of controls over the relevant regulatory account balances and disclosures, including management’s controls over the monitoring and evaluation of regulatory developments that may affect the probability of recovering costs in future rates or of a future reduction in rates.

1 unchanged sentence

We evaluated the external information and compared that to management’s assertions regarding the probability of recovery or refund of regulatory asset and liability balances for completeness.

• We obtained an analysis from management regarding the probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities in order to assess management’s assertion that amounts are probable of recovery or refund or a future reduction in rates.

• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.

• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances

/s/ Deloitte & Touche LLP

Parsippany, New Jersey

Morristown, New Jersey

November 17, 2022

25 unchanged sentences

/s/ Deloitte & Touche LLP

Parsippany, New Jersey

Morristown, New Jersey

November 17, 2022

22 unchanged sentences

Income tax provision 76,195 33,286 36,494

Equity in (loss) earnings of affiliates ( 83,212 ) 14,311 13,628

Equity in earnings (loss) of affiliates 8,177 ( 83,212 ) 14,311

NET INCOME $ 274,922 $ 117,890 $ 163,007

5 unchanged sentences

Diluted 96,488 96,560 95,103

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Fiscal years ended September 30, 2022 2021 2020

2 unchanged sentences

Reclassifications of losses to net income on derivatives designated as hedging instruments, net of tax of $( 317 ), $( 350 ) and $( 32 ), respectively

1,054 1,021 108

Loss on derivatives designated as hedging instruments, net of tax of $ 0 , $ 0 and $ 3,203 , respectively

12 unchanged sentences

Adjustments to reconcile net income to cash flows from operating activities

Unrealized loss (gain) on derivative instruments 54,203 ( 9,644 ) 2,881

Gain on sale of available for sale securities — — ( 1,567 )

Gain on sale of businesses — — ( 645 )

Impairment loss on investment in equity method investees 92,000 — —

Unrealized (gain) loss on derivative instruments ( 59,906 ) 54,203 ( 9,644 )

Impairment of equity method investment — 92,000 —

Depreciation and amortization 129,249 111,387 107,368

2 unchanged sentences

Allowance for doubtful accounts 2,401 18,986 2,238

Noncash lease expense 3,920 3,851 —

Non-cash lease expense 4,850 3,920 3,851

Deferred income taxes 81,659 23,796 34,346

12 unchanged sentences

Utility plant ( 259,081 ) ( 376,312 ) ( 290,040 )

Solar and wind equipment ( 87,852 ) ( 133,841 ) ( 157,828 )

Storage and transportation assets and other ( 110,130 ) ( 24,228 ) ( 23,100 )

Solar equipment ( 146,676 ) ( 87,852 ) ( 133,841 )

Storage and Transportation and other ( 153,378 ) ( 110,130 ) ( 24,228 )

Cost of removal ( 39,293 ) ( 50,316 ) ( 22,059 )

1 unchanged sentence

— — ( 523,647 )

Distributions from equity investees in excess of equity in earnings 3,183 1,907 2,428

Investments in equity investees ( 690 ) ( 2,117 ) ( 4,102 )

Proceeds from sale of available for sale securities, net — — 34,484

Proceeds from sale of businesses, net of closing costs — — 205,745

Distribution from equity investees in excess of equity in earnings 2,336 3,183 1,907

Investments in equity investees, net of return of capital 5,479 ( 690 ) ( 2,117 )

Cash flows used in investing activities ( 590,613 ) ( 622,117 ) ( 994,025 )

4 unchanged sentences

Payments of term loan — — ( 350,000 )

Proceeds from (payments of) short-term debt, net 251,950 99,900 ( 126,500 )

Proceeds from sale leaseback transaction - solar 17,673 42,927 —

Proceeds from sale leaseback transaction - natural gas meters — 4,000 9,895

(Payments of) proceeds from short-term debt, net ( 103,350 ) 251,950 99,900

Proceeds from sale leaseback transactions - solar 24,071 17,673 42,927

Proceeds from sale leaseback transactions - natural gas meters 17,300 — 4,000

Payments of common stock dividends ( 127,704 ) ( 116,960 ) ( 117,804 )

1 unchanged sentence

Cash settlement of equity forward agreement — ( 2,823 ) —

Proceeds from waiver discount issuance of common stock — — 57,391

Proceeds from issuance of common stock 15,105 18,080 16,717

Proceeds from issuance of common stock - DRP 14,745 15,105 18,080

Purchases of treasury stock — ( 27,217 ) —

10 unchanged sentences

Natural gas purchases payable - related parties ( 10 ) 70 1

Deferred revenue 33,802 ( 1,763 ) 1,922

Accounts payable and other ( 34,259 ) 31,826 18,468

3 unchanged sentences

Customers’ credit balances and deposits 660 6,652 ( 1,182 )

Other current assets, net ( 2,573 ) 656 3,184

Other current assets (liabilities) 5,277 ( 2,573 ) 656

Total $ ( 77,687 ) $ 10,254 $ ( 8,096 )

SUPPLEMENTAL DISCLOSURES

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

Cash paid for:

32 unchanged sentences

NONCURRENT ASSETS

Investments in equity investees 114,529 208,375

Investments in equity method investees 106,571 114,529

Regulatory assets 500,666 522,099

1 unchanged sentence

Derivatives, at fair value 6,385 3,403

Intangible assets 5,029 10,060

Intangible assets, net 2,348 5,029

Software costs 6,120 5,582

29 unchanged sentences

Natural gas purchases payable to related parties 851 861

Deferred revenue 35,547 1,745

Accounts payable and other 156,580 223,497

10 unchanged sentences

Deferred investment tax credits 2,710 3,010

Deferred gain 847 1,035

Deferred revenue 753 847

Derivatives, at fair value 14,191 13,497

17 unchanged sentences

Common stock issued:

Common stock offering 5,333 13,333 199,567 — — — 212,900

Incentive compensation plan 105 261 3,511 — — — 3,772

1 unchanged sentence

520 — 2,833 — 15,324 — 18,157

Waiver discount 1,181 — 10,531 — 46,860 — 57,391

Cash dividend declared ($ 1.27 per share)

1 unchanged sentence

Treasury stock and other ( 8 ) — ( 5,260 ) — 3,597 — ( 1,663 )

Adoption of ASU 2016-01 — — — ( 3,446 ) — 3,446 —

Adoption of ASU 2017-05 — — — — — 4,970 4,970

Adoption of ASU 2014-09/ASC 606 — — — — — ( 2,736 ) ( 2,736 )

Balance at September 30, 2020 95,949 240,243 491,982 ( 44,315 ) 8,485 947,501 1,643,896

Net income — — — — — 117,890 117,890

Other comprehensive loss — — — ( 12,528 ) — — ( 12,528 )

Other comprehensive income — — — 9,787 — — 9,787

Common stock issued:

10 unchanged sentences

Common stock issued:

Common stock offering — — ( 2,823 ) — — — ( 2,823 )

Incentive compensation plan 193 481 8,665 — — — 9,146

5 unchanged sentences

Balance at September 30, 2022 96,250 $ 241,616 $ 519,697 $ ( 4,826 ) $ ( 6,805 ) $ 1,067,528 $ 1,817,210

(1) Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.

(1) Certain shares sold through the DRP issued from treasury stock are at average cost, which may differ from the actual market price paid.

See Notes to Consolidated Financial Statements

2 unchanged sentences

NATURE OF THE BUSINESS

NJR provides regulated natural gas distribution services, transmission and storage services and operates certain unregulated businesses primarily through the following:

The Company provides regulated natural gas distribution services, transmission and storage services and operates certain unregulated businesses primarily through the following:

NJNG provides natural gas utility service to approximately 569,300 customers throughout Burlington, Middlesex, Monmouth, Morris, Ocean and Sussex counties in New Jersey and is subject to rate regulation by the BPU.

NJNG comprises the Natural Gas Distribution segment.

NJRCEV, 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 in New Jersey and Connecticut.

NJRCEV, the Company’s clean energy subsidiary, comprises the Clean Energy Ventures segment and invests in, owns and operates clean energy projects, including commercial and residential solar installations located in New Jersey, Connecticut, Rhode Island and New York.

NJRES comprises the Energy Services segment.

1 unchanged sentence

NJR Midstream Holdings Corporation, which comprises the Storage and Transportation segment, invests in energy-related ventures through its subsidiaries.

The Company operates natural gas storage and transmission assets through the wholly-owned subsidiaries of Leaf River, which was acquired on October 11, 2019 and Adelphia Gateway, which was acquired on January 13, 2020, and is subject to rate regulation by FERC.

The Company holds a 50 percent combined ownership interest in Steckman Ridge, located in Pennsylvania and 20 percent ownership interest in PennEast, which are accounted for under the equity method of accounting.

NJR Retail Holdings Corporation has two principal subsidiaries:

The Company operates natural gas storage and transmission assets through the wholly-owned subsidiaries of Leaf River and Adelphia Gateway and is subject to rate regulation by FERC.

The Company holds a 50 percent combined ownership interest in Steckman Ridge, located in Pennsylvania, and a 20 percent ownership interest in PennEast, which are accounted for under the equity method of accounting.

NJR Retail Holdings Corporation has one principal subsidiary:

NJRHS, which provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey.

and CR&R, which owns commercial real estate.

NJRHS and CR&R are included in Home Services and Other operations.

NJRHS is included in Home Services and Other operations.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4 unchanged sentences

Based on those evaluations, NJR has determined that it does not have any investments in variable interest entities as of September 30, 2022, 2021 and 2020.

Investments in entities over which the Company does not have a controlling financial interest are either accounted for under the equity method or cost method of accounting.

Investments in entities over which the Company does not have a controlling financial interest are accounted for either under the equity method or cost method of accounting.

Use of Estimates

1 unchanged sentence

On a quarterly basis, or more frequently whenever events or changes in circumstances indicate a need, the Company evaluates its estimates, including those related to the calculation of the fair value of derivative instruments, debt, equity method investments, unbilled revenues, allowance for doubtful accounts, provisions for depreciation and amortization, long-lived assets, regulatory assets and liabilities, income taxes, pensions and other postemployment benefits, contingencies related to environmental matters and litigation.

ARO are evaluated as often as needed.

ARO are evaluated periodically as required.

The Company’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

The Company has legal, regulatory and environmental proceedings during the normal course of business that can result in loss contingencies.

When evaluating the potential for a loss, the Company will establish a reserve if a loss is probable and can be reasonably estimated, in which case it is the Company’s policy to accrue the full amount of such estimates.

Where the information is sufficient only to establish a range of probable liability, and no point within the range is more likely than any other, it is the Company’s policy to accrue the lower end of the range.

In the normal course of business, estimated amounts are subsequently adjusted to actual results that may differ from estimates.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention and has spread globally, including throughout the U.S.

The Company’s Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting periods presented.

The Company considered the impacts of COVID-19 on the assumptions and estimates used and determined that there have been no material adverse impacts on the Company’s results of operations as of September 30, 2021.

The Company follows the guidance in ASC 805, Business Combinations, for determining the appropriate accounting treatment for acquisitions.

2017-01, Clarifying the Definition of a Business , provides an initial fair value screen to determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets.

If the initial screening test is not met, the set is considered a business based on whether there are inputs and substantive processes in place.

Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or an asset acquisition, the accounting treatment is derived.

If the acquisition is deemed to be a business, the acquisition method of accounting is applied.

Identifiable assets acquired and liabilities assumed at the acquisition date are recorded at fair value.

If the transaction is deemed to be an asset purchase, the cost accumulation and allocation model is used whereby the assets and liabilities are recorded based on the purchase price and allocated to the individual assets and liabilities based on relative fair values.

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment.

The most significant variables in these valuations are discount rates and the number of years on which to base the cash flow projections, as well as other assumptions and estimates used to determine the cash inflows and outflows.

Management determines discount rates based on the risk inherent in the acquired assets, specific risks, industry data and capital structure of guideline companies.

The valuation of an acquired business is based on available information at the acquisition date and assumptions that are believed to be reasonable.

However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date.

Revenues from the sale of natural gas to NJNG customers are recognized in the period that natural gas is delivered and consumed by customers, including an estimate for unbilled revenue.

NJNG records unbilled revenue for natural gas services.

Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the month.

At the end of each month, the amount of natural gas delivered to each customer after the last meter reading through the end of the respective accounting period is estimated, and recognizes unbilled revenues related to these amounts.

The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects, unaccounted-for natural gas and the most current tariff rates.

Clean Energy Ventures recognizes revenue when SRECs are transferred to counterparties.

SRECs are physically delivered through the transfer of certificates as per contractual settlement schedules.

The Clean Energy Act of 2018 established guidelines for the closure of the SREC registration program to new applicants in New Jersey.

The SREC program officially closed to new qualified solar projects on April 30, 2020.

In December 2019, the BPU established the TREC as the successor to the SREC program.

TRECs provide a fixed compensation base multiplied by an assigned project factor in order to determine their value.

The project factor is determined by the type and location of the project, as defined.

All TRECs generated are required to be purchased monthly by a TREC program administrator as appointed by the BPU.

In June 2020, Clean Energy Ventures began generating TRECs for qualified new residential and commercial solar projects placed into service following the close of the SREC program.

TREC revenue is recognized when TRECs are generated and are transferred monthly based upon metered solar electricity activity.

Revenues for Energy Services are recognized when the natural gas is physically delivered to the customer.

In addition, changes in the fair value of derivatives that economically hedge the forecasted sales of the natural gas are recognized in operating revenues as they occur, as noted above.

Energy Services also recognizes changes in the fair value of SREC derivative contracts as a component of operating revenues.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

The Storage and Transportation segment generates revenues from firm storage contracts and transportation contracts, related usage fees and hub services for the use of storage space, injections and withdrawals from their natural gas storage facility and the delivery of natural gas to customers.

Demand fees are recognized as revenue over the term of the related agreement while usage fees and hub services revenues are recognized as services are performed.

Revenues from all other activities are recorded in the period during which products or services are delivered and accepted by customers, or over the related contractual term.

Revenue for further information.

As a result of the adoption of ASC 606, Revenue from Contracts with Customers , as of October 1, 2018, the Company excludes from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax on a net basis in operating revenues on the Consolidated Statements of Operations.

Natural Gas Purchases

NJNG’s tariff includes a component for BGSS, which is designed to allow it to recover the cost of natural gas through rates charged to its customers and is typically revised on an annual basis.

As part of computing its BGSS rate, NJNG projects its cost of natural gas, net of supplier refunds, the impact of hedging activities and cost savings created by BGSS incentive programs.

NJNG subsequently recovers or credits the difference, if any, of actual costs compared with those included in current rates.

Any underrecoveries or overrecoveries are either credited to customers or deferred and, subject to BPU approval, reflected in the BGSS rates in subsequent years.

Natural gas purchases at Energy Services are composed of natural gas costs to be paid upon completion of a variety of transactions, as well as realized gains and losses from settled derivative instruments and unrealized gains and losses on the change in fair value of derivative instruments that have not yet settled.

Changes in the fair value of derivatives that economically hedge the forecasted purchases of natural gas are recognized in natural gas purchases as they occur.

For the purpose of securing storage and pipeline capacity in support of their respective businesses, the Energy Services and Natural Gas Distribution segments enter into storage and pipeline capacity contracts, which require the payment of associated demand fees and charges that allow them access to a high priority of service in order to maintain the ability to access storage or pipeline capacity during a fixed time period, which generally ranges from one to 10 years.

Many of these demand fees and charges are based on established tariff rates as established and regulated by FERC.

These charges represent commitments to pay storage providers and pipeline companies for the priority right to transport and/or store natural gas utilizing their respective assets.

The following table summarizes the demand charges, which are net of capacity releases, and are included as a component of natural gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30:

(Millions) 2021 2020 2019

Energy Services $ 120.5 $ 121.8 $ 120.4

Natural Gas Distribution 123.2 131.9 119.1

Total $ 243.7 $ 253.7 $ 239.5

Energy Services expenses demand charges over the term of the service being provided.

The Natural Gas Distribution segment’s costs associated with demand charges are included in its weighted average cost of natural gas.

The demand charges are expensed based on NJNG’s BGSS sales and recovered as part of its natural gas commodity component of its BGSS tariff.

Operations and Maintenance Expenses

Operations and maintenance expenses include operations and maintenance salaries and benefits, materials and supplies, usage of vehicles, tools and equipment, payments to contractors, utility plant maintenance, amortization of software costs for unregulated entities, customer service, professional fees and other outside services, insurance expense, accretion of cost of removal for future retirements of utility assets and other administrative expenses and are expensed as incurred.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Stock-Based Compensation

Stock-based compensation represents costs related to stock-based awards granted to employees and members of NJR’s Board of Directors.

NJR recognizes stock-based compensation based upon the estimated fair value of awards.

The recognition period for these costs begins at either the applicable service inception date or grant date and continues throughout the requisite service period.

The related compensation cost is recognized as O&M expense on the Consolidated Statements of Operations.

Stock-Based Compensation for further information.

The Company computes income taxes using the asset and liability method, whereby deferred income taxes are generally determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

Income Taxes.

In addition, the Company evaluates its tax positions to determine the appropriate accounting and recognition of future obligations associated with unrecognized tax benefits.

To the extent that NJNG invests in property that qualifies for ITCs, the ITC is deferred and amortized to income over the life of the equipment in accordance with regulatory treatment.

ITCs at the unregulated subsidiaries of NJR are recorded on the balance sheet as a reduction to property, plant and equipment when the property is placed in service, and recognized in earnings as depreciation expense, over the useful lives of the related assets.

Projects placed in service through December 31, 2019, qualified for a 30-percent federal ITC.

The TC declined to 26 percent for property under construction before the end of 2020.

The Consolidated Appropriations Act, 2021 extended the 26 percent ITC for property under construction during 2021 and 2022.

The ITC will drop to 22 percent for property under construction before the end of 2023.

After 2023 the ITC will be reduced to 10 percent.

Investments in Equity Investees

The Company accounts for its investments in Steckman Ridge and PennEast using the equity method of accounting where it is not the primary beneficiary, as defined under ASC 810, Consolidation, its respective ownership interests are 50 percent or less and/or it has significant influence over operating and management decisions.

The Company’s share of earnings is recognized as equity in earnings of affiliates on the Consolidated Statements of Operations.

Equity method investments are reviewed for impairment when changes in facts and circumstances indicate that the current fair value may be less than the asset’s carrying amount.

If the Company determines the decline in the value of its equity method investment is other than temporary, an impairment charge is recorded in an amount equal to the excess of the carrying value of the asset over its fair value.

Investments in Equity Investees for more information regarding impairments.

Property Plant and Equipment

Property, plant and equipment is stated at original cost.

Costs include direct labor, materials and third-party construction contractor costs, capitalized interest and certain indirect costs related to equipment and employees engaged in construction.

Utility plant and nonutility plant for Adelphia Gateway also includes AFUDC.

Upon retirement, the cost of depreciable property, plus removal costs less salvage, is charged to accumulated depreciation with no gain or loss recorded.

Depreciation is computed on a straight-line basis over the useful life of the assets for the Company’s nonutility entities, and using rates based on the estimated average lives of the various classes of depreciable property for NJNG.

The composite rate of depreciation used for NJNG was 2.42 percent of average depreciable property in fiscal 2021, 2.65 percent in fiscal 2020 and 2.25 percent in fiscal 2019.

The Company recorded $ 111.4 million, $ 107.4 million and $ 81.1 million in depreciation expense during fiscal 2021, 2020 and 2019, respectively.

During fiscal 2019, the estimated useful lives of commercial solar assets ranged from 15 to 25 years.

During the fourth quarter of fiscal 2020, the Company reassessed the estimated useful lives of its commercial solar asset fleet.

Based upon this review, the Company concluded that the actual lives of certain commercial solar assets were longer than the estimated useful lives used for depreciation purposes.

As a result, effective July 1, 2020, the Company changed its estimates of the useful lives of its solar assets to a range of 15 to 35 years.

The effects of this change were considered immaterial to the Consolidated Financial Statements.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Property, plant and equipment was comprised of the following as of September 30:

(Thousands) Estimated

Property Classifications Useful Lives 2021 2020

Distribution facilities 38 to 74 years

$ 2,558,651 $ 2,309,039

Transmission facilities 35 to 56 years

643,942 332,947

Storage facilities 34 to 47 years

79,892 79,922

Solar property 15 to 35 years

675,376 665,233

Storage and transportation property 5 to 50 years

433,678 428,491

All other property 5 to 35 years

57,968 92,932

Construction work in progress 547,542 556,402 (1)

Total property, plant and equipment 4,997,049 4,464,966

Accumulated depreciation and amortization ( 783,536 ) ( 742,197 )

Property, plant and equipment, net $ 4,213,513 $ 3,722,769

(1) During fiscal 2020, construction work in progress was included within the various property classifications.

Within storage and transportation property, base gas is required to maintain the necessary pressure and to allow for efficient operation of the Leaf River storage facility.

The base gas is determined to be recoverable and is considered part of the facility and thus presented as a component in property, plant and equipment.

This natural gas is not depreciated, as it is expected to be recovered and sold.

As of September 30, 2021 and 2020, the base gas had a cost basis of $ 7.9 million and $ 5.7 million, respectively.

Capitalized and Deferred Interest

NJNG’s base rates include the ability to recover AFUDC on its construction work in progress.

For all NJNG construction projects, an incremental cost of equity is recoverable during periods when NJNG’s short-term debt balances are lower than its construction work in progress.

For more information on AFUDC treatment with respect to certain accelerated infrastructure projects, see Note 4.

Regulation - Infrastructure Programs.

Capitalized amounts associated with the debt and equity components of NJNG’s AFUDC are recorded in utility plant on the Consolidated Balance Sheets.

Corresponding amounts for the debt component are recognized in interest expense and in other income for the equity component on the Consolidated Statements of Operations.

Adelphia Gateway’s base rates include the ability to recover AFUDC on its construction work in progress.

Beginning in the fourth quarter of fiscal 2020, capitalized amounts associated with Adelphia Gateway’s AFUDC are recorded in nonutility plant on the Consolidated Balance Sheets.

Corresponding amounts are recorded in other income on the Consolidated Statements of Operations.

Capitalized and deferred interest include the following for the fiscal years ended September 30:

($ in thousands) 2021 2020 2019

NJNG Adelphia Gateway NJNG Adelphia Gateway NJNG

Debt $ 5,648 $ 2,101 $ 5,134 $ 1,394 $ 3,710

Equity 16,605 3,698 14,599 2,454 6,492

Total $ 22,253 $ 5,799 $ 19,733 $ 3,848 $ 10,202

Weighted average interest rate 5.97 % 8.28 % 6.79 % 8.28 % 6.35 %

Pursuant to a BPU order, NJNG is permitted to recover carrying costs on uncollected balances related to SBC program costs, which include NJCEP, RAC and USF expenditures.

The SBC interest rate changes each September based on the August 31 seven-year constant maturity treasury rate plus 60 basis points.

The rate was 1.68 percent, 1.97 percent and 3.30 percent for the fiscal years ended September 30, 2021, 2020 and 2019, respectively.

Accordingly, other income included $ 346,000 , $ 511,000 and $ 760,000 in the fiscal years ended September 30, 2021, 2020 and 2019, respectively.

Clean Energy Ventures capitalizes interest on the allocation of the costs of debt borrowed for the financing of solar investments.

Capitalized amounts are included in nonutility plant and equipment on the Consolidated Balance Sheets.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit and temporary investments with maturities of three months or less, and excludes restricted cash related to escrow balances for utility plant projects at NJNG and irrevocable letters of credit at Leaf River, which is recorded in other current and noncurrent assets on the Consolidated Balance Sheets.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total amounts in the Statements of Cash Flows, as of September 30:

(Thousands) 2021 2020 2019

Balance Sheet

Cash and cash equivalents $ 4,749 $ 117,012 $ 2,676

Restricted cash in other noncurrent assets $ 1,294 $ 2,411 $ 1,387

Statements of Cash Flow

Cash, cash equivalents and restricted cash $ 6,043 $ 119,423 $ 4,063

Allowance for Doubtful Accounts

As of October 1, 2020, the Company adopted 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 Company segregates financial assets that fall within the scope of ASC 326, primarily trade receivables and unbilled revenues due in one year or less, into portfolio segments based on shared risk characteristics, such as geographical location and regulatory environment, for evaluation of expected credit losses.

Historical and current information, such as average write-offs, are applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables.

Additionally, the allowance for losses on uncollectible receivables is adjusted for reasonable and supportable forecasts of future economic conditions, which can include changing weather, commodity prices, regulations, and macroeconomic factors, such as unemployment rates among others.

Allowance for doubtful accounts was comprised of the following as of September 30:

(Thousands) 2021 2020

Natural Gas Distribution $ ( 17,040 ) $ ( 5,628 )

Energy Services $ ( 5,825 ) $ ( 104 )

Clean Energy Ventures $ ( 1,787 ) $ ( 1,504 )

NJR Home Services & Other $ — $ ( 6 )

Total $ ( 24,652 ) $ ( 7,242 )

In February 2021, severe winter weather affected the U.S.

mid-continent and southern regions and resulted in increased demand for natural gas supply and increases in wholesale energy prices.

As a result, Energy Services evaluated its counterparties for credit deterioration, as well as the related receivables for the purchase and receipt of natural gas for amounts past due.

The Company examined the credit characteristics of its counterparties, including the history of past due amounts for contractual settlements, counterparty credit ratings, and the likelihood of recovering amounts owed.

The Company recorded a reserve for expected credit losses for Energy Services totaling $ 5.2 million within operations and maintenance expense on the Consolidated Statement of Operations, representing management’s best estimate of expected credit losses during the second quarter of fiscal 2020.

It is possible that future developments could occur that could result in impairment of a portion or all of the remaining amounts owed to Energy Services, which would result in an additional charge to earnings.

Loans Receivable

NJNG currently provides loans, with terms ranging from 2 to 10 years, to customers that elect to purchase and install certain energy-efficient equipment in accordance with its BPU-approved SAVEGREEN program.

The loans are recognized at fair value on the Consolidated Balance Sheets.

The Company has $ 14.2 million and $ 13.7 million recorded in other current assets and $ 32.3 million and $ 35.3 million in other noncurrent assets as of September 30, 2021 and 2020, respectively, on the Consolidated Balance Sheets, related to the loans.

The Company regularly evaluates the credit quality and collection profile of its customers.

If NJNG determines a loan is impaired, the basis of the loan would be subject to regulatory review for recovery.

As of September 30, 2021 and 2020, the Company has not recorded any impairments for SAVEGREEN loans.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Regulatory Assets & Liabilities

Under cost-based regulation, regulated utility enterprises generally are permitted to recover their operating expenses and earn a reasonable rate of return on their utility investment.

The Natural Gas Distribution segment maintains its accounts in accordance with the FERC Uniform System of Accounts as prescribed by the BPU and in accordance with the ASC 980, Regulated Operations .

As a result of the impact of the ratemaking process and regulatory actions of the BPU, NJNG is required to recognize the economic effects of rate regulation.

Accordingly, NJNG capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing probable future expenditures as regulatory liabilities on the Consolidated Balance Sheets.

Regulation for a more detailed description of NJNG’s regulatory assets and liabilities.

In January 2020, NJR acquired Adelphia Gateway an existing 84 -mile pipeline in southeastern Pennsylvania, which maintains its accounts in accordance with the FERC Uniform System of Accounts and in accordance with the ASC 980, Regulated Operations .

Accordingly, Adelphia Gateway capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing probable future expenditures as regulatory liabilities on the Consolidated Balance Sheets.

Regulation for a more detailed description of Adelphia Gateway’s regulatory assets and liabilities.

Natural Gas in Storage

Natural gas in storage is reflected at average cost on the Consolidated Balance Sheets and represents natural gas and LNG that will be utilized in the ordinary course of business.

The following table summarizes natural gas in storage, at average cost by company, as of September 30:

($ in thousands) Natural Gas in Storage Bcf Natural Gas in Storage Bcf

Natural Gas Distribution $ 115,824 27.6 $ 110,037 27.2

Energy Services 77,782 18.8 57,352 34.3

Storage and Transportation — — 115 0.02

Total $ 193,606 46.40 $ 167,504 61.52

Derivative Instruments

The Company accounts for its financial instruments, such as futures, options, foreign exchange contracts and interest rate contracts, as well as its physical commodity contracts related to the purchase and sale of natural gas at Energy Services, as derivatives, and therefore recognizes them at fair value on the Consolidated Balance Sheets.

The Company’s unregulated subsidiaries record changes in the fair value of their financial commodity derivatives in natural gas purchases and changes in the fair value of their physical forward contracts in natural gas purchases or operating revenues, as appropriate, on the Consolidated Statements of Operations.

Ineffective portions of the cash flow hedges are recognized immediately in earnings.

The ASC 815, Derivatives and Hedging also provides for a NPNS scope exception for qualifying physical commodity contracts for which physical delivery is probable and the quantities delivered are expected to be used or sold over a reasonable period of time in the normal course of business.

Effective January 1, 2016, the Company prospectively applies this normal scope exception on a case-by-case basis to physical commodity contracts at NJNG and PPAs at Clean Energy Ventures.

When applied, it does not account for these contracts until the contract settles and the related underlying natural gas or power is delivered.

Gains and/or losses on NJNG’s derivatives used to economically hedge its regulated natural gas supply obligations, as well as its exposure to interest rate variability, are recoverable through its BGSS, a component of its tariff.

Accordingly, the offset to the change in fair value of these derivatives is recorded as a regulatory asset or liability on the Consolidated Balance Sheets.

Derivative Instruments for additional details regarding natural gas trading and hedging activities.

Fair values of exchange-traded instruments, including futures and swaps, are based on unadjusted, quoted prices in active markets.

The Company’s non-exchange-traded financial instruments, foreign currency derivatives, over-the-counter physical commodity contracts at Energy Services and interest rate contracts are valued using observable, quoted prices for similar or identical assets when available.

In establishing the fair value of contracts for which a quoted basis price is not available at the measurement date, management utilizes available market data and pricing models to estimate fair values.

Fair values are subject to change in the near term and reflect management’s best estimate based on a variety of factors.

Estimating fair values of instruments that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected to be received from, or paid to, a third party in settlement of the instruments.

These amounts could be materially different from amounts that might be realized in an actual sale transaction.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

During fiscal 2020, the Company entered into treasury lock transactions to fix the benchmark treasury rate associated with debt issuances for NJNG and NJR that occurred during the fiscal year.

Settlement of the NJNG treasury locks resulted in a loss, which was recorded as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized in earnings over the term of the debt as a component of interest expense on the Consolidated Statements of Operations.

NJR designated its treasury lock contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the hedges were recorded in OCI.

Settlement of the treasury locks resulted in a loss, which was recorded within OCI and is amortized into earnings over the term of the associated debt as a component of interest expense on the Consolidated Statements of Operations.

As of September 30, 2021 and 2020, amounts recognized in interest expense related to the amortization of the loss on treasury lock transactions totaled $ 223,000 and $ 50,000 , respectively, for NJNG, and $ 1.0 million and $ 108,000 , respectively, for NJR.

Software Costs

The Company capitalizes certain costs, such as software design and configuration, coding, testing and installation, that are incurred to purchase or create and implement computer software for internal use.

Capitalized costs include external costs of materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related costs for employees who are directly associated with and devote time to the internal-use software project.

Maintenance costs are expensed as incurred.

Upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality.

Amortization is recorded on the straight-line basis over the estimated useful lives.

The following table presents the software costs included in the Consolidated Financial Statements, as of September 30:

(Thousands) 2021 2020

Balance Sheets

Utility plant, at cost $ 16,543 $ 13,452

Construction work in progress $ 7,801 $ —

Nonutility plant and equipment, at cost $ 338 $ 316

Construction work in progress $ 8 $ —

Accumulated depreciation and amortization, utility plant $ ( 1,333 ) $ ( 279 )

Accumulated depreciation and amortization, nonutility plant and equipment $ ( 29 ) $ ( 5 )

Software costs $ 5,582 $ 4,707

Statements of Operations

Operation and maintenance (1)

$ 9,141 $ 6,720

Depreciation and amortization $ 1,078 $ 284

(1) During fiscal 2021 and 2020, $ 447,000 and 63,000 , respectively, was amortized into O&M.

Intangible Assets

Finite-lived intangible assets are stated at cost less accumulated amortization.

The Company amortizes intangible assets based upon the pattern in which the economic benefits are consumed over the life of the asset unless a pattern cannot be reliably determined, in which case the Company uses a straight-line amortization method.

As of September 30, 2021, intangible assets consist primarily of acquired wholesale natural gas energy contracts totaling $ 5.0 million.

The wholesale natural gas contracts are being amortized based upon expected cash flows over the respective terms of the agreements.

The estimated future amortization expense as of September 30, is as follows:

Long-lived Assets

The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as significant adverse changes in regulation, business climate or market conditions, including prolonged periods of adverse commodity and capacity prices.

If there are changes indicating that the carrying value of such assets may not be recoverable, an undiscounted cash flows test is performed.

If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value.

Factors that the Company analyzes in

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

determining whether an impairment in its long-lived assets exists include:

a significant decrease in the market price of a long-lived asset;

a significant adverse change in the extent in which a long-lived asset is being used in its physical condition;

legal proceedings or other contributing factors;

significant business climate changes;

accumulations of costs in significant excess of the amounts expected;

a current-period operating or cash flow loss combined with a history of such events;

and current expectations that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life.

During fiscal 2021 and 2020, there were no events or circumstances that indicated that the carrying value of long-lived assets or finite-lived intangibles were not recoverable.

Debt Issuance Costs

Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt.

Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt.

Debt for the total unamortized debt issuance costs that are recorded as a reduction to long-term debt on the Consolidated Balance Sheets.

Sale Leasebacks

NJNG utilizes sale leaseback arrangements as a financing mechanism to fund certain of its capital expenditures related to natural gas meters, whereby the physical asset is sold concurrent with an agreement to lease the asset back.

These agreements include options to renew the lease or repurchase the asset at the end of the term.

Proceeds from sale leaseback transactions are accounted for as financing arrangements and are included in long-term debt on the Consolidated Balance Sheets.

During fiscal 2020, NJNG received $ 4.0 million in connection with the sale leaseback of its natural gas meters with terms ranging from seven to 11 years.

There were no natural gas meter sale leasebacks recorded during fiscal 2021.

In addition, for certain of its commercial solar energy projects, the Company enters into lease agreements that provide for the sale of commercial solar energy assets to third parties and the concurrent leaseback of the assets.

For sale leaseback transactions where the Company has concluded that the arrangement does not qualify as a sale as the Company retains control of the underlying assets and, as such, the Company uses the financing method to account for the transaction.

Under the financing method, the Company recognizes the proceeds received from the buyer-lessor that constitute a payment to acquire the solar energy asset as a financing arrangement, which is recorded as a component of debt on the Consolidated Balance Sheets.

During fiscal 2021 and 2020, Clean Energy Ventures received proceeds of $ 17.7 million and $ 42.9 million, respectively, in connection with sale leasebacks of commercial solar assets.

The proceeds received were recognized as a financing obligation on the Consolidated Balance Sheets.

Clean Energy Ventures simultaneously entered into agreements to lease the assets back over a term of five - to 15 -years .

The Company continues to operate the solar assets and is responsible for related expenses and entitled to retain the revenue generated from RECs and energy sales.

The ITCs and other tax benefits associated with these solar projects transfer to the buyer;

however, the payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax attributes.

Accordingly, Clean Energy Ventures recognizes the equivalent value of the tax attributes in other income on the Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease.

There were no sale leasebacks during fiscal 2019.

Environmental Contingencies

Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies.

Estimating probable losses requires an analysis of uncertainties that often depend upon judgments about potential actions by third parties.

Accruals for loss contingencies are recorded based on an analysis of potential results.

With respect to environmental liabilities and related costs, NJNG periodically, and at least annually, performs an environmental review of MGP sites, including a review of potential liability for investigation and remedial action.

NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed.

Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range.

If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range.

The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries.

NJNG will continue to seek recovery of MGP-related costs through the RAC.

If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination.

Commitments and Contingent Liabilities for more details.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Pension and Postemployment Plans

The Company has two noncontributory defined pension plans covering eligible employees, including officers.

Benefits are based on each employee’s years of service and compensation.

The Company’s funding policy is to contribute annually to these plans at least the minimum amount required under the Employee Retirement Income Security Act, as amended, and not more than can be deducted for federal income tax purposes.

Plan assets consist of equity securities, fixed-income securities and short-term investments.

The Company did no t make any discretionary contributions to the pension plans during fiscal 2021 and 2020.

The Company also provides two primarily noncontributory medical and life insurance plans for eligible retirees and dependents.

Medical benefits, which make up the largest component of the plans, are based upon an age and years-of-service vesting schedule and other plan provisions.

Funding of these benefits is made primarily into Voluntary Employee Beneficiary Association trust funds.

The Company contributed $ 7.2 million and $ 8.4 million in aggregate to these plans during fiscal 2021 and 2020, respectively, which is recorded in postemployment employee benefit liability on the Consolidated Balance Sheets.

Employee Benefit Plans, for a more detailed description of the Company’s pension and postemployment plans.

Asset Retirement Obligations

The Company recognizes ARO related to the costs associated with cutting and capping NJNG’s main and service natural gas distribution mains, which is required by New Jersey law when taking such natural gas distribution mains out of service.

The Company also recognizes ARO associated with Clean Energy Ventures’ solar assets when there are decommissioning provisions in lease agreements that require removal of the asset at the end of the lease term.

ARO are initially recognized when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made.

The discounted fair value is recognized as an ARO liability with a corresponding amount capitalized as part of the carrying cost of the underlying asset.

The obligation is subsequently accreted to the future value of the expected retirement cost and the corresponding asset retirement cost is depreciated over the life of the related asset.

Accretion expense associated with Clean Energy Ventures’ ARO is recognized as a component of operations and maintenance expense on the Consolidated Statements of Operations.

Accretion amounts associated with NJNG’s ARO are recognized as part of its depreciation expense and the corresponding regulatory asset and liability will be shown gross on the Consolidated Balance Sheets.

Estimating future removal costs requires management to make significant judgments because most of the removal obligations span long time frames and removal may be conditioned upon future events.

Asset removal technologies are also constantly changing, which makes it difficult to estimate removal costs.

Accordingly, inherent in the estimate of ARO are various assumptions including the ultimate settlement date, expected cash outflows, inflation rates, credit-adjusted risk-free rates and consideration of potential outcomes where settlement of the ARO can be conditioned upon events.

In the latter case, the Company develops possible retirement scenarios and assigns probabilities based on management’s reasonable judgment and knowledge of industry practice.

Accordingly, ARO are subject to change.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Accumulated Other Comprehensive Income

The following table presents the changes in the components of accumulated other comprehensive income, net of related tax effects, as of September 30:

(Thousands) Cash Flow Hedges Postemployment Benefit Obligation Total

Balance at September 30, 2019 $ — $ ( 31,787 ) $ ( 31,787 )

Other comprehensive (loss) income, net of tax

Other comprehensive (loss), before reclassifications, net of tax of $ 3,203 , $ 1,235 and $ 4,438 , respectively

( 10,505 ) ( 4,882 ) ( 15,387 )

Amounts reclassified from accumulated other comprehensive (loss), net of tax of $( 32 ), $( 668 ) and $( 700 ), respectively

108 2,751 (1) 2,859

Net current-period other comprehensive income, net of tax of $ 3,171 , $ 567 and $ 3,738 , respectively

( 10,397 ) ( 2,131 ) ( 12,528 )

Balance at September 30, 2020 $ ( 10,397 ) $ ( 33,918 ) $ ( 44,315 )

Other comprehensive income, net of tax

Other comprehensive income, before reclassifications, net of tax of $ — , $( 1,618 ), $( 1,618 ), respectively

— 5,494 5,494

Amounts reclassified from accumulated other comprehensive loss, net of tax of $( 350 ), $( 957 ), $( 1,307 ), respectively

1,021 3,272 (1) 4,293

Net current-period other comprehensive income, net of tax of $( 350 ), $( 2,575 ), $( 2,925 ), respectively

1,021 8,766 9,787

Balance at September 30, 2021 $ ( 9,376 ) $ ( 25,152 ) $ ( 34,528 )

(1) Included in the computation of net periodic pension cost, a component of O&M expense on the Consolidated Statements of Operations.

For more details, see Note 11.

Employee Benefit Plans.

Foreign Currency Transactions

The market area of Energy Services includes Canadian delivery points and as a result, Energy Services incurs certain natural gas commodity costs and demand fees denominated in Canadian dollars.

Gains or losses that occur as a result of these foreign currency transactions are reported as a component of natural gas purchases on the Consolidated Statements of Operations.

Gains and losses recognized for the fiscal years ended September 30, 2021, 2020 and 2019, are considered immaterial.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation.

Construction work in progress previously classified within various property classifications in the Property Plant and Equipment section of this note has been reclassified to its own category.

Change in Accounting Policy

Effective October 1, 2020, the Company changed its method of accounting for ITCs at Clean Energy Ventures from the flow through method to the deferral method.

Prior to the change, the Company recognized ITCs as a reduction of income tax expense in the period that the qualified solar energy property, to which it relates, was placed in service.

Effective with the accounting change, the Company records ITCs as a reduction to the carrying value of the related asset when placed in service and recognizes ITCs in earnings as a reduction to depreciation expense over the productive life of the related property.

The deferral method is considered the preferred method per the authoritative guidance as described in ASC 740 - Income Taxes .

The change to the deferral method is also consistent with the application of authoritative accounting guidance throughout other reporting segments and promotes proper matching of the benefits of the recognition of the ITC with the expected use of the asset.

The Company applied the change in accounting method retrospectively to all prior periods presented.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

The impact of the change in accounting policy on the Consolidated Statements of Operations during the fiscal years ended September 30, 2020 and 2019 are as follows:

(Thousands) As Previously Effect of As

September 30, 2020 Reported Change Adjusted

Depreciation and amortization $ 119,894 ( 12,526 ) $ 107,368

Total operating expenses $ 1,737,285 ( 12,526 ) $ 1,724,759

Operating income $ 216,383 12,526 $ 228,909

Income before income taxes and equity in earnings of affiliates $ 172,664 12,526 $ 185,190

Income tax (benefit) expense $ ( 6,944 ) 43,438 $ 36,494

Net income $ 193,919 ( 30,912 ) $ 163,007

Weighted average shares outstanding

Diluted $ 95,107 ( 4 ) $ 95,103

Earnings per common share

Basic $ 2.05 ( 0.33 ) $ 1.72

Diluted $ 2.04 ( 0.33 ) $ 1.71

September 30, 2019

Depreciation and amortization $ 91,730 ( 10,621 ) $ 81,109

Total operating expenses $ 2,438,110 ( 10,621 ) $ 2,427,489

Operating income $ 153,935 10,621 $ 164,556

Income before income taxes and equity in earnings of affiliates $ 118,126 10,621 $ 128,747

Income tax (benefit) expense $ ( 37,751 ) 56,191 $ 18,440

Net income $ 169,505 ( 45,570 ) $ 123,935

Weighted average shares outstanding

Diluted $ 89,616 ( 20 ) $ 89,596

Earnings per common share

Basic $ 1.90 ( 0.51 ) $ 1.39

Diluted $ 1.89 ( 0.51 ) $ 1.38

The cumulative effect of the change in accounting policy on the Consolidated Balance Sheets as of September 30, 2020 is as follows:

As Previously Effect of As

(Thousands) Reported Change Adjusted

Nonutility plant and equipment, at cost $ 1,430,723 ( 322,211 ) $ 1,108,512

Accumulated depreciation and amortization, nonutility plant and equipment $ ( 202,507 ) 61,945 $ ( 140,562 )

Property, plant and equipment, net $ 3,983,035 ( 260,266 ) $ 3,722,769

Other noncurrent assets $ 78,716 6,941 $ 85,657

Total noncurrent assets $ 964,435 6,941 $ 971,376

Total assets $ 5,569,802 ( 253,325 ) $ 5,316,477

Capitalization

Retained earnings $ 1,148,297 ( 200,796 ) $ 947,501

Common stock equity $ 1,844,692 ( 200,796 ) $ 1,643,896

Total capitalization $ 4,104,158 ( 200,796 ) $ 3,903,362

Deferred income taxes $ 190,610 ( 52,529 ) $ 138,081

Total noncurrent liabilities $ 931,922 ( 52,529 ) $ 879,393

Total capitalization and liabilities $ 5,569,802 ( 253,325 ) $ 5,316,477

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

The impact of the change in accounting policy on the Consolidated Statements of Cash Flows as of September 30, 2020 and 2019 are as follows:

(Thousands) As Previously Effect of As

September 30, 2020 Reported Change Adjusted

Depreciation and amortization $ 119,894 ( 12,526 ) $ 107,368

Deferred income taxes $ ( 9,092 ) 43,438 $ 34,346

September 30, 2019

Depreciation and amortization $ 91,730 ( 10,621 ) $ 81,109

Deferred income taxes $ ( 59,013 ) 56,191 $ ( 2,822 )

The impact of the change in accounting policy on the Consolidated Statements of Common Stock Equity as of September 30, 2020 and 2019 are as follows:

As Previously Effect of As

(Thousands) Reported Change Adjusted

Retained Earnings

Balance at September 30, 2018 $ 1,007,117 ( 124,314 ) $ 882,803

Net Income $ 169,505 ( 45,570 ) $ 123,935

Balance at September 30, 2019 $ 1,075,960 ( 169,884 ) $ 906,076

Net Income $ 193,919 ( 30,912 ) $ 163,007

Balance at September 30, 2020 $ 1,148,297 ( 200,796 ) $ 947,501

Total Common stock equity

Balance at September 30, 2018 $ 1,418,978 ( 124,314 ) $ 1,294,664

Net Income $ 169,505 ( 45,570 ) $ 123,935

Balance at September 30, 2019 $ 1,551,717 ( 169,884 ) $ 1,381,833

Net Income $ 193,919 ( 30,912 ) $ 163,007

Balance at September 30, 2020 $ 1,844,692 ( 200,796 ) $ 1,643,896

Recently Adopted Updates to the Accounting Standards Codification

Financial Instruments

In June 2016, the FASB issued ASU No.

The new model requires recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred.

An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

The Company assessed the impact of the guidance on NJR's reserve methodologies and credit policies and procedures for any assets that could be impacted, noting the majority of NJR's financial assets are short-term in nature, such as trade receivables and unbilled revenues.

The Company completed its evaluation of this amendment and all subsequent amendments related to this topic and adopted this guidance on October 1, 2020 using the modified retrospective method.

The adoption did not result in a cumulative effect adjustment to retained earnings as the current expected lifetime loss estimates were not materially different from the reserves already in place.

Historical and current information, such as average write-offs, are applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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 Company adopted this guidance on October 1, 2020 on a prospective basis.

The Company does not have either Level 3 fair value measurements or transfers between Level 1 or Level 2 in its current portfolios, and therefore, this ASU did not have an impact on the Company's financial position, results of operations or cash flows.

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 Company adopted this guidance on October 1, 2020.

There was no impact to the Company's financial position, results of operations or cash flows.

Reference Rate Reform

In January 2021, the FASB issued ASU No.

2021-01, which refines the scope of ASC 848, Reference Rate Reform , and clarifies some of its guidance of global reference rate reform activities.

The amendments in this update permit entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets (the “discounting transition”).

The amendments in this update are effective upon the ASU issuance and allow for retrospective application or prospective application through December 31, 2022.

NJR adopted this standard prospectively in January 2021.

Other Recent Updates to the Accounting Standards Codification

In December 2019, the FASB issued ASU No.

2019-12, an amendment to ASC 740, Income Taxes , which simplifies the accounting for income taxes and changes the accounting for certain income tax transactions, among other minor improvements.

The guidance is effective for the Company beginning October 1, 2021 and will be applied on a prospective basis.

The Company has evaluated the amendments and concluded that they are either not applicable, currently applied, or will have no material impact on its financial position, results of operations, cash flows and disclosures upon adoption.

Investments - Equity Method and Derivatives and Hedging

In January 2020, the FASB issued ASU No.

2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 .

The update requires an entity to evaluate observable transactions that necessitate applying or discontinuing the equity method of accounting when applying the measurement alternative in Topic 321.

This evaluation occurs prior to applying or upon ceasing the equity method.

The update also states that when applying paragraph 815-10-15-141(a) for forward contracts and purchased options, an entity is not required to assess whether the underlying securities will be accounted for under the equity method in accordance with Topic 323 or fair value method under Topic 825 upon settlement or exercise.

The guidance is effective for the Company beginning October 1, 2021 and will be applied on a prospective basis.

The Company has evaluated the amendments and does not expect a material impact on its financial position, results of operations, cash flows and disclosures upon adoption.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

In October 2020, the FASB issued ASU No.

2020-10, Codification Improvements , which clarifies application of various provisions in the ASC by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology.

It also improves the consistency by amending the ASC to include all disclosure guidance in the appropriate section.

The guidance is effective for the Company on October 1, 2021.

The Company has evaluated the amendments and does not expect a material impact on its financial position, results of operations, cash flows and disclosures upon adoption.

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 the Company does not disclose related unsatisfied performance obligations.

The Company also elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax net in operating revenues on the Consolidated Statements of Operations.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Below is a listing of performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms and the nature of the goods and services being transferred, by reporting segment and other business operations:

Revenue Recognized Over Time:

Segment 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 natural gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period.

Payment is due each month for the previous month's deliveries.

Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period.

The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates.

NJNG is entitled to be compensated for performance completed until service is terminated.

Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers.

As NJNG is acting as an agent on behalf of the third-party supplier, revenue is recorded for the delivery of natural gas to the customer.

Clean Energy Ventures Commercial solar and wind electricity Clean Energy Ventures operates wholly-owned solar projects that recognize revenue as electricity is generated and transferred to the customer.

The performance obligation is to provide electricity to the customer in accordance with contract terms or the interconnection agreement and is satisfied upon transfer of electricity generated.

All wind assets were sold as of February 7, 2019.

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.

Clean Energy Ventures Transition renewable energy certificates

Clean Energy Ventures generates TRECs, which are created for every MWh of electricity produced by a solar generator.

The performance obligation of Clean Energy Ventures is to generate electricity and TRECs, which are purchased monthly by a REC Administrator.

Revenue is recognized upon generation.

Energy Services 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.

Storage and Transportation Natural gas services The performance obligation of the Storage and Transportation segment is to provide the customer with storage and transportation services.

Storage and Transportation generates revenues from firm storage contracts and transportation contracts, related usage fees for the use of storage space, injection and withdrawal at the storage facility and the delivery of natural gas to customers.

Revenue is recognized over time as customers receive the benefits of its service as it is performed on their behalf using an output method based on actual deliveries.

Demand fees are recognized as revenue over the term of the related agreement.

Home Services and Other Service contracts Home Services enters into service contracts with homeowners to provide maintenance and replacement services of applicable heating, cooling or ventilation equipment.

All services provided relate to a distinct performance obligation which is to provide services for the specific equipment over the term of the contract.

Revenue is recognized on a straight-line basis over the term of the contract and payment is due upon receipt of the invoice.

Revenue Recognized at a Point in Time:

Storage and Transportation Natural gas services The performance obligation of the Storage and Transportation segment is to provide the customer with storage and transportation services.

The Storage and Transportation segment generates revenues from hub services for the use of storage space, injection and withdrawal from the storage facility.

Hub services include park and loan transactions and wheeling.

Hub services revenues are recognized as services are performed.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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 recognized at a point in time upon completion of the installation, which is when the customer is billed.

Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during fiscal 2021, 2020 and 2019 are as follows:

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Storage and Transportation Home Services

and Other Total

Natural gas utility sales $ 694,635 — — — — $ 694,635

Natural gas services — — 26,933 51,020 — 77,953

Service contracts — — — — 33,250 33,250

Installations and maintenance — — — — 18,979 18,979

Renewable energy certificates — 4,571 — — — 4,571

Electricity sales — 25,270 — — — 25,270

Eliminations (1)

— — — ( 1,768 ) ( 785 ) ( 2,553 )

Revenues from contracts with customers 694,635 29,841 26,933 49,252 51,444 852,105

Alternative revenue programs (2)

( 7,282 ) — — — — ( 7,282 )

Derivative instruments 44,443 65,434 (3) 1,201,487 — — 1,311,364

Eliminations (1)

— — 426 — — 426

Revenues out of scope 37,161 65,434 1,201,913 — — 1,304,508

Total operating revenues $ 731,796 95,275 1,228,846 49,252 51,444 $ 2,156,613

Natural gas utility sales $ 695,858 — — — — $ 695,858

Natural gas services — — 24,511 44,728 — 69,239

Service contracts — — — — 32,455 32,455

Installations and maintenance — — — — 18,562 18,562

Renewable energy certificates — 1,384 — — — 1,384

Electricity sales — 20,099 — — — 20,099

Eliminations (1)

— — — ( 2,713 ) ( 1,207 ) ( 3,920 )

Revenues from contracts with customers 695,858 21,483 24,511 42,015 49,810 833,677

Alternative revenue programs (2)

15,750 — — — — 15,750

Derivative instruments 18,315 81,134 (3) 1,005,908 — — 1,105,357

Eliminations (1)

— — ( 1,116 ) — — ( 1,116 )

Revenues out of scope 34,065 81,134 1,004,792 — — 1,119,991

Total operating revenues $ 729,923 102,617 1,029,303 42,015 49,810 $ 1,953,668

Natural gas utility sales $ 680,151 — — — — 680,151

Natural gas services — — 31,459 — — 31,459

Service contracts — — — — 31,499 31,499

Installations and maintenance — — — — 19,403 19,403

Electricity sales — 22,121 — — — 22,121

Eliminations (1)

— — — — ( 2,302 ) ( 2,302 )

Revenues from contracts with customers 680,151 22,121 31,459 — 48,600 782,331

Alternative revenue programs (2)

10,364 — — — — 10,364

Derivative instruments 20,278 75,978 (3) 1,711,332 — — 1,807,588

Eliminations (1)

— — ( 8,238 ) — — ( 8,238 )

Revenues out of scope 30,642 75,978 1,703,094 — — 1,809,714

Total operating revenues $ 710,793 98,099 1,734,553 — 48,600 2,592,045

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

(2) Includes CIP revenue.

(3) Includes SREC revenue.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the fiscal years ended September 30, are as follows:

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Storage and Transportation Home Services

and Other Total

Residential $ 487,018 11,319 — — 50,689 $ 549,026

Commercial and industrial 124,519 18,522 26,933 49,252 755 219,981

Firm transportation 79,256 — — — — 79,256

Interruptible and off-tariff 3,842 — — — — 3,842

Revenues out of scope 37,161 65,434 1,201,913 — — 1,304,508

Total operating revenues $ 731,796 95,275 1,228,846 49,252 51,444 $ 2,156,613

Residential $ 490,233 10,233 — — 48,867 $ 549,333

Commercial and industrial 129,946 11,250 24,511 42,015 943 208,665

Firm transportation 69,357 — — — — 69,357

Interruptible and off-tariff 6,322 — — — — 6,322

Revenues out of scope 34,065 81,134 1,004,792 — — 1,119,991

Total operating revenues $ 729,923 102,617 1,029,303 42,015 49,810 $ 1,953,668

Residential $ 440,787 9,003 — — 47,655 $ 497,445

Commercial and industrial 171,357 13,118 31,459 — 945 216,879

Firm transportation 61,370 — — — — 61,370

Interruptible and off-tariff 6,637 — — — — 6,637

Revenues out of scope 30,642 75,978 1,703,094 — — 1,809,714

Total operating revenues $ 710,793 98,099 1,734,553 — 48,600 $ 2,592,045

Customer Accounts Receivable/Credit Balances and Deposits

The timing of revenue recognition, customer billings and cash collections resulting in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Consolidated Balance Sheets are as follows:

Customer Accounts Receivable Customers' Credit

(Thousands) Billed Unbilled Balances and Deposits

Balance as of September 30, 2019 $ 139,263 $ 6,510 $ 27,116

(Decrease)/Increase ( 5,090 ) 2,716 ( 1,182 )

Balance as of September 30, 2020 134,173 9,226 25,934

Increase 78,665 1,125 6,652

Balance as of September 30, 2021 $ 212,838 $ 10,351 $ 32,586

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

The following table provides information about receivables, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits, respectively, on the Consolidated Balance Sheets as of September 30:

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Storage and Transportation Home Services

and Other Total

Customer accounts receivable

Billed $ 54,514 5,534 147,087 3,956 1,747 $ 212,838

Unbilled 8,427 1,924 — — — 10,351

Customers' credit balances and deposits ( 32,586 ) — — — — ( 32,586 )

Total $ 30,355 7,458 147,087 3,956 1,747 $ 190,603

Customer accounts receivable

Billed $ 52,134 5,282 70,457 3,905 2,395 $ 134,173

Unbilled 7,842 1,384 — — — 9,226

Customers' credit balances and deposits ( 25,934 ) — — — — ( 25,934 )

Total $ 34,042 6,666 70,457 3,905 2,395 $ 117,465

The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape.

NJNG is required, pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas suppliers.

Customers can choose the supplier of their natural gas commodity in NJNG’s service territory.

As required by EDECA, NJNG’s rates are segregated into two primary components:

the commodity portion, which represents the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the natural gas to NJNG’s service territory;

and the delivery portion, which represents the transportation of the commodity portion through NJNG’s natural gas distribution system to the end-use customer.

NJNG does not earn utility gross margin on the commodity portion of its natural gas sales.

NJNG earns utility gross margin through the delivery of natural gas to its customers, regardless of whether it or a third-party supplier provides the wholesale natural gas commodity.

Under EDECA, the BPU is required to audit the state’s energy utilities every two years.

The primary purpose of the audit is to ensure that utilities and their affiliates offering unregulated retail services do not have an unfair competitive advantage over nonaffiliated providers of similar retail services.

A combined competitive services and management audit of NJNG commenced in August 1, 2013.

A draft management audit report was accepted by the BPU on July 23, 2014, for public comment.

To date, NJNG has implemented all audit recommendations with the approval of BPU staff and is waiting for final BPU approval.

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility capital investments based on the BPU’s approval.

The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets, and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations.

NJNG’s recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders.

NJNG is required to make filings to the BPU for review of its BGSS, CIP and other programs and related rates.

Annual rate changes are requested to be effective at the beginning of the following fiscal year.

The current base rates include a weighted average cost of capital of 6.95 percent and a return on common equity of 9.6 percent.

All rate and program changes are subject to proper notification and BPU review and approval.

In addition, NJNG is permitted to implement certain BGSS rate changes on a provisional basis with proper notification to the BPU.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Regulatory assets and liabilities included on the Consolidated Balance Sheets for NJNG are comprised of the following, as of September 30:

(Thousands) 2021 2020

Regulatory assets-current

New Jersey Clean Energy Program $ 16,308 $ 15,570

Conservation Incentive Program 11,839 19,120

Other current regulatory assets 1,554 1,682

Total current regulatory assets $ 29,701 $ 36,372

Regulatory assets-noncurrent

Environmental remediation costs:

Expended, net of recoveries $ 58,483 $ 36,516

Liability for future expenditures 135,012 150,590

Deferred income taxes 39,694 28,241

Derivatives at fair value, net — 1

SAVEGREEN 32,941 21,281

Postemployment and other benefit costs 117,194 188,170

Deferred storm damage costs 4,343 6,515

Cost of removal 99,238 75,080

Other noncurrent regulatory assets 32,695 20,068

Total noncurrent regulatory assets $ 519,600 $ 526,462

Regulatory liability-current

Overrecovered natural gas costs $ 5,510 $ 25,914

Derivatives at fair value, net 22,497 274

Total current regulatory liabilities $ 28,007 $ 26,188

Regulatory liabilities-noncurrent

Tax Act impact (1)

$ 190,386 $ 195,425

Derivatives at fair value, net 1,166 352

Other noncurrent regulatory liabilities 336 509

Total noncurrent regulatory liabilities $ 191,888 $ 196,286

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

Regulatory assets and liabilities included on the Consolidated Balance Sheets for Adelphia Gateway are comprised of the following, as of September 30:

(Thousands) 2021 2020

Total current regulatory assets $ 417 $ 158

Total noncurrent regulatory assets $ 2,499 $ 997

Total-noncurrent regulatory liabilities $ 1,163 $ —

The assets are comprised primarily of the tax benefit associated with the equity component of AFUDC and the liability consists primarily of scheduling penalties.

Recovery of regulatory assets is subject to FERC approval.

New Jersey Clean Energy Program

The NJCEP is a statewide program that encourages energy efficiency and renewable energy.

Funding amounts are determined by the BPU’s Office of Clean Energy and all New Jersey utilities are required to share in the annual funding obligation.

The current NJCEP program is for the State of New Jersey’s fiscal year ending June 2022.

NJNG recovers the costs associated with its portion of the NJCEP obligation through its NJCEP rider, with interest.

Over and Underrecovered Natural Gas Costs

NJNG recovers its cost of natural gas through the BGSS rate component of its customers’ bills.

NJNG’s cost of natural gas includes the purchased cost of the natural gas commodity, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and hedging transactions.

Overrecovered natural gas costs represent a regulatory liability that generally occurs when NJNG’s BGSS rates are higher than actual costs and requests approval to be returned to customers including interest, when applicable, in accordance with NJNG’s approved BGSS tariff.

Conversely, underrecovered natural gas costs generally occur during periods when NJNG’s BGSS rates are lower than actual costs, in which case NJNG records a regulatory asset and requests amounts to be recovered from customers in the future.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Derivatives are utilized by NJNG to manage the price risk associated with its natural gas purchasing activities and to participate in certain BGSS incentive programs.

The gains and losses associated with NJNG’s derivatives are recoverable through its BGSS, as noted above, without interest.

Derivative Instruments .

Conservation Incentive Program

The CIP permits NJNG to recover utility gross margin variations related to customer usage resulting from customer conservation efforts and mitigates the impact of weather on its margin.

Such utility gross margin variations are recovered in the year following the end of the CIP usage year, without interest, and are subject to additional conditions, including an earnings test, a revenue test and an evaluation of BGSS-related savings.

This program has no expiration date.

Environmental Remediation Costs

NJNG is responsible for the cleanup of certain former gas manufacturing facilities.

Actual expenditures are recovered from customers, with interest, over seven-year rolling periods, through a RAC rate rider.

Recovery for NJNG’s estimated future liability will be requested and/or recovered when actual expenditures are incurred.

Commitments and Contingent Liabilities .

Deferred Income Taxes

Upon adoption of a 1993 provision of ASC 740, Income Taxes , NJNG recognized a transition adjustment and corresponding regulatory asset representing the difference between NJNG’s existing deferred tax amounts compared with the deferred tax amounts calculated in accordance with the change in method prescribed by ASC 740.

NJNG recovers the regulatory asset associated with these tax impacts through future base rates, without interest.

NJNG administers certain programs that supplement the state’s NJCEP and that allow NJNG to promote clean energy to its residential and commercial customers, as described further below.

NJNG will recover related expenditures and a weighted average cost of capital on the unamortized balance through a tariff rider, with interest, as approved by the BPU, over a two - to 10-year period depending upon the specific program incentive.

Postemployment and Other Benefit Costs

Postemployment and Other Benefit Costs represents NJNG’s underfunded postemployment benefit obligations, as well as a fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated with Medicare Part D, both of which are deferred as regulatory assets and are recoverable, without interest, in base rates.

The BPU approved the recovery of the tax charge through NJNG’s base rates effective October 2016 over a seven-year amortization period.

Employee Benefit Plans .

Deferred Storm Damage Costs

Portions of NJNG’s distribution system incurred significant damage as a result of Post-Tropical Cyclone Sandy in October 2012.

NJNG deferred the uninsured incremental O&M costs associated with its restoration efforts, which were approved for recovery by the BPU through NJNG’s base rates, without interest, effective October 2016 over a seven-year amortization period.

Cost of Removal

NJNG accrues and collects for cost of removal in base rates on its utility property, without interest.

These costs are recorded in accumulated depreciation for regulatory reporting purposes, and actual costs of removal, without interest, will be recovered in subsequent rates, pursuant to the BPU order.

Consistent with GAAP, amounts recorded within accumulated depreciation for regulatory accounting purposes are reclassified out of accumulated depreciation to either a regulatory asset or a regulatory liability depending on whether actual cost of removal is still subject to collection or amounts overcollected will be refunded back to customers.

NJNG’s prior regulatory liability represented customer collections in excess of actual expenditures, which the Company returned to customers as a reduction to depreciation expense.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

Other Regulatory Assets

Other regulatory assets consist primarily of deferred costs associated with certain components of NJNG’s SBC, as discussed further in the regulatory proceedings section, and NJNG’s compliance with federal and state-mandated PIM provisions.

NJNG’s related costs to maintain the operational integrity of its distribution and transmission main are recoverable, without interest, subject to BPU review and approval.

As of September 30, 2021, NJNG recorded $ 1.1 million of PIM in other regulatory assets, which is being recovered through base rates over a seven-year amortization period effective October 2016.

The following is a description of certain regulatory proceedings during fiscal 2020 and 2021:

On March 30, 2021, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $ 165.7 million including a rate recovery for SRL and other infrastructure investments.

On July 9, 2021, the Company updated its base rate request to $ 163.9 million, based on nine months of actual information through June 30, 2021.

On September 23, 2021, NJNG filed its second update to the base rate case.

The updated filing seeks a base rate increase of $ 162.5 million.

On November 17, 2021, the BPU issued an order adopting a stipulation of settlement approving a $ 79.0 million increase to base rates, effective December 1, 2021.

The increase includes an overall rate of return on rate base of 6.84 percent, return on common equity of 9.6 percent, a common equity ratio of 54.0 percent and a depreciation rate of 2.78 percent.

BGSS rates are normally revised on an annual basis.

In addition, to manage the fluctuations in wholesale natural gas costs, NJNG has the ability to make two interim filings during each fiscal year to increase residential and small commercial customer BGSS rates on a self-implementing and provisional basis.

NJNG is also permitted to refund or credit back a portion of the commodity costs to customers at any time given five days ’ notice when the natural gas commodity costs decrease in comparison to amounts projected or to amounts previously collected from customers.

Concurrent with the annual BGSS filing, NJNG files for an annual review of its CIP.

NJNG’s annual BGSS and CIP filings are summarized as follows:

• 2020 BGSS/CIP filing — On March 3, 2021, the BPU approved, on a final basis, NJNG’s annual petition to modify its BGSS, balancing charge and CIP rates for residential and small commercial customers.

The rate changes will result in a $ 20.4 million decrease to the annual revenues credited to BGSS, a $ 3.8 million annual decrease related to its balancing charge, as well as changes to CIP rates, which resulted in a $ 16.5 million annual recovery increase, effective October 1, 2020.

On November 20, 2020, NJNG notified the BPU of its intent to provide BGSS bill credits to residential and small commercial sales customers effective December 1, 2020 to December 31, 2020.

On December 22, 2020, NJNG notified the BPU of the extension of the BGSS bill credits through January 31, 2021.

The actual bill credits given to customers totaled $ 20.6 million, $ 19.3 million net of tax.

• 2021 BGSS/CIP filing — On May 28, 2021, NJNG submitted to the BPU the annual petition to modify its BGSS, balancing charge and CIP rates.

On November 17, 2021, the BPU approved a $ 2.9 million increase to the annual revenues credited to BGSS, a $ 13.0 million annual increase related to its balancing charge, as well as changes to CIP rates, which will result in a $ 6.3 million decrease to the annual recovery, effective December 1, 2021.

BGSS Incentive Programs

NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing programs that include off-system sales, capacity release and storage incentive programs.

The Company is permitted to annually propose a process to evaluate and discuss alternative incentive programs, should performance of the existing incentives or market conditions warrant re-evaluation.

Energy Efficiency Programs

SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are designed to encourage the installation of high efficiency heating and cooling equipment and other upgrades to promote energy efficiency to its residential and commercial customers while stimulating state and local economies through the creation of jobs.

Depending on the specific initiative or approval, NJNG recovers costs associated with the programs over a three - to 10-year period through a tariff rider mechanism.

As of September 30, 2021, the BPU approved total SAVEGREEN investments of approximately $ 354.3 million, including $ 135.0 million that was approved in September 2018, for a continuation of existing EE programs and the implementation of new programs through December 2021.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

On March 3, 2021 the BPU approved the three-year SAVEGREEN program consisting of approximately $ 126.1 million of direct investment, $ 109.4 million in financing options, and $ 23.4 million in operation and maintenance expenses, which resulted in a $ 15.6 million annual recovery increase, effective July 1, 2021.

SAVEGREEN investments and costs are filed with the BPU on an annual basis.

NJNG’s annual EE filings are summarized as follows:

• 2020 EE filing — On May 29, 2020, NJNG filed a petition with the BPU to minimally decrease its EE recovery rate.

Throughout the course of the proceeding, the Company updated the filing for additional actual information.

Based on the updated information, the BPU approved the request to maintain its existing rate, which results in an annual recovery of approximately $ 11.4 million, effective November 1, 2020.

• 2021 EE filing — On June 11, 2021, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through 2018.

If approved, the proposed rate increase will increase annual recoveries by $ 2.2 million.

It is anticipated that this increase will be effective in early 2022.

Societal Benefits Charge

The SBC is comprised of three primary riders that allow NJNG to recover costs associated with USF, which is a permanent statewide program for all natural gas and electric utilities for the benefit of income-eligible customers, MGP remediation and the NJCEP.

NJNG has submitted the following filings to the BPU, which include a report of program expenditures incurred each program year:

• 2019 SBC filing — On September 9, 2020, the BPU approved NJNG's annual SBC application which included an increase in the RAC rate of $ 1.2 million annually and a decrease to the NJCEP factor of $ 600,000 , which was effective October 1, 2020.

• 2020 USF filing — On October 1, 2020, the BPU approved NJNG’s annual USF compliance filing to decrease the statewide USF rate by approximately $ 400,000 annually, which was effective October 1, 2020.

• 2020 SBC filing — On April 7, 2021, the BPU approved a stipulation resolving NJNG’s annual SBC application requesting to recover remediation expenses, including an increase in the RAC of approximately $ 1.3 million annually and an increase to the NJCEP factor, which resulted in an annual increase of approximately $ 6.0 million, effective May 1, 2021.

• 2021 USF filing — On June 25, 2021, NJNG filed its annual USF compliance filing proposing an increase to the statewide USF rate, which results in an annual increase of approximately $ 4.9 million.

On September 14, 2021, the BPU approved the increase, effective October 1, 2021.

• 2021 SBC filing - On September 30, 2021, NJNG filed its annual SBC application requesting to recover remediation expenses including an increase in the RAC of approximately $ 2.0 million annually and a decrease to the NJCEP factor, which will result in an annual decrease of approximately $ 500,000 , effective April 1, 2022.

Infrastructure Programs

NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs.

NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG’s natural gas distribution system, including SAFE and NJ RISE.

The SAFE program replaces portions of NJNG’s natural gas distribution unprotected steel, cast iron infrastructure and associated services to improve the safety and reliability of the natural gas distribution system.

SAFE I was approved to invest up to $ 130.0 million, exclusive of AFUDC, over a four-year period.

SAFE II was approved to invest up to $ 200.0 million, excluding AFUDC, over a five-year period.

NJNG will recover approximately $ 157.5 million through annual rate filings, with the remainder recovered through subsequent rate cases.

As a condition of approval of the program, NJNG was required to file a base rate case no later than November 2019 and satisfied this requirement with its March 29, 2019 base rate case filing.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NJ RISE consists of six capital investment projects estimated to cost $ 102.5 million over a five-year period, excluding AFUDC, for natural gas distribution storm-hardening and mitigation projects, along with incremental depreciation expense.

NJ RISE includes a weighted average cost of capital that ranges from 6.74 percent to 6.9 percent and a return on equity of 9.75 percent.

Requests for recovery of future NJ RISE capital costs will occur in conjunction with SAFE II.

On September 27, 2019, the BPU approved NJNG’s annual SAFE II/NJ RISE petition requesting a base rate increase of $ 7.8 million, effective October 1, 2019.

On September 9, 2020, the BPU approved NJNG’s annual SAFE II/NJ RISE petition requesting a base rate increase of $ 7.1 million, effective October 1, 2020.

On March 31, 2021, NJNG filed a petition with the BPU requesting the final base rate increase of approximately $ 311,000 for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $ 3.4 million made through June 30, 2021.

On June 22, 2021, this filing was consolidated with the 2021 base rate case and on July 30, 2021, was updated for actual information through June 30, 2021.

Changes to base rates are anticipated to be effective concurrent with the base rate case request.

On July 30, 2021, NJNG updated its annual SAFE II/NJ RISE cost recovery filing through June 30, 2021, this filing seeks a base rate increase of approximately $ 269,000 annually.

This is expected to be the last annual SAFE II/NJ RISE cost recovery filings.

This increase will be effective December 1, 2021, concurrent with the rate case.

Southern Reliability Link

The SRL is an approximately 30-mile, 30-inch transmission main designed to support improved system reliability and integrity in the southern portion of NJNG’s service territory.

SRL was placed in service during August 2021 with total costs of $ 304.4 million.

Infrastructure Investment Program

On February 28, 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP.

The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements.

The total investment for the IIP is approximately $ 507.0 million.

Upon approval from the BPU, investments will be recovered through annual filings to adjust base rates.

On October 28, 2020, the BPU approved the Company’s transmission and distribution component of the IIP for $ 150.0 million over five years , effective November 1, 2020.

The recovery of information technology replacement and enhancements, that was included in the original IIP filing, will be included as part of base rate filings as projects are placed in service.

Other Filings

COVID-19 Pandemic

On July 2, 2020, the BPU issued an order which authorized New Jersey utilities to create a regulatory asset by deferring incremental COVID-19 related costs and required a related quarterly report be filed for the COVID-19-related costs and savings incurred.

Utilities must file petition by later of December 31, 2021, or within 60 days of the close of the regulatory asset period and rate recovery can be addressed in the filing or the utility may request consideration be deferred to future rate case.

Any potential rate recovery and the appropriate period of recovery, will be addressed through that filing, or may request a deferral of rate recovery for a future base rate case.

On September 14, 2021, the BPU extended the filing date to December 31, 2022, or within 60 days of the close of the regulatory asset period.

New Jersey Resources Corporation

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk