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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-11-21 compared with 2022-11-17 · 297 added, 39 removed, 376 unchanged (47% of the section changed)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

The following is a summary of fair market value of financial derivatives as of September 30, 2023, excluding foreign exchange contracts discussed below, by method of valuation and by maturity for each fiscal year period:

(Thousands) 2024 2025 2026 - 2028 After 2028 Total

Price based on ICE $ 21,604 $ 593 $ 71 $ — $ 22,268

The following is a summary of financial derivatives by type as of September 30, 2023:

Volume Bcf Price per MMBtu Amounts included in Derivatives (Thousands)

NJNG Futures 32.1 $0.97 - $5.89 $ 6,090

ES Futures (6.9) $0.00 - $6.87 16,178

Total $ 22,268

The following table reflects the changes in the fair market value of physical commodity contracts:

Balance Increase Less Balance

(Thousands) September 30,

2022 (Decrease) in Fair

Market Value Amounts

Settled September 30,

NJNG - Prices based on other external data $ 241 (26,852) (26,166) $ (445)

ES - Prices based on other external data (20,379) 14,249 7,486 (13,616)

Total $ (20,138) (12,603) (18,680) $ (14,061)

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

Based on price sensitivity analysis, an illustrative 10 percent movement in the natural gas futures contract price, for example, increases (decreases) the reported derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed price swap positions by approximately $6.5 million.

This analysis does not include potential changes to reported credit adjustments embedded in the $5.8 million reported fair value.

Based on price sensitivity analysis, an illustrative 10% movement in the natural gas futures contract price, for example, increases (decreases) the reported derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed price swap positions by approximately $3.6M.

This analysis does not include potential changes to reported credit adjustments embedded in the $14.4M reported fair value.

Derivative Fair Value Sensitivity Analysis

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The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade counterparties, as of September 30, 2023.

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

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

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

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

The amounts presented below exclude accounts receivable for NJNG retail natural gas sales and services.

Energy Services’, Clean Energy Ventures’ and Storage and Transportation’s counterparty credit exposure as of September 30, 2022, is as follows:

The amounts presented in the next tables exclude accounts receivable for NJNG retail natural gas sales and services.

New Jersey Resources Corporation

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

ES’s, CEV’s and S&T’s counterparty credit exposure as of September 30, 2023, is as follows:

(Thousands) Gross Credit Exposure Net Credit Exposure

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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

We are also exposed to changes in interest rates on our debt hedges, variable rate debt and changes in foreign currency rates for our business conducted in Canada using Canadian dollars.

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

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

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

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of New Jersey Resources Corporation and subsidiaries (the “Company”) as of September 30, 2022 and 2021, and the related consolidated statements of operations, comprehensive income, common stock equity, and cash flows, for each of the three years in the period ended September 30, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of New Jersey Resources Corporation and subsidiaries (the “Company”) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, common stock equity, and cash flows, for each of the three years in the period ended September 30, 2023, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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.

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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.

• We read relevant regulatory orders issued by the BPU for NJNG and other public utilities in New Jersey, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the probability of recovery in future rates or of a future reduction in rates based on precedence of the BPU’s treatment of similar costs under similar circumstances.

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• 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 a future reduction in rates.

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

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

/s/ Deloitte & Touche LLP

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2022, of the Company and our report dated November 17, 2022, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in accounting policy.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2023, of the Company and our report dated November 21, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

48 unchanged sentences

Diluted 97,627 96,488 96,560

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Fiscal years ended September 30, 2023 2022 2021

Net income $ 264,724 $ 274,922 $ 117,890

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax

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

1,053 1,054 1,021

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

— — ( 10,505 )

Adjustment to postemployment benefit obligation, net of tax of $ 1,873 , $( 8,657 ) and $( 2,575 ), respectively

( 6,186 ) 28,648 8,766

Other comprehensive income (loss) 29,702 9,787 ( 12,528 )

Other comprehensive (loss) income, net of tax ( 5,133 ) 29,702 9,787

Comprehensive income $ 259,591 $ 304,624 $ 127,677

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Cost of removal ( 40,555 ) ( 39,293 ) ( 50,316 )

Acquisition of assets, net of cash acquired of $ 5.1 million

— — ( 523,647 )

Distribution from equity investees in excess of equity in earnings 2,294 2,336 3,183

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Payments of common stock dividends ( 150,973 ) ( 127,704 ) ( 116,960 )

Proceeds from equity offering — — 212,900

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

Proceeds from waiver discount issuance of common stock 42,807 — —

Proceeds from issuance of common stock - DRP 14,993 14,745 15,105

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Prepaid expenses 9,741 8,572

Prepaid and accrued taxes 54,501 51,211

Prepaid taxes 43,046 54,501

Derivatives, at fair value 30,755 24,635

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Software costs 8,375 6,120

Deferred income taxes 28,383 2,928

Postemployment employee benefit assets 18,684 4,388

Other noncurrent assets 61,577 57,477

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Derivatives, at fair value 16,145 49,848

Restricted broker margin accounts 8,029 —

Operating lease liabilities 4,772 4,562

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Manufactured gas plant remediation 169,390 127,060

Postemployment employee benefit liability 82,867 169,267

Postemployment employee benefit liabilities 102,528 82,867

Regulatory liabilities 180,458 185,634

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(Thousands) Number of Shares Common Stock Premium on Common Stock Accumulated Other Comprehensive (Loss) Income Treasury Stock And Other Retained Earnings Total

Balance at September 30, 2019 89,999 $ 226,649 $ 291,331 $ ( 31,787 ) $ ( 10,436 ) $ 906,076 $ 1,381,833

Balance as of 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:

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Treasury stock and other ( 754 ) — — — ( 26,526 ) — ( 26,526 )

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

Balance as of September 30, 2021 95,710 240,644 502,584 ( 34,528 ) ( 12,448 ) 934,610 1,630,862

Net income — — — — — 274,922 274,922

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Common stock issued:

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

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

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Treasury stock and other ( 8 ) — ( 2 ) — ( 157 ) — ( 159 )

Balance at September 30, 2021 95,710 240,644 502,584 ( 34,528 ) ( 12,448 ) 934,610 1,630,862

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

Net income — — — — — 264,724 264,724

Other comprehensive income — — — 29,702 — — 29,702

Other comprehensive loss — — — ( 5,133 ) — — ( 5,133 )

Common stock issued:

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258 205 6,069 — 8,760 — 15,034

Waiver discount 948 1,298 28,059 — 13,450 — 42,807

Cash dividend declared ($ 1.59 per share)

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Treasury stock and other ( 8 ) — — — 5,343 — 5,343

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

Balance as of September 30, 2023 97,584 $ 243,458 $ 558,654 $ ( 9,959 ) $ 20,748 $ 1,177,834 $ 1,990,735

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

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NJNG comprises the Natural Gas Distribution segment.

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.

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

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

NJRES comprises the ES segment.

ES maintains and transacts around a portfolio of natural gas transportation and storage capacity contracts and provides physical wholesale energy, retail energy and energy management services in the U.S.

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 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.

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

The Company holds a 50 % combined ownership interest in Steckman Ridge, located in Pennsylvania, which is accounted for under the equity method of accounting, and 20 % ownership interest in PennEast, which ceased operations in fiscal 2022.

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.

NJRHS is included in Home Services and Other operations.

NJRHS is included in HSO operations.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Based on those evaluations, NJR has determined that it does not have any investments in variable interest entities as of September 30, 2023, 2022 and 2021.

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.

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period.

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.

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, lease liabilities, 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 periodically as required.

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New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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.

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.

CEV 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.

In July 2021, the BPU established a new successor solar incentive program.

The Administratively Determined Incentive Program provides administratively set incentives for net metered residential projects and net metered non-residential projects of 5 MW or less.

RECs generated through the production of electricity under this program are known as SREC IIs.

TRECs and SREC IIs generated are required to be purchased monthly by a REC program administrator as appointed by the BPU.

Revenue is recognized when RECs are generated and are transferred monthly based upon metered solar electricity activity.

Revenues for ES 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.

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

During December 2020, ES entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts, which commenced in November 2021.

The AMAs include a series of temporary and permanent releases, and revenue under these agreements is recognized as the performance obligations are satisfied.

For temporary releases of pipeline capacity, revenue is recognized on a straight-line basis over the agreed-upon term.

For permanent releases of pipeline capacity, which represent a transfer of contractual rights for such capacity, revenue is recognized upon the transfer of the underlying contractual rights.

ES recognized $ 48.5 M and $ 53.0 M of operating revenue on the Consolidated Statements of Operations during fiscal 2023 and 2022, respectively.

Amounts received in excess of revenue recognized totaling $ 58.7 M and $ 33.8 M are included in deferred revenue on the Consolidated Balance Sheets as of September 30, 2023 and 2022, respectively.

S&T 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.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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 ES 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, ES and NJNG 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 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) 2023 2022 2021

ES $ 74.6 $ 95.4 $ 120.5

NJNG 183.4 170.3 123.2

Total $ 258.0 $ 265.7 $ 243.7

ES expenses demand charges over the term of the service being provided.

NJNG’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 the 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.

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.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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.

NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits.

A tax benefit claimed, or expected to be claimed, on a tax return may be recognized if it is more likely than not that the position will be upheld upon examination by the applicable taxing authority.

Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest, and penalties are recognized within other noncurrent liabilities on the Consolidated Balance Sheets.

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 a reduction of depreciation expense over the useful lives of the related assets.

Investments in Equity Investees

The Company accounts for its investment in Steckman Ridge 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% 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 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 is computed 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 2.68 % of average depreciable property in fiscal 2023, 2.66 % in fiscal 2022 and 2.42 % in fiscal 2021.

The Company recorded $ 152.9 M, $ 129.2 M and $ 111.4 M in depreciation expense during fiscal 2023, 2022 and 2021, respectively.

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 2023 2022

Distribution facilities 11 to 54 years

$ 3,063,111 $ 2,797,936

Transmission facilities 28 to 42 years

650,817 649,241

Storage facilities 27 to 86 years

85,603 85,449

Solar property 20 to 35 years

864,838 710,224

Storage and transportation property 5 to 50 years

884,647 850,186

All other property 5 to 40 years

61,327 60,914

Construction work in progress 380,196 361,766

Total property, plant and equipment 5,990,539 5,515,716

Accumulated depreciation and amortization ( 968,484 ) ( 865,790 )

Property, plant and equipment, net $ 5,022,055 $ 4,649,926

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, 2023 and 2022, the base gas had a cost basis of $ 20.9 M and $ 15.1 M, 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’s base rates include the ability to recover AFUDC on its construction work in progress.

Capitalized amounts associated with Adelphia’s AFUDC are recorded in nonutility 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.

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

($ in thousands) 2023 2022 2021

NJNG Adelphia NJNG Adelphia NJNG Adelphia

Debt $ 3,546 $ 90 $ 1,648 $ 4,019 $ 5,648 $ 2,101

Equity 6,979 158 4,169 7,074 16,605 3,698

Total $ 10,525 $ 248 $ 5,817 $ 11,093 $ 22,253 $ 5,799

Weighted average interest rate 6.41 % 8.28 % 4.91 % 8.28 % 5.97 % 8.28 %

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 4.79 %, 3.85 % and 1.68 % for the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

Accordingly, other income included $ 1.8 M, $ 0.9 M and $ 0.3 M in the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

CEV 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.

Corresponding amounts are recognized in interest expense on the Consolidated Statements of Operations.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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, which are recorded in other noncurrent assets on the Consolidated Balance Sheets.

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 Consolidated Statements of Cash Flows, as of September 30:

(Thousands) 2023 2022 2021

Balance Sheet

Cash and cash equivalents $ 954 $ 1,107 $ 4,749

Restricted cash in other noncurrent assets $ 563 $ 345 $ 1,294

Statements of Cash Flow

Cash, cash equivalents and restricted cash $ 1,517 $ 1,452 $ 6,043

Allowance for Doubtful Accounts

The Company segregates financial assets, 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.

Loans Receivable

NJNG currently provides loans, with terms ranging from two 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 $ 15.1 M and $ 14.5 M recorded in other current assets and $ 39.0 M and $ 34.7 M in other noncurrent assets as of September 30, 2023 and 2022, 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, 2023 and 2022, the Company has not recorded any impairments for SAVEGREEN loans.

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.

NJNG is subject to accounting requirements resulting from the effects of rate regulation by the BPU.

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.

Adelphia 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’s regulatory assets and liabilities.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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

NJNG $ 175,025 29.1 $ 191,175 29.0

ES 24,476 14.6 82,469 10.8

Total $ 199,501 43.7 $ 273,644 39.8

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 ES, 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.

Cash flows from derivative financial instruments are included in cash flows from operating activities on the Consolidated Statements of Cash Flows.

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 CEV.

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 ES 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.

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 both September 30, 2023 and 2022, amounts recognized in interest expense related to the amortization of the loss on treasury lock transactions totaled $ 0.2 M for NJNG and $ 1.1 M for NJR.

New Jersey Resources Corporation

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

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) 2023 2022

Balance Sheets

Utility plant, at cost $ 51,282 $ 40,437

Construction work in progress $ 55,012 $ 14,381

Nonutility plant and equipment, at cost $ 344 $ 344

Accumulated depreciation and amortization, utility plant $ ( 7,480 ) $ ( 3,361 )

Accumulated depreciation and amortization, nonutility plant and equipment $ ( 36 ) $ ( 25 )

Software costs $ 8,375 $ 6,120

Statements of Operations

Operation and maintenance (1)

$ 14,299 $ 11,141

Depreciation and amortization $ 4,130 $ 2,024

(1) During both fiscal 2023 and 2022, $ 0.5 M was amortized from software costs 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, 2023, intangible assets consist primarily of acquired wholesale natural gas energy contracts totaling $ 0.1 M, which will be fully amortized during fiscal 2024.

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 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 2023 and 2022, there were no events or circumstances that indicated that the carrying value of long-lived assets or finite-lived intangibles was 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.

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