NEW JERSEY RESOURCES CORP 10-K

ITEM 7A. 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 Fair Value 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, 2023 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% 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 (Thousands) Henry Hub Futures and Fixed Price Swaps Percent increase in NYMEX natural gas futures prices 0% 5% 10% 15% 20% Estimated change in derivative fair value $ — $ (1,805) $ (3,611) $ (5,417) $ (7,222) Ending derivative fair value $ 14,392 $ 12,587 $ 10,781 $ 8,975 $ 7,170 Percent decrease in NYMEX natural gas futures prices 0% (5)% (10)% (15)% (20)% Estimated change in derivative fair value $ — $ 1,805 $ 3,611 $ 5,417 $ 7,222 Ending derivative fair value $ 14,392 $ 16,197 $ 18,003 $ 19,809 $ 21,614 Wholesale Credit Risk 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 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 in the next tables exclude accounts receivable for NJNG retail natural gas sales and services. Page 61 New Jersey Resources Corporation Part II ITEM 7A. 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 Investment grade $ 105,765 $ 102,746 Noninvestment grade 4,548 372 Internally-rated investment grade 19,549 18,802 Internally-rated noninvestment grade 19,897 16,850 Total $ 149,759 $ 138,770 NJNG’s counterparty credit exposure as of September 30, 2023, is as follows: (Thousands) Gross Credit Exposure Net Credit Exposure Investment grade $ 13,464 $ 13,112 Noninvestment grade 227 — Internally-rated investment grade 794 679 Internally-rated noninvestment grade 256 192 Total $ 14,741 $ 13,983 Due to the inherent volatility in the market price for natural gas, electricity and SRECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty failed to perform the obligations under its contract (for example, failed to make payment for natural gas received), we could sustain a loss. This loss would comprise the loss on natural gas delivered but not paid for and/or the cost of replacing natural gas not delivered or received at a price that exceeds the original contract price. Any such loss could have a material impact on our financial condition, results of operations or cash flows. 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% 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations . Effects of Inflation 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. See Item 1A. Risk Factors for additional information related to the impact of recent increases in inflation rates. Page 62 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of New Jersey Resources Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s Management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2023. In making this assessment, management used the criteria for effective internal control over financial reporting described in the Internal Control-Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of September 30, 2023, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The conclusion of the Company’s principal executive officer and principal financial officer is based on the recognition that there are inherent limitations in all systems of internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, errors or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on the effectiveness of the Company’s internal control over financial reporting as of September 30, 2023, which appears herein. November 21, 2023 Page 63 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareowners and the Board of Directors of New Jersey Resources Corporation: 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, 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. 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, 2023, 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 21, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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) 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. Regulation — Impact of Rate-Regulation on Various Account Balances and Disclosures — Refer to Notes 2 and 4 to the financial statements Critical Audit Matter Description New Jersey Natural Gas Company (“NJNG”), a subsidiary of the Company, is a regulated gas distribution company that serves customers in central and northern New Jersey. NJNG is subject to regulation by the New Jersey Board of Public Utilities (the “BPU”), which has jurisdiction with respect to the rates of gas distribution companies in New Jersey. 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. Page 64 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 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. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. Decisions to be made by the BPU in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. Accounting for the economics of rate-regulation impacts multiple financial statement line items and disclosures, such as regulated property, plant, and equipment, regulatory assets and liabilities, operating revenues and depreciation expense. While NJNG expects to recover costs from customers through regulated rates, there is a risk that the BPU will not approve full recovery of such costs or full recovery of all amounts invested in the utility business and a reasonable return on that investment. We identified the impact of rate-regulation as a critical audit matter due to the significant judgments made by management to support its assertions about the impact of regulatory orders on the financial statements, including assessing the probability of both recovery in rates of incurred costs, and refunds to customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the BPU, auditing these judgments requires specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities. 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 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 due to refunds to customers. • 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. 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 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. /s/ Deloitte & Touche LLP Morristown, New Jersey November 21, 2023 We have served as the Company’s auditor since 1951. Page 65 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareowners and the Board of Directors of New Jersey Resources Corporation: Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of New Jersey Resources Corporation and subsidiaries (the “Company”) as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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, 2023, of the Company and our report dated November 21, 2023, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Morristown, New Jersey November 21, 2023 Page 66 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands, except per share data) Fiscal years ended September 30, 2023 2022 2021 OPERATING REVENUES Utility $ 1,011,284 $ 1,127,417 $ 731,459 Nonutility 951,710 1,778,562 1,425,154 Total operating revenues 1,962,994 2,905,979 2,156,613 OPERATING EXPENSES Natural gas purchases: Utility 416,158 547,901 247,734 Nonutility 555,579 1,393,656 1,096,920 Related parties 7,206 7,395 7,013 Operation and maintenance 373,568 361,866 366,905 Regulatory rider expenses 50,542 59,437 38,304 Depreciation and amortization 152,941 129,249 111,387 Total operating expenses 1,555,994 2,499,504 1,868,263 OPERATING INCOME 407,000 406,475 288,350 Other income, net 26,083 22,295 24,597 Interest expense, net of capitalized interest 123,014 85,830 78,559 INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES 310,069 342,940 234,388 Income tax provision 49,275 76,195 33,286 Equity in earnings (loss) of affiliates 3,930 8,177 ( 83,212 ) NET INCOME $ 264,724 $ 274,922 $ 117,890 EARNINGS PER COMMON SHARE Basic $ 2.73 $ 2.86 $ 1.23 Diluted $ 2.71 $ 2.85 $ 1.22 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 97,028 96,100 96,227 Diluted 97,627 96,488 96,560 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Thousands) Fiscal years ended September 30, 2023 2022 2021 Net income $ 264,724 $ 274,922 $ 117,890 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 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 (loss) income, net of tax ( 5,133 ) 29,702 9,787 Comprehensive income $ 259,591 $ 304,624 $ 127,677 See Notes to Consolidated Financial Statements Page 67 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands) Fiscal years ended September 30, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 264,724 $ 274,922 $ 117,890 Adjustments to reconcile net income to cash flows from operating activities Unrealized (gain) loss on derivative instruments ( 38,081 ) ( 59,906 ) 54,203 Impairment of equity method investment — — 92,000 Depreciation and amortization 152,941 129,249 111,387 Amortization of acquired wholesale energy contracts 2,271 2,561 4,604 Allowance for equity used during construction ( 7,137 ) ( 11,243 ) ( 20,303 ) Allowance for doubtful accounts 1,570 2,401 18,986 Non-cash lease expense 3,708 4,850 3,920 Deferred income taxes 30,462 81,659 23,796 Equivalent value of ITCs recognized on equipment financing ( 6,986 ) ( 7,542 ) ( 6,482 ) Manufactured gas plant remediation costs ( 9,571 ) ( 17,538 ) ( 17,532 ) Equity in earnings, net of distributions received from equity investees — — ( 3,046 ) Cost of removal - asset retirement obligations ( 1,526 ) ( 1,289 ) ( 1,129 ) Contributions to postemployment benefit plans ( 4,706 ) ( 6,785 ) ( 7,669 ) Taxes related to stock-based compensation ( 588 ) ( 144 ) ( 159 ) Changes in: Components of working capital 61,525 ( 77,687 ) 10,254 Other noncurrent assets ( 97,753 ) ( 38,424 ) 13,715 Other noncurrent liabilities 128,140 48,396 ( 3,481 ) Cash flows from operating activities 478,993 323,480 390,954 CASH FLOWS USED IN INVESTING ACTIVITIES Expenditures for: Utility plant ( 350,304 ) ( 259,081 ) ( 376,312 ) Solar equipment ( 107,303 ) ( 146,676 ) ( 87,852 ) Storage and transportation and other ( 42,757 ) ( 153,378 ) ( 110,130 ) Cost of removal ( 40,555 ) ( 39,293 ) ( 50,316 ) Distribution from equity investees in excess of equity in earnings 2,294 2,336 3,183 Investments in equity investees, net of return of capital — 5,479 ( 690 ) Cash flows used in investing activities ( 538,625 ) ( 590,613 ) ( 622,117 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 225,000 360,000 — Payments of long-term debt ( 71,934 ) ( 68,343 ) ( 18,007 ) Proceeds from term loan — 150,000 — Payments of term loan ( 150,000 ) — — (Payments of) proceeds from short-term debt, net ( 21,850 ) ( 103,350 ) 251,950 Proceeds from sale leaseback transactions - solar 167,790 24,071 17,673 Proceeds from sale leaseback transactions - natural gas meters 8,441 17,300 — Payments of common stock dividends ( 150,973 ) ( 127,704 ) ( 116,960 ) 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 Purchases of treasury stock — — ( 27,217 ) Tax withholding payments related to net settled stock compensation ( 4,577 ) ( 4,177 ) ( 1,938 ) Cash flows from financing activities 59,697 262,542 117,783 Change in cash, cash equivalents and restricted cash 65 ( 4,591 ) ( 113,380 ) Cash, cash equivalents and restricted cash at beginning of period 1,452 6,043 119,423 Cash, cash equivalents and restricted cash at end of period $ 1,517 $ 1,452 $ 6,043 CHANGES IN COMPONENTS OF WORKING CAPITAL Receivables $ 112,628 $ ( 16,658 ) $ ( 81,366 ) Inventories 67,445 ( 80,801 ) ( 25,257 ) Recovery of natural gas costs ( 14,427 ) 1,037 ( 13,124 ) Natural gas purchases payable ( 183,772 ) 66,352 72,752 Natural gas purchases payable - related parties 8 ( 10 ) 70 Deferred revenue 934 33,802 ( 1,763 ) Accounts payable and other 7,537 ( 34,259 ) 31,826 Prepaid expenses ( 1,169 ) ( 406 ) ( 1,527 ) Prepaid and accrued taxes 16,415 ( 1,516 ) ( 3,449 ) Restricted broker margin accounts 46,364 ( 51,165 ) 28,013 Customers’ credit balances and deposits 11,664 660 6,652 Other current assets (liabilities) ( 2,102 ) 5,277 ( 2,573 ) Total $ 61,525 $ ( 77,687 ) $ 10,254 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid for: Interest (net of amounts capitalized) $ 108,194 $ 84,375 $ 78,650 Income taxes $ 4,282 $ 4,252 $ 6,381 Accrued capital expenditures $ 25,867 $ 34,674 $ 64,626 See Notes to Consolidated Financial Statements Page 68 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED BALANCE SHEETS ASSETS (Thousands) September 30, 2023 2022 PROPERTY, PLANT AND EQUIPMENT Utility plant, at cost $ 3,843,037 $ 3,576,691 Construction work in progress 237,428 162,087 Nonutility plant and equipment, at cost 1,767,306 1,577,259 Construction work in progress 142,768 199,679 Total property, plant and equipment 5,990,539 5,515,716 Accumulated depreciation and amortization, utility plant ( 714,087 ) ( 659,737 ) Accumulated depreciation and amortization, nonutility plant and equipment ( 254,397 ) ( 206,053 ) Property, plant and equipment, net 5,022,055 4,649,926 CURRENT ASSETS Cash and cash equivalents 954 1,107 Customer accounts receivable: Billed 97,540 222,297 Unbilled revenues 19,100 13,769 Allowance for doubtful accounts ( 11,036 ) ( 19,379 ) Regulatory assets 73,587 40,086 Natural gas in storage, at average cost 199,501 273,644 Materials and supplies, at average cost 27,022 20,324 Prepaid expenses 9,741 8,572 Prepaid taxes 43,046 54,501 Derivatives, at fair value 30,755 24,635 Restricted broker margin accounts 20,796 94,261 Other current assets 21,071 22,270 Total current assets 532,077 756,087 NONCURRENT ASSETS Investments in equity method investees 104,134 106,571 Regulatory assets 584,830 500,666 Operating lease assets 175,740 168,520 Derivatives, at fair value 1,564 6,385 Intangible assets, net 77 2,348 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 Total noncurrent assets 983,364 855,403 Total assets $ 6,537,496 $ 6,261,416 See Notes to Consolidated Financial Statements Page 69 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CAPITALIZATION AND LIABILITIES (Thousands, except share data) September 30, 2023 2022 CAPITALIZATION Common stock, $ 2.50 par value; authorized 150,000,000 shares; outstanding shares September 30, 2023 — 97,584,455 ; September 30, 2022 — 96,249,859 $ 243,458 $ 241,616 Premium on common stock 558,654 519,697 Accumulated other comprehensive loss, net of tax ( 9,959 ) ( 4,826 ) Treasury stock at cost and other; shares September 30, 2023 — 13,041 ; September 30, 2022 — 611,045 20,748 ( 6,805 ) Retained earnings 1,177,834 1,067,528 Common stock equity 1,990,735 1,817,210 Long-term debt 2,768,017 2,485,402 Total capitalization 4,758,752 4,302,612 CURRENT LIABILITIES Current maturities of long-term debt 116,155 75,069 Short-term debt 252,100 423,950 Natural gas purchases payable 51,277 235,049 Natural gas purchases payable to related parties 859 851 Deferred revenue 61,404 35,547 Accounts payable and other 151,790 156,580 Dividends payable 40,981 37,534 Accrued taxes 10,090 5,130 Regulatory liabilities 32,287 31,090 New Jersey Clean Energy Program 15,804 15,697 Derivatives, at fair value 16,145 49,848 Restricted broker margin accounts 8,029 — Operating lease liabilities 4,772 4,562 Customers’ credit balances and deposits 44,910 33,246 Total current liabilities 806,603 1,104,153 NONCURRENT LIABILITIES Deferred income taxes 285,427 238,928 Deferred investment tax credits 2,434 2,710 Deferred revenue 659 753 Derivatives, at fair value 7,967 14,191 Manufactured gas plant remediation 169,390 127,060 Postemployment employee benefit liabilities 102,528 82,867 Regulatory liabilities 180,458 185,634 Operating lease liabilities 148,023 138,382 Asset retirement obligation 61,993 55,035 Other noncurrent liabilities 13,262 9,091 Total noncurrent liabilities 972,141 854,651 Commitments and contingent liabilities (Note 14) Total capitalization and liabilities $ 6,537,496 $ 6,261,416 See Notes to Consolidated Financial Statements Page 70 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY (Thousands) Number of Shares Common Stock Premium on Common Stock Accumulated Other Comprehensive (Loss) Income Treasury Stock And Other Retained Earnings Total 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 income — — — 9,787 — — 9,787 Common stock issued: Common stock offering — — ( 2,823 ) — — — ( 2,823 ) Incentive compensation plan 84 210 4,053 — — — 4,263 Dividend reinvestment plan (1) 431 191 9,372 — 5,593 — 15,156 Cash dividend declared ($ 1.36 per share) — — — — — ( 130,781 ) ( 130,781 ) Treasury stock and other ( 754 ) — — — ( 26,526 ) — ( 26,526 ) 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 Other comprehensive income — — — 29,702 — — 29,702 Common stock issued: Incentive compensation plan 193 481 8,665 — — — 9,146 Dividend reinvestment plan (1) 355 491 8,450 — 5,800 — 14,741 Cash dividend declared ($ 1.4775 per share) — — — — — ( 142,004 ) ( 142,004 ) Treasury stock and other ( 8 ) — ( 2 ) — ( 157 ) — ( 159 ) 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 loss — — — ( 5,133 ) — — ( 5,133 ) Common stock issued: Incentive compensation plan 136 339 4,829 — — — 5,168 Dividend reinvestment plan (1) 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) — — — — — ( 154,418 ) ( 154,418 ) Treasury stock and other ( 8 ) — — — 5,343 — 5,343 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. See Notes to Consolidated Financial Statements Page 71 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 1. NATURE OF THE BUSINESS 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 576,000 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 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. and Canada. 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 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 HSO operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Other financial investments or contractual interests that lack the characteristics of a voting interest entity, which are commonly referred to as variable interest entities, are evaluated by the Company to determine if the entity has the power to direct business activities and, therefore, would be considered a controlling interest that the Company would have to consolidate. 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 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, 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. 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. Page 72 New Jersey Resources Corporation Part II ITEM 8. 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 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. See Note 3. Revenue for further information. Page 73 New Jersey Resources Corporation Part II ITEM 8. 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. Demand Fees 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. See Note 10. Stock-Based Compensation for further information. Page 74 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Income Taxes 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. See Note 12. 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. See Note 7. 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. Page 75 New Jersey Resources Corporation Part II ITEM 8. 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 AFUDC: 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. Page 76 New Jersey Resources Corporation Part II ITEM 8. 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. See Note 4. 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. See Note 4. Regulation for a more detailed description of Adelphia’s regulatory assets and liabilities. Page 77 New Jersey Resources Corporation Part II ITEM 8. 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: 2023 2022 ($ 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. See Note 5. 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. Page 78 New Jersey Resources Corporation Part II ITEM 8. 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. See Note 9. Debt for the total unamortized debt issuance costs that are recorded as a reduction to long-term debt on the Consolidated Balance Sheets. Page 79 New Jersey Resources Corporation Part II