NEW JERSEY RESOURCES CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Sale Leasebacks NJNG utilizes sale leaseback arrangements as a financing mechanism to fund certain of its capital expenditures related to natural gas meters, whereby the physical asset is sold concurrent with an agreement to lease the asset back. These agreements include options to renew the lease or repurchase the asset at the end of the term. Proceeds from sale leaseback transactions are accounted for as financing arrangements and are included in long-term debt on the Consolidated Balance Sheets. In addition, for certain of its commercial solar energy projects, the Company enters into lease agreements that provide for the sale of commercial solar energy assets to third parties and the concurrent leaseback of the assets. For sale leaseback transactions where the Company has concluded that the arrangement does not qualify as a sale as the Company retains control of the underlying assets, the Company uses the financing method to account for the transaction. Under the financing method, the Company recognizes the proceeds received from the buyer-lessor that constitute a payment to acquire the solar energy asset as a financing arrangement, which is recorded as a component of debt on the Consolidated Balance Sheets. The Company continues to operate the solar assets and is responsible for related expenses and entitled to retain the revenue generated from SRECs, TRECs, SREC IIs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the buyer; however, the payments are structured so that CEV is compensated for the transfer of the related tax attributes. Accordingly, CEV recognizes the equivalent value of the tax attributes in other income on the Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease. See Note 9. Debt for more details regarding sale leaseback transactions recorded as financing arrangements. Environmental Contingencies Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. Estimating probable losses requires an analysis of uncertainties that often depend upon judgments about potential actions by third parties. Accruals for loss contingencies are recorded based on an analysis of potential results. With respect to environmental liabilities and related costs, NJNG periodically, and at least annually, performs an environmental review of MGP sites, including a review of potential liability for investigation and remedial action. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries. NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination. See Note 14. Commitments and Contingent Liabilities for more details. Pension and Postemployment Plans The Company has two noncontributory defined pension plans covering eligible employees, including officers. Benefits are based on each employee’s years of service and compensation. The Company’s funding policy is to contribute annually to these plans at least the minimum amount required under the Employee Retirement Income Security Act, as amended, and not more than can be deducted for federal income tax purposes. Plan assets consist of equity securities, fixed-income securities and short-term investments. The Company did no t make any discretionary contributions to the pension plans during fiscal 2023 and 2022. The Company also provides two primarily noncontributory medical and life insurance plans for eligible retirees and dependents. Medical benefits, which make up the largest component of the plans, are based upon an age and years-of-service vesting schedule and other plan provisions. Funding of these benefits is made primarily into Voluntary Employee Beneficiary Association trust funds. The Company contributed $ 4.2 M and $ 6.1 M in aggregate to these plans during fiscal 2023 and 2022, respectively, which is recorded in postemployment employee benefit liability on the Consolidated Balance Sheets. See Note 11. Employee Benefit Plans for a more detailed description of the Company’s pension and postemployment plans. Page 80 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Asset Retirement Obligations The Company recognizes ARO related to the costs associated with cutting and capping NJNG’s main and service natural gas distribution mains, which is required by New Jersey law when taking such natural gas distribution mains out of service. The Company also recognizes ARO associated with CEV’s solar assets when there are decommissioning provisions in lease agreements that require removal of the asset at the end of the lease term. ARO are initially recognized when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made. The discounted fair value is recognized as an ARO liability with a corresponding amount capitalized as part of the carrying cost of the underlying asset. The obligation is subsequently accreted to the future value of the expected retirement cost, and the corresponding asset retirement cost is depreciated over the life of the related asset. Accretion expense associated with CEV’s ARO is recognized as a component of operations and maintenance expense on the Consolidated Statements of Operations. Accretion amounts associated with NJNG’s ARO are recognized as part of its depreciation expense, and the corresponding regulatory asset and liability will be shown gross on the Consolidated Balance Sheets. Estimating future removal costs requires management to make significant judgments because most of the removal obligations span long time frames and removal may be conditioned upon future events. Asset removal technologies are also constantly changing, which makes it difficult to estimate removal costs. Accordingly, inherent in the estimate of ARO are various assumptions including the ultimate settlement date, expected cash outflows, inflation rates, credit-adjusted risk-free rates and consideration of potential outcomes where settlement of the ARO can be conditioned upon events. In the latter case, the Company develops possible retirement scenarios and assigns probabilities based on management’s reasonable judgment and knowledge of industry practice. Accordingly, ARO are subject to change. The following is an analysis of the change in the Company’s ARO for the fiscal years ended September 30: (Thousands) Balance at October 1 Accretion Additions Change in assumptions Retirements Balance at period end 2023 NJNG $ 49,874 2,693 155 4,089 ( 1,526 ) $ 55,285 NJRCEV $ 5,161 213 1,334 — — $ 6,708 2022 NJNG $ 41,611 2,052 161 7,339 ( 1,289 ) $ 49,874 NJRCEV $ 4,694 186 281 — — $ 5,161 Accretion for the next five years, for the fiscal years ended September 30, is estimated to be as follows: (Thousands) 2024 2025 2026 2027 2028 Total Estimated Accretion $ 3,114 3,268 3,429 3,597 3,781 $ 17,189 Page 81 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Accumulated Other Comprehensive Income The following table presents the changes in the components of accumulated other comprehensive income, net of related tax effects: (Thousands) Cash Flow Hedges Postemployment Benefit Obligation Total Balance as of September 30, 2021 $ ( 9,376 ) $ ( 25,152 ) $ ( 34,528 ) Other comprehensive income, net of tax Other comprehensive income, before reclassifications, net of tax of $ 0 , $( 7,727 ) and $( 7,727 ), respectively — 25,580 25,580 Amounts reclassified from accumulated other comprehensive income, net of tax of $( 317 ), $( 930 ) and $( 1,247 ), respectively 1,054 3,068 (1) 4,122 Net current-period other comprehensive income, net of tax of $( 317 ), $( 8,657 ) and $( 8,974 ), respectively 1,054 28,648 29,702 Balance as of September 30, 2022 $ ( 8,322 ) $ 3,496 $ ( 4,826 ) Other comprehensive income, net of tax Other comprehensive income, before reclassifications, net of tax of $ 0 , $ 1,922 and $ 1,922 , respectively — ( 6,350 ) ( 6,350 ) Amounts reclassified from accumulated other comprehensive income, net of tax of $( 317 ), $( 49 ) and $( 366 ), respectively 1,053 164 (1) 1,217 Net current-period other comprehensive income, net of tax of $( 317 ), $ 1,873 and $ 1,556 , respectively 1,053 ( 6,186 ) ( 5,133 ) Balance as of September 30, 2023 $ ( 7,269 ) $ ( 2,690 ) $ ( 9,959 ) (1) Included in the computation of net periodic pension cost, a component of operations and maintenance expense on the Consolidated Statements of Operations. For more details, see Note 11. Employee Benefit Plans . Foreign Currency Transactions The market area of ES includes Canadian delivery points and, as a result, ES incurs certain natural gas commodity costs and demand fees denominated in Canadian dollars. Gains or losses that occur as a result of these foreign currency transactions are reported as a component of natural gas purchases on the Consolidated Statements of Operations. Gains and losses recognized for the fiscal years ended September 30, 2023, 2022 and 2021, are considered immaterial. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. Deferred income taxes and postemployment employee benefit assets previously classified within other noncurrent assets on the Consolidated Balance Sheets have been reclassified to their own category. Recently Adopted Updates to the Accounting Standards Codification Debt and Other In August 2020, the FASB issued ASU No. 2020-06, an amendment to ASC 470, Debt , and ASC 815, Derivatives and Hedging , which changes the accounting for convertible instruments by reducing the number of acceptable accounting models to three models, including the embedded derivative, substantial premium and traditional no proceeds allocated models. The Company adopted this guidance on October 1, 2022. The Company does not currently have convertible debt instruments, and as a result there was no impact on its financial position, results of operations, cash flows and disclosures upon adoption. In May 2021, the FASB issued ASU No. 2021-04, an amendment to ASC 470, Debt , ASC 260, Earnings per Share , ASC 718, Stock Compensation , and ASC 815, Derivatives and Hedging. The update impacts equity-classified written call options that remain equity-classified after a modification or exchange. The Company adopted this guidance on October 1, 2022, on a prospective basis. As the Company does not currently have equity-classified written call options, there was no impact on its financial position, results of operations, cash flows and disclosures upon adoption. Page 82 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Leases In July 2021, the FASB issued ASU No. 2021-05, an amendment to ASC 842, Leases , which requires a lessor to classify a lease with entirely or partially variable payments that do not depend on an index or rate as an operating lease if another classification, including sales-type or direct financing, would trigger a loss at the lease commencement date. The Company adopted this guidance on October 1, 2022, on a prospective basis. The Company currently does not have any leases that meet this criteria, and as such there was no impact on its financial position, results of operations, cash flows and disclosures upon adoption. Other Recent Updates to the Accounting Standards Codification Business Combinations In October 2021, the FASB issued ASU No. 2021-08, an amendment to ASC 805, Business Combinations , which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers . The guidance is effective for the Company beginning October 1, 2023, and the Company will apply the updated guidance on a prospective basis to new acquisitions following the date of adoption. In August 2023, the FASB issued ASU No. 2023-05, an amendment to ASC 805, Business Combinations , which addresses how a joint venture should recognize contributions received upon its formation. Joint ventures must account for initial assets and liabilities received at fair value on the date the joint venture is formed. The guidance is effective for the Company for joint ventures formed beginning January 1, 2025, and the Company can elect to apply it either prospectively or retrospectively back to a joint venture’s formation date provided adequate information is available. Early adoption is permitted. This amendment would only impact the Company upon adoption if, in the future, it entered into an applicable transaction. Derivatives and Hedging In March 2022, the FASB issued ASU No. 2022-01, an amendment to ASC 815, Derivatives and Hedging , which addresses fair value hedge accounting of interest rate risk for portfolios of financial assets. This update further clarifies guidance previously released in ASU 2017-12, which established the “last-of-layer” method, and this update renames that method as the “portfolio layer” method. The guidance is effective for the Company beginning October 1, 2023, and the transition method can be on a prospective basis for a multiple-layer hedging strategy or a modified retrospective basis for a portfolio layer method. As the Company does not currently apply hedge accounting to any of its risk management activities, the amendment will have no impact on its financial position, results of operations, cash flows and disclosures upon adoption. Financial Instruments In March 2022, the FASB issued ASU No. 2022-02, an amendment to ASC 326, Financial Instruments-Credit Losses , which eliminates the accounting guidance for creditors in troubled debt restructuring. It also aligns conflicting disclosure requirement guidance in ASC 326 by requiring disclosure of current-period gross write-offs by year of origination. The amendment also adds new disclosures for creditors with loan refinancing and restructuring for borrowers experiencing financial difficulty. The guidance is effective for the Company beginning October 1, 2023, and the Company can elect to apply it on either a modified retrospective or prospective basis. At this time, the Company has not experienced a troubled debt restructuring, and therefore the amendments will have no impact on its financial position, results of operations, cash flows and disclosures upon adoption. Fair Value Measurement In June 2022, the FASB issued ASU No. 2022-03, an amendment to ASC 820, Fair Value Measurement. The amendment clarifies the fair value principles when measuring the fair value of an equity security subject to a contractual sale restriction. The guidance is effective for the Company on October 1, 2024, and will be applied on a prospective basis. At this time, the Company does not have equity securities subject to contractual sale restrictions, and therefore this amendment would only impact the Company upon adoption if, in the future, it entered into such transactions. Page 83 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Leases In March 2023, the FASB issued ASU No. 2023-01, an amendment to ASC 842, Leases, which applies to arrangements between related parties under common control. This update requires that all entities with common control arrangements classify and account for these leases on the same basis as an arrangement with an unrelated party. If the lessee in these types of arrangements continues to control the use of the underlying asset through a lease, the leasehold improvements are to be amortized over the improvements’ useful life to the common control group, regardless of the lease term. The guidance is effective for the Company on October 1, 2024, and the Company can elect to apply it either on a prospective basis or retrospectively beginning October 1, 2019, representing the date which the Company adopted ASC 842. The Company is currently evaluating the amendment to understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption. 3. REVENUE Revenue is recognized when a performance obligation is satisfied by transferring control of a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer using the output method of progress. The Company elected to apply the invoice practical expedient for recognizing revenue, whereby the amounts invoiced to customers represent the value to the customer and the Company’s performance completion as of the invoice date. Therefore the Company does not disclose related unsatisfied performance obligations. The Company also elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax net in operating revenues on the Consolidated Statements of Operations. Below is a listing of performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms and the nature of the goods and services being transferred, by reporting segment and other business operations: Revenue Recognized Over Time: Segment/ Operations Performance Obligation Description NJNG Natural gas utility sales NJNG’s performance obligation is to provide natural gas to residential, commercial and industrial customers as demanded, based on regulated tariff rates, which are established by the BPU. Revenues from the sale of natural gas are recognized in the period that natural gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period. Payment is due each month for the previous month’s deliveries. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates. NJNG is entitled to be compensated for performance completed until service is terminated. Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers. As NJNG is acting as an agent on behalf of the third-party supplier, revenue is recorded for the delivery of natural gas to the customer. CEV Commercial solar electricity CEV operates wholly-owned solar projects that recognize revenue as electricity is generated and transferred to the customer. The performance obligation is to provide electricity to the customer in accordance with contract terms or the interconnection agreement and is satisfied upon transfer of electricity generated. Revenue is recognized as invoiced and the payment is due each month for the previous month's services. CEV Residential solar electricity CEV provides access to residential rooftop and ground-mount solar equipment to customers who then pay the Company a monthly fee. The performance obligation is to provide electricity to the customer based on generation from the underlying residential solar asset and is satisfied upon transfer of electricity generated. Revenue is derived from the contract terms and is recognized as invoiced, with the payment due each month for the previous month’s services. Page 84 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Revenue Recognized Over Time (continued): Segment/ Operations Performance Obligation Description CEV Renewable energy certificates Certain CEV projects generate TRECs and SREC IIs under the established Administratively Determined Incentive Program. A TREC or SREC II is created for every MWh of electricity produced by a solar generator. The performance obligation of CEV is to generate electricity. TRECs and SREC IIs under the Administratively Determined Incentive Program are purchased monthly by a REC Administrator. Revenue is recognized upon generation. ES Natural gas services The performance obligation of ES is to provide the customer transportation, storage and asset management services on an as-needed basis. ES generates revenue through management fees, demand charges, reservation fees and transportation charges centered around the buying and selling of the natural gas commodity, representing one series of distinct performance obligations. Revenue is recognized based upon the underlying natural gas quantities physically delivered and the customer obtaining control. ES invoices customers in line with the terms of the contract and based on the services provided. Payment is due upon receipt of the invoice. For temporary releases of pipeline capacity, revenue is recognized on a straight-line basis over the agreed upon term. S&T Natural gas services The performance obligation of S&T is to provide the customer with storage and transportation services. S&T generates revenues from firm storage contracts and transportation contracts, injection and withdrawal at the storage facility and the delivery of natural gas to customers. Revenue is recognized over time as customers receive the benefits of its service as it is performed on their behalf using an output method based on actual deliveries. Demand fees are recognized as revenue over the term of the related agreement. HSO Service contracts Home Services enters into service contracts with homeowners to provide maintenance and replacement of applicable heating, cooling or ventilation equipment. NJR Retail enters into warranty contracts with homeowners for various appliances. All services provided relate to a distinct performance obligation which is to provide services for the specific equipment over the term of the contract. Revenue is recognized on a straight-line basis over the term of the contract and payment is due upon receipt of the invoice. Revenue Recognized at a Point in Time: ES Natural gas services For a permanent release of pipeline capacity, the performance obligation of ES is the release of the pipeline capacity associated with certain natural gas transportation contracts and the transfer of the underlying contractual rights to the counterparty. Revenue is recognized upon the transfer of the underlying contractual rights. S&T Natural gas services The performance obligation of S&T is to provide the customer with storage and transportation services. S&T generates revenues from usage fees and hub services for the use of storage space, injection and withdrawal from the storage facility. Hub services include park and loan transactions and wheeling. Usage fees and hub services revenues are recognized as services are performed. HSO Installations Home Services installs appliances, including but not limited to, furnaces, air conditioning units, boilers and generators for customers. The distinct performance obligation is the installation of the contracted appliance, which is satisfied at the point in time the item is installed. The transaction price for each installation differs accordingly. Revenue is recognized at a point in time upon completion of the installation, which is when the customer is billed. Page 85 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during fiscal 2023, 2022 and 2021 are as follows: (Thousands) NJNG CEV ES S&T HSO Total 2023 Natural gas utility sales (1) $ 845,392 — — — — $ 845,392 Natural gas services — — 76,975 92,859 — 169,834 Service contracts — — — — 35,210 35,210 Installations and maintenance — — — — 22,428 22,428 Renewable energy certificates — 12,636 — — — 12,636 Electricity sales — 31,733 — — — 31,733 Eliminations (2) ( 1,349 ) — — ( 4,159 ) ( 205 ) ( 5,713 ) Revenues from contracts with customers 844,043 44,369 76,975 88,700 57,433 1,111,520 Alternative revenue programs (3) 27,257 — — — — 27,257 Derivative instruments 139,984 79,762 (4) 614,641 — — 834,387 Eliminations (2) — — ( 10,170 ) — — ( 10,170 ) Revenues out of scope 167,241 79,762 604,471 — — 851,474 Total operating revenues $ 1,011,284 124,131 681,446 88,700 57,433 $ 1,962,994 2022 Natural gas utility sales (1) $ 951,626 — — — — $ 951,626 Natural gas services — — 83,801 67,735 — 151,536 Service contracts — — — — 33,932 33,932 Installations and maintenance — — — — 22,250 22,250 Renewable energy certificates — 5,487 — — — 5,487 Electricity sales — 38,317 — — — 38,317 Eliminations (2) ( 1,350 ) — — ( 2,449 ) ( 364 ) ( 4,163 ) Revenues from contracts with customers 950,276 43,804 83,801 65,286 55,818 1,198,985 Alternative revenue programs (3) 11,259 — — — — 11,259 Derivative instruments 165,882 84,476 (4) 1,445,471 — — 1,695,829 Eliminations (2) — — ( 94 ) — — ( 94 ) Revenues out of scope 177,141 84,476 1,445,377 — — 1,706,994 Total operating revenues $ 1,127,417 128,280 1,529,178 65,286 55,818 $ 2,905,979 2021 Natural gas utility sales $ 694,635 — — — — 694,635 Natural gas services — — 26,933 51,020 — 77,953 Service contracts — — — — 33,250 33,250 Installations and maintenance — — — — 18,979 18,979 Renewable energy certificates — 4,571 — — — 4,571 Electricity sales — 25,270 — — — 25,270 Eliminations (2) — — — ( 1,768 ) ( 785 ) ( 2,553 ) Revenues from contracts with customers 694,635 29,841 26,933 49,252 51,444 852,105 Alternative revenue programs (3) ( 7,282 ) — — — — ( 7,282 ) Derivative instruments 44,443 65,434 (4) 1,201,487 — — 1,311,364 Eliminations (2) — — 426 — — 426 Revenues out of scope 37,161 65,434 1,201,913 — — 1,304,508 Total operating revenues $ 731,796 95,275 1,228,846 49,252 51,444 2,156,613 (1) Includes building rent related to the Wall headquarters, which is eliminated in consolidation. (2) Consists of transactions between subsidiaries that are eliminated in consolidation. (3) Includes CIP revenue. (4) Includes SREC revenue. Page 86 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the fiscal years ended September 30, are as follows: (Thousands) NJNG CEV ES S&T HSO Total 2023 Residential $ 621,663 13,668 — — 57,091 $ 692,422 Commercial and industrial 136,011 30,701 76,975 88,700 342 332,729 Firm transportation 77,722 — — — — 77,722 Interruptible, off-tariff and other 8,647 — — — — 8,647 Revenues out of scope 167,241 79,762 604,471 — — 851,474 Total operating revenues $ 1,011,284 124,131 681,446 88,700 57,433 $ 1,962,994 2022 Residential $ 586,678 12,579 — — 55,629 $ 654,886 Commercial and industrial 265,970 31,225 83,801 65,286 189 446,471 Firm transportation 92,531 — — — — 92,531 Interruptible, off-tariff and other 5,097 — — — — 5,097 Revenues out of scope 177,141 84,476 1,445,377 — — 1,706,994 Total operating revenues $ 1,127,417 128,280 1,529,178 65,286 55,818 $ 2,905,979 2021 Residential $ 487,018 11,319 — — 50,689 $ 549,026 Commercial and industrial 124,519 18,522 26,933 49,252 755 219,981 Firm transportation 79,256 — — — — 79,256 Interruptible, off-tariff and other 3,842 — — — — 3,842 Revenues out of scope 37,161 65,434 1,201,913 — — 1,304,508 Total operating revenues $ 731,796 95,275 1,228,846 49,252 51,444 $ 2,156,613 Customer Accounts Receivable/Credit Balances and Deposits The timing of revenue recognition, customer billings and cash collections resulting in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Consolidated Balance Sheets are as follows: Customer Accounts Receivable Customers’Credit (Thousands) Billed Unbilled Balances and Deposits Balance as of September 30, 2021 $ 212,838 $ 10,351 $ 32,586 Increase 9,459 3,418 660 Balance as of September 30, 2022 222,297 13,769 33,246 (Decrease) increase ( 124,757 ) 5,331 11,664 Balance as of September 30, 2023 $ 97,540 $ 19,100 $ 44,910 The following table provides information about receivables, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits, respectively, on the Consolidated Balance Sheets as of September 30: (Thousands) NJNG CEV ES S&T HSO Total 2023 Customer accounts receivable Billed $ 55,234 9,962 23,716 6,577 2,051 $ 97,540 Unbilled 10,784 8,316 — — — 19,100 Customers’ credit balances and deposits ( 44,898 ) — — ( 12 ) — ( 44,910 ) Total $ 21,120 18,278 23,716 6,565 2,051 $ 71,730 2022 Customer accounts receivable Billed $ 78,508 5,566 129,199 7,012 2,012 $ 222,297 Unbilled 10,814 2,955 — — — 13,769 Customers’ credit balances and deposits ( 33,246 ) — — — — ( 33,246 ) Total $ 56,076 8,521 129,199 7,012 2,012 $ 202,820 Page 87 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 4. REGULATION The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape. NJNG is required, pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas suppliers. Customers can choose the supplier of their natural gas commodity in NJNG’s service territory. As required by EDECA, NJNG’s rates are segregated into two primary components: the commodity portion, which represents the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the natural gas to NJNG’s service territory; and the delivery portion, which represents the transportation of the commodity portion through NJNG’s natural gas distribution system to the end-use customer. NJNG does not earn Utility Gross Margin on the commodity portion of its natural gas sales. NJNG earns Utility Gross Margin through the delivery of natural gas to its customers, regardless of whether it or a third-party supplier provides the wholesale natural gas commodity. Under EDECA, the BPU is required to audit the state’s energy utilities every two years. The primary purpose of the audit is to ensure that utilities and their affiliates offering unregulated retail services do not have an unfair competitive advantage over nonaffiliated providers of similar retail services. A combined competitive services and management audit of NJNG commenced on August 1, 2013. A draft management audit report was accepted by the BPU on July 23, 2014, for public comment. To date, NJNG has implemented all audit recommendations with the approval of BPU staff and is waiting for final BPU approval. NJNG is subject to cost-based regulation; therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility capital investments based on the BPU’s approval. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets, and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations. NJNG’s recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to make filings to the BPU for review of its BGSS, CIP and other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. The current base rates include a weighted average cost of capital of 6.84 % and a return on common equity of 9.6 %. All rate and program changes are subject to proper notification and BPU review and approval. In addition, NJNG is permitted to implement certain BGSS rate changes on a provisional basis with proper notification to the BPU. Page 88 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Regulatory assets and liabilities included on the Consolidated Balance Sheets for NJNG are comprised of the following, as of September 30: (Thousands) 2023 2022 Regulatory assets-current New Jersey Clean Energy Program $ 15,804 $ 15,697 Conservation Incentive Program 50,356 23,099 Derivatives at fair value, net 6,017 — Other current regulatory assets 1,410 1,290 Total current regulatory assets $ 73,587 $ 40,086 Regulatory assets-noncurrent Environmental remediation costs: Expended, net of recoveries $ 66,298 $ 66,149 Liability for future expenditures 169,390 127,070 Deferred income taxes 41,667 40,520 SAVEGREEN 83,589 52,690 Postemployment and other benefit costs 55,274 56,021 Deferred storm damage costs — 2,172 Cost of removal 112,362 104,850 Other noncurrent regulatory assets 51,019 45,828 Total noncurrent regulatory assets $ 579,599 $ 495,300 Regulatory liability-current Overrecovered natural gas costs $ 30,637 $ 17,807 Derivatives at fair value, net — 7,972 Total current regulatory liabilities $ 30,637 $ 25,779 Regulatory liabilities-noncurrent Tax Act impact (1) $ 180,347 $ 185,367 Derivatives at fair value, net — 116 Other noncurrent regulatory liabilities 111 151 Total noncurrent regulatory liabilities $ 180,458 $ 185,634 (1) Reflects the re-measurement and subsequent amortization of NJNG’s net deferred tax liabilities as a result of the change in federal tax rates enacted in the Tax Act. The Tax Act is an Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, previously known as The Tax Cuts and Jobs Act of 2017. Other noncurrent regulatory assets include deferred pandemic costs of approximately $ 3.9 M and $ 6.9 M as of September 30, 2023 and 2022, respectively, primarily related to a portion of bad debt associated with customer accounts receivable resulting from the impacts of the COVID-19 pandemic. These costs are eligible for future regulatory recovery. On January 5, 2023, NJNG advised the BPU that it will cease deferring COVID-19 costs as of December 31, 2022, and will seek recovery of its regulatory asset balance in its next base rate proceeding. Regulatory assets and liabilities included on the Consolidated Balance Sheets for Adelphia are comprised of the following, as of September 30: (Thousands) 2023 2022 Total noncurrent regulatory assets $ 5,231 $ 5,366 Total current regulatory liabilities $ 1,650 $ 5,311 The assets are comprised primarily of the tax benefit associated with the equity component of AFUDC and the liability consists primarily of scheduling penalties. Recovery of regulatory assets is subject to FERC approval. New Jersey Clean Energy Program The NJCEP is a statewide program that encourages energy efficiency and renewable energy. Funding amounts are determined by the BPU’s Office of Clean Energy and all New Jersey utilities are required to share in the annual funding obligation. The current NJCEP program is for the State of New Jersey’s fiscal year ending June 2024. NJNG recovers the costs associated with its portion of the NJCEP obligation through its NJCEP rider, with interest. Page 89 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Conservation Incentive Program The CIP permits NJNG to recover Utility Gross Margin variations related to customer usage resulting from customer conservation efforts and mitigates the impact of weather on its margin. Such Utility Gross Margin variations are recovered in the year following the end of the CIP usage year, without interest, and are subject to additional conditions, including an earnings test, a revenue test and an evaluation of BGSS-related savings. This program has no expiration date. Derivatives Derivatives are utilized by NJNG to manage the price risk associated with its natural gas purchasing activities and to participate in certain BGSS incentive programs. The gains and losses associated with NJNG’s derivatives are recoverable through its BGSS, as noted above, without interest. See Note 5. Derivative Instruments . Environmental Remediation Costs NJNG is responsible for the cleanup of certain former gas manufacturing facilities. Actual expenditures are recovered from customers, with interest, over seven-year rolling periods, through a RAC rate rider. Recovery for NJNG’s estimated future liability will be requested and/or recovered when actual expenditures are incurred. See Note 14. Commitments and Contingent Liabilities . Deferred Income Taxes Upon adoption of a 1993 provision of ASC 740, Income Taxes , NJNG recognized a transition adjustment and corresponding regulatory asset representing the difference between NJNG’s existing deferred tax amounts compared with the deferred tax amounts calculated in accordance with the change in method prescribed by ASC 740. NJNG recovers the regulatory asset associated with these tax impacts through future base rates, without interest. SAVEGREEN NJNG administers certain programs that supplement the state’s NJCEP and that allow NJNG to promote clean energy to its residential and commercial customers, as described further below. NJNG will recover related expenditures and a weighted average cost of capital on the unamortized balance through a tariff rider, with interest, as approved by the BPU, over a two - to 10-year period depending upon the specific program incentive. Postemployment and Other Benefit Costs Postemployment and Other Benefit Costs represents NJNG’s underfunded postemployment benefit obligations, as well as a fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated with Medicare Part D, both of which are deferred as regulatory assets and are recoverable, without interest, in base rates. The BPU approved the recovery of the tax charge through NJNG’s base rates effective October 2016 over a seven-year amortization period. See Note 11. Employee Benefit Plans . Deferred Storm Damage Costs Portions of NJNG’s distribution system incurred significant damage as a result of Post-Tropical Cyclone Sandy in October 2012. NJNG deferred the uninsured incremental O&M costs associated with its restoration efforts, which were approved for recovery by the BPU through NJNG’s base rates, without interest, effective October 2016 over a seven-year amortization period. Cost of Removal NJNG accrues and collects for cost of removal in base rates on its utility property, without interest. These costs are recorded in accumulated depreciation for regulatory reporting purposes, and actual costs of removal, without interest, will be recovered in subsequent rates, pursuant to the BPU order. Consistent with GAAP, amounts recorded within accumulated depreciation for regulatory accounting purposes are reclassified out of accumulated depreciation to either a regulatory asset or a regulatory liability depending on whether actual cost of removal is still subject to collection or amounts overcollected will be refunded back to customers. Page 90 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Other Regulatory Assets Other regulatory assets consist primarily of deferred costs associated with certain components of NJNG’s SBC, as discussed further in the regulatory proceedings section, and NJNG’s compliance with federal and state-mandated PIM provisions. NJNG’s related costs to maintain the operational integrity of its distribution and transmission main are recoverable, without interest, subject to BPU review and approval. Overrecovered Natural Gas Costs NJNG recovers its cost of natural gas through the BGSS rate component of its customers’ bills. NJNG’s cost of natural gas includes the purchased cost of the natural gas commodity, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and hedging transactions. Overrecovered natural gas costs represent a regulatory liability that generally occurs when NJNG’s BGSS rates are higher than actual costs and returns to customers, including interest when applicable, in accordance with NJNG’s approved BGSS tariff. Conversely, underrecovered natural gas costs generally occur during periods when NJNG’s BGSS rates are lower than actual costs, in which case NJNG records a regulatory asset and requests amounts to be recovered from customers in the future. The following is a description of certain regulatory proceedings during fiscal 2022 and 2023: On November 2021, the BPU issued an order adopting a stipulation of settlement approving a $ 79.0 M increase to base rates, effective December 1, 2021. The increase includes an overall rate of return on rate base of 6.84 %, return on common equity of 9.6 %, a common equity ratio of 54.0 % and a depreciation rate of 2.78 %. BGSS and CIP BGSS rates are normally revised on an annual basis. In addition, to manage the fluctuations in wholesale natural gas costs, NJNG has the ability to make two interim filings during each fiscal year to increase residential and small commercial customer BGSS rates on a self-implementing and provisional basis. NJNG is also permitted to refund or credit back a portion of the commodity costs to customers at any time given five days ’ notice when the natural gas commodity costs decrease in comparison to amounts projected or to amounts previously collected from customers. Concurrent with the annual BGSS filing, NJNG files for an annual review of its CIP. NJNG’s annual BGSS and CIP filings are summarized as follows: • In November 2020, NJNG notified the BPU of its intent to provide BGSS bill credits to residential and small commercial sales customers effective December 1, 2020 to December 31, 2020. In December 2020, NJNG notified the BPU of the extension of the BGSS bill credits through January 2021. The actual bill credits given to customers totaled $ 20.6 M, $ 19.3 M net of tax. • 2021 BGSS/CIP filing — In May 2021, NJNG submitted to the BPU the annual petition to modify its BGSS, balancing charge and CIP rates. In November 2021, the BPU approved a $ 2.9 M increase to the annual revenues credited to BGSS and a $ 13.0 M annual increase related to its balancing charge, as well as changes to CIP rates, which will result in a $ 6.3 M decrease to the annual recovery, effective December 1, 2021. • In November 2021, the BPU approved, on a preliminary basis, NJNG’s annual petition to modify its BGSS, balancing charge and CIP rates for residential and small commercial customers. The rate changes resulted in a $ 2.9 M increase to the annual revenues credited to BGSS and a $ 13.0 M annual increase related to its balancing charge, as well as changes to CIP rates, which resulted in a $ 6.3 M annual recovery decrease, effective December 1, 2021, and was approved on a final basis in May 2022. • In November 2021, NJNG submitted notification of its intent to self-implement an increase to its BGSS rate which results in an approximate $ 24.2 M increase to annual revenues credited to BGSS, effective December 1, 2021. • 2022 BGSS/CIP filing — In June 2022, NJNG submitted its annual petition to modify its BGSS, balancing charge and CIP rates for residential and small commercial customers. In September 2022, the BPU approved, on a preliminary basis, an $ 81.9 M increase to the annual revenues credited to BGSS and a $ 9.0 M annual increase related to its balancing charge, as well as a $ 10.2 M increase to CIP rates, effective October 1, 2022, which was approved on a final basis on April 12, 2023. Page 91 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) • On February 22, 2023, NJNG advised the BPU of a bill credit and a reduction to the BGSS rate for residential and small commercial customers, which reduced recoveries by approximately $ 29.9 M, effective March 1, 2023, and was approved on a final basis by the BPU on April 12, 2023. Bill credits provided to customers from March 2023 through May 2023, totaled approximately $ 32.4 M. • 2023 BGSS/CIP filing — On June 1, 2023, NJNG filed its annual petition to modify its BGSS, balancing charge and CIP rates for residential and small business customers. This includes a $ 38.6 M decrease to the annual revenues credited to BGSS, a $ 7.4 M annual decrease related to its balancing charge and a $ 27.5 M increase to CIP rates, effective October 1, 2023. On September 18, 2023, the BPU approved, on a provisional basis, the filed BGSS and balancing charge changes and a $ 27.0 M increase to CIP rates, based on updated information since the initial filing. BGSS Incentive Programs NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of Utility Gross Margin-sharing programs that include off-system sales, capacity release and storage incentive programs. The Company is permitted to annually propose a process to evaluate and discuss alternative incentive programs, should performance of the existing incentives or market conditions warrant re-evaluation. Energy Efficiency Programs SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are designed to encourage the installation of high efficiency heating and cooling equipment and other upgrades to promote energy efficiency to its residential and commercial customers while stimulating state and local economies through the creation of jobs. Depending on the specific initiative or approval, NJNG recovers costs associated with the programs over a three - to 10-year period through a tariff rider mechanism. In March 2021, the BPU approved a three-year SAVEGREEN program that included $ 126.1 M of direct investment, $ 109.4 M in financing options and $ 23.4 M in operation and maintenance expenses. SAVEGREEN investments and costs are filed with the BPU on an annual basis. NJNG’s annual EE filings are summarized as follows: • 2020 EE filing — In May 2020, NJNG filed a petition with the BPU to minimally decrease its EE recovery rate. Throughout the course of the proceeding, the Company updated the filing for additional actual information. Based on the updated information, the BPU approved the request to maintain its existing rate, which results in an annual recovery of approximately $ 11.4 M, effective November 1, 2020. • 2021 EE filing — In June 2021, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through 2018. In January 2022, the BPU approved the stipulation to resolve the current EE annual cost recovery filing, which increases annual recoveries by $ 2.2 M, effective February 1, 2022. • 2022 EE filing — In June 2022, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through the present. In September 2022, the BPU approved the filing, which decreases annual recoveries by $ 3.5 M, effective October 1, 2022. • 2023 EE filing — On June 1, 2023, NJNG submitted its annual EE filing with the BPU for the recovery of SAVEGREEN costs, proposing an increase in annual recoveries of approximately $ 10.7 M. On September 27, 2023, the BPU approved an increase to the EE rate increasing annual recoveries by $ 9.0 M based on updated information since the initial filing, effective October 1, 2023 Societal Benefits Charge The SBC is comprised of three primary riders that allow NJNG to recover costs associated with USF, which is a permanent statewide program for all natural gas and electric utilities for the benefit of income-eligible customers, MGP remediation and the NJCEP. NJNG has submitted the following filings to the BPU, which include a report of program expenditures incurred each program year: • 2020 SBC filing — In April 2021, the BPU approved a stipulation resolving NJNG’s annual SBC application requesting to recover remediation expenses, including an increase in the RAC of approximately $ 1.3 M annually and an increase to the NJCEP factor, which resulted in an annual increase of approximately $ 6.0 M, effective May 1, 2021. Page 92 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) • 2021 USF filing — In June 2021, NJNG filed its annual USF compliance filing proposing an annual increase to the statewide USF rate of approximately $ 4.9 M. In September 2021, the BPU approved the increase, effective October 1, 2021. • 2021 SBC filing — In March 2022, the BPU approved NJNG’s annual filing to increase the RAC by $ 0.6 M and decrease the NJCEP by $ 2.9 M, effective April 1, 2022. • 2022 USF filing — In June 2022, NJNG filed its annual USF compliance filing proposing a decrease to the statewide USF rate. In August 2022, an additional update was submitted on behalf of all NJ utilities with actual information through July 31, 2022. In September 2022, the BPU approved a decrease based on the August update, which resulted in an annual decrease of approximately $ 1.6 M, effective October 1, 2022. • 2022 SBC filing — In September 2022, NJNG submitted its annual SBC filing to the BPU requesting approval of RAC expenditures through June 30, 2022, as well as an increase to the RAC annual recoveries of $ 3.8 M and an increase to the NJCEP annual recoveries of $ 2.2 M, with a proposed effective date of April 1, 2023. On April 12, 2023, the BPU approved on a final basis an increase to the RAC annual recoveries of $ 3.7 M and a decrease to the NJCEP annual recoveries of $ 0.9 M, effective May 1, 2023. • 2023 USF filing — On June 28, 2023, NJNG submitted its annual USF filing to the BPU requesting an increase to the statewide USF rate, which will result in a $ 0.7 M increase to annual recoveries. The BPU approved this matter on September 27, 2023, effective October 1, 2023. • 2023 SBC filing — On September 11, 2023 , NJNG submitted its annual SBC filing to the BPU requesting approval of RAC expenditures through June 2023, as well as an increase to the RAC annual recoveries of $ 2.4 M and an increase to the NJCEP annual recoveries of $ 5.0 M, which would be effective April 1, 2024. Infrastructure Programs NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs. NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG’s natural gas distribution system, including SAFE and NJ RISE. SAFE/NJ RISE The SAFE program replaced portions of NJNG’s natural gas distribution unprotected steel, cast iron infrastructure and associated services to improve the safety and reliability of the natural gas distribution system. SAFE I was approved to invest up to $ 130.0 M, exclusive of AFUDC, over a four-year period. SAFE II was approved to invest up to $ 200.0 M, excluding AFUDC, over a five-year period. NJNG recovered approximately $ 157.5 M through annual rate filings, with the remainder recovered through subsequent rate cases. As a condition of approval of the program, NJNG was required to file a base rate case no later than November 2019 and satisfied this requirement with its March 29, 2019 base rate case filing. NJ RISE consisted of six capital investment projects estimated to cost $ 102.5 M over a five-year period, excluding AFUDC, for natural gas distribution storm-hardening and mitigation projects, along with incremental depreciation expense. NJ RISE includes a weighted average cost of capital that ranges from 6.74 % to 6.9 % and a return on equity of 9.75 %. Requests for recovery of future NJ RISE capital costs occurred in conjunction with SAFE II. In March 2021, NJNG filed a petition with the BPU requesting the final base rate increase for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $ 3.4 M made through June 30, 2021. In June 2021, this filing was consolidated with the 2021 base rate case. In November 2021, the BPU issued an order for the consolidated matter which included approval for the final increase for the NJ RISE and SAFE II programs of $ 0.3 M. With this approval, the BPU filings with respect to NJ RISE and SAFE II are complete. Page 93 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Infrastructure Investment Program In February 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP is approximately $ 507.0 M. Upon approval from the BPU, investments will be recovered through annual filings to adjust base rates. In October 2020, the BPU approved the Company’s transmission and distribution component of the IIP for $ 150.0 M over five years , effective November 1, 2020. The recovery of information technology replacement and enhancements that was included in the original IIP filing will be included as part of base rate filings as projects are placed in service. In March 2022, NJNG filed its first rate recovery request for its BPU-approved IIP with capital expenditures estimated through June 30, 2022, including AFUDC. In July 2022, NJNG filed its update with actual capital expenditures of $ 28.9 M through June 30, 2022. In September 2022, the BPU approved the rate increase resulting in a $ 3.2 M revenue increase, effective October 1, 2022. On March 30, 2023, NJNG submitted its annual IIP filing to the BPU requesting a rate increase for estimated capital expenditures of $ 31.4 M through June 30, 2023. This filing was updated on July 28, 2023, with actual expenses of approximately $ 28.2 M through June 30, 2023. The BPU approved this filing on September 27, 2023, which resulted in a $ 3.2 M revenue increase, effective October 1, 2023. 5. DERIVATIVE INSTRUMENTS The Company is subject primarily to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company is exposed to foreign currency and interest rate risk and may utilize foreign currency derivatives to hedge Canadian dollar-denominated natural gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations in interest rates. All of these types of contracts are accounted for as derivatives, unless the Company elects NPNS, which is done on a contract-by-contract election. Accordingly, all of the financial and certain of the Company’s physical derivative instruments are recorded at fair value on the Consolidated Balance Sheets. For a more detailed discussion of the Company’s fair value measurement policies and level disclosures associated with the Company’s derivative instruments, see Note 6. Fair Value . Energy Services ES chooses not to designate its financial commodity and physical forward commodity derivatives as accounting hedges or to elect NPNS. The changes in the fair value of these derivatives are recorded as a component of natural gas purchases or operating revenues, as appropriate for ES, on the Consolidated Statements of Operations as unrealized gains or losses. For ES at settlement, realized gains and losses on all financial derivative instruments are recognized as a component of natural gas purchases, and realized gains and losses on all physical derivatives follow the presentation of the related unrealized gains and losses as a component of either natural gas purchases or operating revenues. ES also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of Canadian currency relative to the U.S. dollar. ES may utilize foreign currency derivatives to lock in the exchange rates associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures or swaps and are accounted for as derivatives. These derivatives are typically used to hedge demand fee payments on pipeline capacity, storage and natural gas purchase agreements. As a result of ES entering into transactions to borrow natural gas, commonly referred to as “park and loans,” an embedded derivative is recognized relating to differences between the fair value of the amount borrowed and the fair value of the amount that will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location over the contract term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed natural gas is expected to occur and is considered a derivative transaction that is recorded at fair value on the Consolidated Balance Sheets, with changes in value recognized in current-period earnings. Page 94 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Expected production of SRECs is hedged through the use of forward and futures contracts. All contracts require the Company to physically deliver SRECs through the transfer of certificates as per contractual settlement schedules. ES recognizes changes in the fair value of these derivatives as a component of operating revenues. Upon settlement of the contract, the related revenue is recognized when the SREC is transferred to the counterparty. Natural Gas Distribution Changes in fair value of NJNG’s financial commodity derivatives are recorded as a component of regulatory assets or liabilities on the Consolidated Balance Sheets. The Company elects NPNS accounting treatment on all physical commodity contracts that NJNG entered into on or before December 31, 2015, and accounts for these contracts on an accrual basis. Accordingly, physical natural gas purchases are recognized in regulatory assets or liabilities on the Consolidated Balance Sheets when the contract settles and the natural gas is delivered. The average cost of natural gas is charged to expense in the current period earnings based on the BGSS factor times the therm sales. Effective for contracts executed on or after January 1, 2016, NJNG no longer elects NPNS accounting treatment on a portfolio basis. However, since NPNS is a contract-by-contract election, where it makes sense to do so, NJNG can and may elect to treat certain contracts as normal. Because NJNG recovers these amounts through future BGSS rates as increases or decreases to the cost of natural gas in NJNG’s tariff for natural gas service, the changes in fair value of these contracts are deferred as a component of regulatory assets or liabilities on the Consolidated Balance Sheets. Clean Energy Ventures The Company elects NPNS accounting treatment on PPA contracts executed by CEV that meet the definition of a derivative and accounts for the contract on an accrual basis. Accordingly, electricity sales are recognized in revenues throughout the term of the PPA as electricity is delivered. NPNS is a contract-by-contract election and where it makes sense to do so, the Company can and may elect to treat certain contracts as normal. Fair Value of Derivatives The following table presents the fair value of the Company’s derivative assets and liabilities recognized on the Consolidated Balance Sheets as of September 30: Derivatives at Fair Value 2023 2022 (Thousands) Balance Sheet Location Assets Liabilities Assets Liabilities Derivatives not designated as hedging instruments: NJNG: Physical commodity contracts Derivatives - current $ 43 $ 488 $ 252 $ 11 Financial commodity contracts Derivatives - current 6,110 20 85 6,281 ES: Physical commodity contracts Derivatives - current 6,209 12,757 9,857 17,051 Derivatives - noncurrent 802 7,870 376 13,561 Financial commodity contracts Derivatives - current 18,393 2,880 14,423 26,488 Derivatives - noncurrent 762 97 6,009 630 Foreign currency contracts Derivatives - current — — 18 17 Total fair value of derivatives $ 32,319 $ 24,112 $ 31,020 $ 64,039 Page 95 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Offsetting of Derivatives The Company transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets and liabilities with the same counterparty. However, the Company’s policy is to present its derivative assets and liabilities on a gross basis at the contract level unit of account on the Consolidated Balance Sheets. The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but elects not to, financial collateral and the net amounts the Company could present on the Consolidated Balance Sheets but elects not to. Asset Derivatives Liability Derivatives (Thousands) Fair Value (1) Amounts Offset (2) Collateral Received/Pledged (3) Net Value (4) Fair Value (1) Amounts Offset (2) Collateral Received/Pledged (3) Net Value (4) As of September 30, 2023 ES Contracts Physical commodity $ 7,011 ( 1,236 ) — $ 5,775 $ 20,627 ( 1,236 ) ( 9,728 ) $ 9,663 Financial commodity 19,155 ( 2,977 ) ( 16,178 ) — 2,977 ( 2,977 ) — — Total ES $ 26,166 ( 4,213 ) ( 16,178 ) $ 5,775 $ 23,604 ( 4,213 ) ( 9,728 ) $ 9,663 NJNG Contracts Physical commodity $ 43 ( 3 ) — $ 40 $ 488 ( 3 ) — $ 485 Financial commodity 6,110 ( 20 ) — 6,090 20 ( 20 ) — — Total NJNG $ 6,153 ( 23 ) — $ 6,130 $ 508 ( 23 ) — $ 485 As of September 30, 2022 ES Contracts Physical commodity $ 10,233 ( 404 ) ( 200 ) $ 9,629 $ 30,612 ( 404 ) — $ 30,208 Financial commodity 20,432 ( 12,198 ) — 8,234 27,118 ( 12,198 ) — 14,920 Foreign currency 18 ( 17 ) — 1 17 ( 17 ) — — Total ES $ 30,683 ( 12,619 ) ( 200 ) $ 17,864 $ 57,747 ( 12,619 ) — $ 45,128 NJNG Contracts Physical commodity $ 252 — — $ 252 $ 11 — — $ 11 Financial commodity 85 ( 85 ) — — 6,281 ( 85 ) — 6,196 Total NJNG $ 337 ( 85 ) — $ 252 $ 6,292 ( 85 ) — $ 6,207 (1) Derivative assets and liabilities are presented on a gross basis on the Consolidated Balance Sheets, as the Company does not elect balance sheet offsetting under ASC 210-20. (2) Includes transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with ISDA netting. (3) Financial collateral includes cash balances at FCMs, as well as cash received from or pledged to other counterparties. (4) Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20. ES utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical natural gas to be used for storage injection and its subsequent sale at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased natural gas are recognized prior to the gains or (losses) on the physical transaction, which are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged, along with fair value changes in derivative instruments, creates volatility in the results of ES, although the Company’s intended economic results relating to the entire transaction are unaffected. Page 96 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The following table presents the effect of derivative instruments recognized on the Consolidated Statements of Operations as of September 30: (Thousands) Location of gain (loss) recognized in income on derivatives Amount of gain (loss) recognized in income on derivatives Derivatives not designated as hedging instruments: 2023 2022 2021 ES: Physical commodity contracts Operating revenues $ 33,610 $ ( 8,569 ) $ 30,011 Physical commodity contracts Natural gas purchases ( 6,846 ) 3,580 1,052 Financial commodity contracts Natural gas purchases 80,406 14,403 ( 43,997 ) Foreign currency contracts Natural gas purchases — ( 14 ) 238 Total unrealized and realized gain (loss) $ 107,170 $ 9,400 $ ( 12,696 ) NJNG’s derivative contracts are part of the Company’s risk management activities that relate to its natural gas purchases and BGSS incentive programs. At settlement, the resulting gains and/or losses are payable to or recoverable from utility customers and are deferred in regulatory assets or liabilities resulting in no impact to earnings. The following table reflects the gains and/or (losses) associated with NJNG’s derivative instruments as of September 30: (Thousands) 2023 2022 2021 NJNG: Physical commodity contracts $ ( 34,241 ) $ 7,116 $ 2,174 Financial commodity contracts ( 50,130 ) 32,868 32,725 Total unrealized and realized (loss) gain $ ( 84,371 ) $ 39,984 $ 34,899 During fiscal 2020, NJR entered into treasury lock transactions to fix the benchmark treasury rate associated with debt issuances that were finalized in 2020. NJR designates its treasury lock contracts as cash flow hedges; therefore, changes in fair value of the effective portion of the hedges are recorded in OCI and upon settlement of the contracts, realized gains and (losses) are reclassified from OCI to interest expense on the Consolidated Statements of Operations ratable over the term of the associated debt. Pre-tax losses of $ 1.4 M were reclassified during both fiscal 2023 and 2022. NJNG and ES had the following outstanding long (short) derivatives as of September 30: Natural Gas Distribution Energy Services Volumes (Bcf) Futures Physical Commodity Futures Physical Commodity 2023 32.1 12.1 ( 6.9 ) 0.2 2022 30.5 6.8 ( 0.7 ) 2.7 Not included in the above table are 1.3 M and 1.2 M SRECs that were open as of September 30, 2023 and 2022, respectively, and the notional amount of foreign currency transactions for the periods were immaterial . Broker Margin Futures exchanges have contract-specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin and variation margin that fluctuates based on the daily marked-to-market relative to maintenance margin requirements. The Company maintains separate broker margin accounts for NJNG and ES. The balances as of September 30, by reporting segment, are as follows: (Thousands) Balance Sheet Location 2023 2022 NJNG Restricted broker margin accounts - current assets $ 5,915 $ 26,138 ES Restricted broker margin accounts - current assets $ 14,881 $ 68,123 Restricted broker margin accounts - current liabilities $ 8,029 $ — Page 97 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Wholesale Credit Risk NJNG, ES, CEV and S&T are exposed to credit risk as a result of their sales/wholesale marketing activities. As a result of the inherent volatility in the prices of natural gas commodities, derivatives 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 fails to perform the obligations under its contract, then the Company could sustain a loss. The Company monitors and manages the credit risk of its wholesale operations through credit policies and procedures that management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties’ financial statements and/or credit ratings, daily monitoring of counterparties’ credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to the Company’s election not to extend credit or because exposure exceeds defined thresholds. Most of the Company’s wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due. Internally-rated exposure applies to counterparties that are not rated by Fitch or Moody’s. In these cases, the counterparty’s or guarantor’s financial statements are reviewed, and similar methodologies and ratios used by Fitch and/or Moody’s are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received. The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of September 30, 2023. The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services and CEV residential solar installations. (Thousands) Gross Credit Exposure Investment grade $ 119,229 Noninvestment grade 4,775 Internally-rated investment grade 20,343 Internally-rated noninvestment grade 20,153 Total $ 164,500 Conversely, certain of NJNG’s and ES’s derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG’s credit rating were to fall below its current level. Specifically, most, but not all, of these additional payments will be triggered if NJNG’s debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings, but are based on certain financial metrics. Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company’s credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed applicable threshold limits. There was approximately $ 0.1 M and $ 0.2 M of derivative instruments with credit-risk-related contingent features that were in a liability position for which collateral is required as of September 30, 2023 and 2022, respectively. These amounts differ from the respective net derivative liabilities reflected on the Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed. Page 98 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 6. FAIR VALUE Fair Value of Assets and Liabilities The fair value of cash and cash equivalents, accounts receivable, current loans receivable, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loans receivable are recorded based on what the Company expects to receive, which approximates fair value, in other noncurrent assets on the Consolidated Balance Sheets. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value. As of September 30, the estimated fair value of long-term debt, including current maturities, excluding natural gas meter sale leasebacks, debt issuance costs and solar asset sale leasebacks, is as follows (1) : (Thousands) 2023 2022 NJNG (2) (3) Carrying value $ 1,467,845 $ 1,292,845 Fair market value $ 1,097,088 $ 979,388 NJR (4) Carrying value $ 1,120,000 $ 1,070,000 Fair market value $ 1,009,448 $ 966,968 (1) See Note 9. Debt f or a reconciliation to long-term and short-term debt . (2) Excludes the sale leasebacks of natural gas meters of $ 31.4 M and $ 30.3 M as of September 30, 2023 and 2022, respectively. The fair value of certain sale leasebacks of natural gas meters amounted to $ 20.9 M and $ 15.7 M as of September 30, 2023 and 2022, respectively. (3) Excludes NJNG’s debt issuance costs of $ 9.8 M and $ 9.5 M as of September 30, 2023 and September 30, 2022, respectively. (4) Excludes NJR’s debt issuance costs of $ 3.7 M and $ 3.8 M as of September 30, 2023 and September 30, 2022, respectively. CEV enters into transactions to sell certain commercial solar assets and lease the assets back for a term specified in the lease. These transactions are considered financing obligations for accounting purposes and are recorded within long-term debt on the Consolidated Balance Sheets. The estimated fair value of solar asset financing obligations as of September 30, 2023 and 2022 was $ 268.1 M and $ 124.1 M, respectively. The Company utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate for the maturity of the specific issue and the Company’s credit rating. As of September 30, 2023, the Company discloses its debt within Level 2 of the fair value hierarchy. Fair Value Hierarchy The Company applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, investments in equity securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs-to-valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. Page 99 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and includes the following: Fair Value Hierarchy Description of Fair Value Level Fair Value Technique Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets The Company’s Level 1 assets and liabilities include exchange-traded natural gas futures and options contracts, listed equities and money market funds. Exchange-traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that the Company refers to internally as basis swaps, fixed swaps, futures and financial options that are cleared through an FCM. Level 2 Other significant observable inputs, such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services The Company’s Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts, the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is: • widely accepted and public; • non-proprietary and sourced from an independent third party; and • observable and published. These additional adjustments are generally not considered to be significant to the ultimate recognized values. Level 3 Inputs derived from a significant amount of unobservable market data These include the Company’s best estimate of fair value and are derived primarily through the use of internal valuation methodologies. Financial derivative portfolios of NJNG and ES consist mainly of futures, options and swaps. The Company primarily uses the market approach, and its policy is to use actively quoted market prices when available. The principal market for its derivative transactions is the natural gas wholesale market; therefore, the primary sources for its price inputs are CME, NYMEX and ICE. ES uses Platts and Natural Gas Exchange for Canadian delivery points. However, ES also engages in transactions that result in transporting natural gas to delivery points for which there is no actively quoted market price. In most instances, the transportation cost to the final delivery location is not significant to the overall valuation. If required, ES’s policy is to use the best information available to determine fair value based on internal pricing models, which would include estimates extrapolated from broker quotes or other pricing services. The Company also has other financial assets that include listed equities, mutual funds and money market funds for which there are active exchange quotes available. When the Company determines fair values, measurements are adjusted, as needed, for credit risk associated with its counterparties, as well as its own credit risk. The Company determines these adjustments by using historical default probabilities that correspond to the applicable S&P issuer ratings, while also taking into consideration collateral and netting arrangements that serve to mitigate risk. Page 100 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Assets and liabilities measured at fair value on a recurring basis are summarized as follows: Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Thousands) (Level 1) (Level 2) (Level 3) Total As of September 30, 2023 Assets Physical commodity contracts $ — $ 7,054 $ — $ 7,054 Financial commodity contracts 25,265 — — 25,265 Money market funds 145 — — 145 Other 2,641 — — 2,641 Total assets at fair value $ 28,051 $ 7,054 $ — $ 35,105 Liabilities Physical commodity contracts $ — $ 21,115 $ — $ 21,115 Financial commodity contracts 2,997 — — 2,997 Total liabilities at fair value $ 2,997 $ 21,115 $ — $ 24,112 As of September 30, 2022 Assets Physical commodity contracts $ — $ 10,485 $ — $ 10,485 Financial commodity contracts 20,517 — — 20,517 Financial commodity contracts - foreign exchange — 18 — 18 Money market funds 59 — — 59 Other 1,884 — — 1,884 Total assets at fair value $ 22,460 $ 10,503 $ — $ 32,963 Liabilities Physical commodity contracts $ — $ 30,623 $ — $ 30,623 Financial commodity contracts 33,231 168 — 33,399 Financial commodity contracts - foreign exchange — 17 — 17 Total liabilities at fair value $ 33,231 $ 30,808 $ — $ 64,039 7. INVESTMENTS IN EQUITY INVESTEES Steckman Ridge The Company holds a 50 % equity method investment in Steckman Ridge, a jointly owned and controlled natural gas storage facility located in Bedford County, Pennsylvania. The Company’s investment in Steckman Ridge was $ 104.1 M and $ 106.6 M as of September 30, 2023 and 2022, respectively, which includes loans with a total outstanding principal balance of $ 70.4 M for both September 30, 2023 and 2022. On October 1, 2023, we entered into an Amended and Restated Loan Agreement with Steckman Ridge to extend the existing loan agreement for an additional five years and moved from London Interbank Offered Rate to SOFR. These loans accrue interest at a variable rate that resets quarterly and are now due October 1, 2027. NJNG and ES have entered into storage and park and loan agreements with Steckman Ridge. See Note 16. Related Party Transactions for more information on these intercompany transactions. PennEast The Company, through its subsidiary NJR Midstream Company, is a 20 % investor in PennEast, a partnership whose purpose was to construct and operate a 120 -mile natural gas pipeline that would have extended from northeast Pennsylvania to western New Jersey. Page 101 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) During the third quarter of fiscal 2021, the Company recognized an other-than-temporary impairment charge of $ 92.0 M, or approximately $ 74.5 M, net of income taxes, which represented the best estimate of the salvage value of the remaining assets of the project and was recorded in equity in earnings of affiliates in the Consolidated Statements of Operations. In September 2021, the PennEast partnership determined that this project was no longer supported, and all further development ceased. In March 2022, the PennEast board of managers approved cash distributions to members of the partnership following the sale of certain project-related assets and refunds of interconnection fees received from interstate pipelines. The return of capital received by the Company from March 2022 through September 2022 totaled $ 11.0 M and reduced the remaining carrying value of its equity method investment in PennEast to zero in the Consolidated Balance Sheets, with the excess recorded in equity in earnings of affiliates in the Consolidated Statements of Operations. The Company received additional return of capital of $ 0.3 M during fiscal 2023, which is recognized in equity in earnings of affiliates in the Consolidated Statements of Operations. The following is the summarized financial information for Steckman Ridge and PennEast for fiscal years ended September 30: (Thousands) 2023 2022 2021 Steckman Ridge Operating revenues $ 22,659 $ 19,812 $ 21,847 Gross profit $ 13,385 $ 11,349 $ 13,350 Income from continuing operations $ 5,769 $ 8,686 $ 11,483 Net income $ 5,769 $ 8,686 $ 11,483 Net income attributable to NJR $ 2,884 $ 4,343 $ 5,741 Current assets $ 12,724 $ 28,609 Noncurrent assets $ 193,779 $ 198,052 Current liabilities $ 148,577 $ 23,618 Noncurrent liabilities $ — $ 140,810 PennEast Operating revenues $ — $ — $ — Gross profit $ — $ — $ — Loss from continuing operations $ ( 9,543 ) $ ( 3,778 ) $ ( 406,305 ) Net loss $ ( 9,543 ) $ ( 3,778 ) $ ( 406,305 ) Net loss attributable to NJR $ ( 1,909 ) $ ( 756 ) $ ( 81,261 ) Current assets $ 1,481 $ 1,801 Noncurrent assets $ — $ — Current liabilities $ 127 $ 82 Noncurrent liabilities $ — $ 500 8. EARNINGS PER SHARE The following table presents the calculation of the Company’s basic and diluted earnings per share for the fiscal years ended September 30: (Thousands, except per share amounts) 2023 2022 2021 Net income, as reported $ 264,724 $ 274,922 $ 117,890 Basic earnings per share Weighted average shares of common stock outstanding-basic 97,028 96,100 96,227 Basic earnings per common share $ 2.73 $ 2.86 $ 1.23 Diluted earnings per share Weighted average shares of common stock outstanding-basic 97,028 96,100 96,227 Incremental shares (1) 599 388 333 Weighted average shares of common stock outstanding-diluted 97,627 96,488 96,560 Diluted earnings per common share $ 2.71 $ 2.85 $ 1.22 (1) Incremental shares consist primarily of unvested stock awards and performance units, which are calculated using the treasury stock method. Page 102 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 9. DEBT NJNG and NJR finance working capital requirements and capital expenditures through various short-term debt and long-term financing arrangements, including a commercial paper program and committed unsecured credit facilities. Long-term Debt The following table presents the long-term debt of the Company as of September 30: (Thousands) 2023 2022 NJNG First mortgage bonds: Maturity date: Series OO 3.00 % August 1, 2041 46,500 46,500 Series PP 3.15 % April 15, 2028 50,000 50,000 Series QQ 3.58 % March 13, 2024 70,000 70,000 Series RR 4.61 % March 13, 2044 55,000 55,000 Series SS 2.82 % April 15, 2025 50,000 50,000 Series TT 3.66 % April 15, 2045 100,000 100,000 Series UU 3.63 % June 21, 2046 125,000 125,000 Series VV 4.01 % May 11, 2048 125,000 125,000 Series WW 3.50 % April 1, 2042 10,300 10,300 Series XX 3.38 % April 1, 2038 10,500 10,500 Series YY 2.45 % April 1, 2059 15,000 15,000 Series ZZ 3.76 % July 17, 2049 100,000 100,000 Series AAA 3.86 % July 17, 2059 85,000 85,000 Series BBB 2.75 % August 1, 2039 9,545 9,545 Series CCC 3.00 % August 1, 2043 41,000 41,000 Series DDD 3.13 % June 30, 2050 50,000 50,000 Series EEE 3.13 % July 23, 2050 50,000 50,000 Series FFF 3.33 % July 23, 2060 25,000 25,000 Series GGG 2.87 % September 1, 2050 25,000 25,000 Series HHH 2.97 % September 1, 2060 50,000 50,000 Series III 2.97 % October 28, 2051 50,000 50,000 Series JJJ 3.07 % October 28, 2061 50,000 50,000 Series LLL 4.37 % May 27, 2037 50,000 50,000 Series MMM 4.71 % May 27, 2052 50,000 50,000 Series NNN 5.47 % October 24, 2052 125,000 — Series OOO 5.56 % September 28, 2033 50,000 — Meter financing obligation Various dates 31,352 30,290 Less: Debt issuance costs ( 9,770 ) ( 9,528 ) Less: Current maturities of long-term debt ( 78,477 ) ( 6,538 ) Total NJNG long-term debt 1,410,950 1,307,069 NJR Unsecured senior notes 3.20 % August 18, 2023 — 50,000 Unsecured senior notes 3.48 % November 7, 2024 100,000 100,000 Unsecured senior notes 3.54 % August 18, 2026 100,000 100,000 Unsecured senior notes 3.96 % June 8, 2028 100,000 100,000 Unsecured senior notes 3.29 % July 17, 2029 150,000 150,000 Unsecured senior notes 3.60 % July 23, 2032 130,000 130,000 Unsecured senior notes 3.50 % July 23, 2030 130,000 130,000 Unsecured senior notes 3.25 % September 1, 2033 80,000 80,000 Unsecured senior notes 3.13 % September 1, 2031 120,000 120,000 Unsecured senior notes 4.38 % June 23, 2027 110,000 110,000 Unsecured senior notes 3.64 % September 19, 2034 50,000 50,000 Unsecured senior notes 6.14 % December 15, 2032 50,000 — Less: Debt issuance costs ( 3,656 ) ( 3,753 ) Less: Current maturities of long-term debt — ( 50,000 ) Total NJR long-term debt 1,116,344 1,066,247 CEV Solar asset financing obligation Various dates 278,401 130,618 Less: Current maturities of long-term debt ( 37,678 ) ( 18,532 ) Total CEV long-term debt 240,723 112,086 Total long-term debt $ 2,768,017 $ 2,485,402 Page 103 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Annual long-term debt redemption requirements, excluding meter financing obligations, debt issuance costs and solar asset financing obligations, as of September 30, are as follows: (Thousands) 2024 2025 2026 2027 2028 Thereafter NJR $ — $ 100,000 $ 100,000 $ 110,000 $ 100,000 $ 710,000 NJNG $ 70,000 $ 50,000 $ — $ — $ 50,000 $ 1,297,845 NJR On October 24, 2022, NJR entered into a Note Purchase Agreement, which closed on December 15, 2022, under which NJR issued $ 50 M, senior notes at a fixed rate of 6.14 %, maturing in 2032. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR. NJNG First Mortgage Bonds NJNG and Trustee entered into the Mortgage Indenture, dated September 1, 2014, which secures all the outstanding FMBs issued by NJNG. The Mortgage Indenture provides a direct first mortgage lien upon substantially all the operating properties and franchises of NJNG (other than excepted property, such as cash on hand, choses-in-action, securities, rent, natural gas meters and certain materials, supplies, appliances and vehicles), subject only to certain permitted encumbrances. The Mortgage Indenture contains provisions subjecting after-acquired property (other than excepted property and subject to pre-existing liens, if any, at the time of acquisition) to the lien thereof. NJNG’s Mortgage Indenture does not restrict NJNG’s ability to pay dividends. New Jersey Administrative Code 14:4-4.7 states that a public utility cannot issue dividends, without regulatory approval, if its equity-to-total-capitalization ratio falls below 30 %. As of September 30, 2023, NJNG’s equity-to-total-capitalization ratio is 54.4 % and NJNG has the capacity to issue up to $ 1.4 B of FMB under the terms of the Mortgage Indenture. On October 24, 2022, NJNG entered into a Note Purchase Agreement under which it sold $ 125 M of its senior notes at an interest rate of 5.47 %, maturing in 2052. On September 28, 2023, NJNG entered into a Note Purchase Agreement for $ 100 M aggregate principal amount of its senior notes consisting of $ 50 M of 5.56 % senior notes due September 28, 2033, which closed on September 28, 2023, and $ 50 M of 5.85 % senior notes due October 30, 2053, which closed on October 30, 2023. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s Mortgage Indenture. Sale Leasebacks NJNG received $ 8.4 M and $ 17.3 M during fiscal 2023 and 2022, respectively, in connection with the sale leaseback of its natural gas meters, with terms ranging from seven to 10 years. These transactions are treated as financing obligations that are paid over the term of the arrangement and NJNG has the option to purchase the meters back upon lease expiration. During fiscal 2022, NJNG exercised an early purchase option with respect to certain outstanding meter leases by making a final principal payment of $ 1.1 M for fiscal 2022. There were no early purchase options exercised during fiscal 2023. Contractual commitments for meter financing obligation payments, which include the most likely outcome of cash payments to the lessor, as of the fiscal years ended September 30, are as follows: (Thousands) 2024 2025 2026 2027 2028 Thereafter Subtotal Lease Payments $ 9,362 7,479 6,407 4,083 4,715 1,676 $ 33,722 Less: Interest component ( 2,370 ) Total $ 31,352 Page 104 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Clean Energy Ventures CEV enters into transactions to sell the commercial solar assets concurrent with agreements to lease the assets back over a period of five to 15 years. These transactions are treated as financing obligations for accounting purposes and are typically secured by the renewable energy facility asset and its future cash flows from RECs and energy sales. ITCs and other tax benefits associated with these solar projects are transferred to the buyer, if applicable; however, the lease payments are structured so that CEV is compensated for the transfer of the related tax incentives. CEV continues to operate the solar assets, including related expenses, and retain the revenue generated from RECs and energy sales, and has the option to renew the lease or repurchase the assets sold at the end of the lease term. CEV received proceeds of $ 167.8 M and $ 24.1 M during fiscal 2023 and 2022, respectively, in connection with the sale leaseback of commercial solar assets. The proceeds received were recognized as a financing obligation on the Consolidated Balance Sheets. Contractual commitments for the solar asset financing obligation payments, as of the fiscal years ended September 30, are as follows: (Thousands) 2024 2025 2026 2027 2028 Thereafter Subtotal Lease Payments $ 54,033 50,663 13,875 16,385 26,392 87,881 $ 249,229 Less: Interest component ( 42,942 ) Total $ 206,287 Credit Facilities and Short-term Debt On February 7, 2023, NJR's 364-day $ 150 M term loan credit agreement, that was entered into in February 2022, expired. The Company had $ 50 M that was borrowed on February 9, 2022 and $ 100 M that was borrowed on February 14, 2022, which was paid in full at expiration of the term loan agreement. The following table summarizes NJR’s credit facility and NJNG’s commercial paper program and credit facility as of September 30: At end of period (Thousands) Total borrowing capacity Loans outstanding Weighted average interest rate Remaining borrowing capacity Expiration dates 2023 NJR Bank revolving credit facilities (1) $ 650,000 $ 217,300 6.53 % $ 426,967 (2) Sep 2027 NJNG Bank revolving credit facilities (3) $ 250,000 $ 34,800 5.48 % $ 214,469 (4) Sep 2027 2022 NJR Bank revolving credit facilities (1) $ 650,000 $ 200,150 3.97 % $ 440,177 (2) Sep 2027 Bank term loan credit agreement $ 150,000 $ 150,000 3.81 % $ — Feb 2023 NJNG Bank revolving credit facilities (3) $ 250,000 $ 73,800 3.34 % $ 175,469 (4) Sep 2027 (1) Committed credit facilities, which require commitment fees of 0.10 % on the unused amounts. (2) Letters of credit outstanding total $ 5.7 M and $ 9.7 M as of September 30, 2023 and September 30, 2022, respectively, which reduces amount available by the same amount. (3) Committed credit facilities, which require commitment fees of 0.075 % on the unused amounts. (4) Letters of credit outstanding total $ 0.7 M as of both September 30, 2023 and 2022, which reduces amount available by the same amount. Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities. Page 105 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) NJR On August 30, 2022, NJR entered into a First Amendment to NJR’s Second Amended and Restated Credit Agreement governing a $ 650 M NJR Credit Facility with a maturity date of September 2, 2027. The NJR Credit Facility is subject to a one-year extension beyond that date and includes an accordion feature, which allows NJR, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJR Credit Facility in increments of $ 50 M, with the total revolving credit commitments not exceeding $ 750 M. The NJR Credit Facility also permits the borrowing of revolving loans and swingline loans, as well as a $ 75 M sublimit for the issuance of letters of credit. Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility. The credit facility is used primarily to finance its share repurchases, to satisfy ES’s short-term liquidity needs and to finance, on an initial basis, unregulated investments. As of September 30, 2023, NJR had seven letters of credit outstanding totaling $ 5.7 M on behalf of ES and CEV. These letters of credit reduce the amount available under NJR’s committed credit facility by the same amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties, and they will be renewed as necessary. ES’s letters of credit are used for margin requirements for natural gas transactions, collateral and security deposit for retail natural gas sales, and they expire on dates ranging from September 2024 to December 2024. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities. NJNG On August 30, 2022, NJNG amended the Second Amended and Restated Credit Agreement governing a $ 250 M NJNG Credit Facility with a maturity date of September 2, 2027. The NJNG Credit Facility is subject to a one-year extension beyond that date and includes an accordion feature, which allows NJNG, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJNG Credit Facility in minimum increments of $ 50 M up to a maximum of $ 100 M. The NJNG Credit Facility also permits the borrowing of revolving loans and swingline loans, as well as a $ 30 M sublimit for the issuance of letters of credit. As of September 30, 2023, NJNG has two letters of credit outstanding for $ 0.7 M, which reduced the amount available under the NJNG Credit Facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the counterparties. 10. STOCK-BASED COMPENSATION In January 2017, the NJR 2017 Stock Award and Incentive Plan replaced the NJR 2007 Stock Award and Incentive Plan. Shares have been issued in the form of performance share units, restricted stock units, deferred retention stock units and unrestricted common stock to non-employee directors. As of September 30, 2023, 2,774,527 shares remain available for future issuance. The following table summarizes all stock-based compensation expense recognized during the following fiscal years: (Thousands) 2023 2022 2021 Stock-based compensation expense: Performance share awards $ 4,882 $ 4,131 $ 3,856 Restricted and non-restricted stock 3,647 3,189 3,193 Deferred retention stock 6,187 7,507 100 Compensation expense included in operation and maintenance expense 14,716 14,827 7,149 Income tax benefit (1) ( 3,563 ) ( 3,624 ) ( 1,613 ) Total, net of tax $ 11,153 $ 11,203 $ 5,536 (1) Excludes additional tax (expense) benefit related to delivered shares of $( 0.6 )M, $( 0.1 )M and $( 0.2 )M as of September 30, 2023, 2022 and 2021, respectively. Page 106 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Performance Share Units In fiscal 2023, the Company granted to certain officers 39,614 performance shares, which are market condition awards that vest on September 30, 2025, subject to the Company meeting certain conditions. In fiscal 2023, the Company also granted to certain officers 73,047 performance shares, of which 42,449 vest on September 30, 2025 and 30,598 vest annually over a three-year period beginning in September 2023, both of which are subject to the Company meeting certain performance conditions. In fiscal 2022, the Company granted to certain officers 44,965 performance shares, which are market condition awards that vest on September 30, 2024, subject to the Company meeting certain conditions. In fiscal 2022, the Company also granted to certain officers 73,561 performance shares, of which 44,596 vest on September 30, 2024 and 28,965 vest annually over a three-year period beginning in September 2022, both of which are subject to the Company meeting certain performance conditions. In fiscal 2021, the Company granted to certain officers 46,813 performance shares, which are market condition awards that vested on September 30, 2023, subject to the Company meeting certain conditions. In fiscal 2021, the Company also granted to certain officers 70,138 performance shares, of which 44,156 vested in September 30, 2023 and 25,982 vest annually over a three-year period beginning in September 2021, both of which were subject to the Company meeting certain performance conditions. The vesting of these awards are shown in the table below. There is approximately $ 5.2 M of deferred compensation related to unvested performance shares that is expected to be recognized over the weighted average period of 1.7 years. The following table summarizes the performance share activity under the stock award and incentive plans for the past three fiscal years: Shares (1) Weighted Average Grant Date Fair Value Total Fair Value of Vested Shares (in Thousands) Non-vested and outstanding at September 30, 2020 155,731 $ 44.22 — Granted 116,951 $ 33.34 — Vested (2) ( 54,918 ) $ 44.64 $ 1,673 Cancelled/forfeited ( 51,673 ) $ 45.32 — Non-vested and outstanding at September 30, 2021 166,091 $ 36.08 — Granted 118,526 $ 38.84 — Vested (3) ( 76,708 ) $ 39.57 $ 2,765 Cancelled/forfeited ( 15,788 ) $ 37.33 — Non-vested and outstanding at September 30, 2022 192,121 $ 36.29 — Granted 112,661 $ 46.00 — Vested (4) ( 105,197 ) $ 35.07 $ 4,126 Cancelled/forfeited ( 9,330 ) $ 38.64 — Non-vested and outstanding at September 30, 2023 190,255 $ 42.60 — (1) The number of common shares issued related to certain performance shares may range from zero to 150 % of the number of shares shown in the table above based on the Company’s achievement of performance goals. (2) As certified by the Company’s Leadership and Compensation Committee on November 10, 2021, there were no common shares earned related to TSR performance, the number of common shares earned related to NFE performance was 93 % or 31,116 shares, and the number of common shares earned related to Performance Based Restricted Stock was 100 % or 25,982 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 %. (3) As certified by the Company’s Leadership and Compensation Committee on November 9, 2022, the number of common shares earned related to TSR performance was 112 % or 30,472 shares, the number of common shares earned related to NFE performance was 105 % or 26,282 shares, and the number of common shares earned related to Performance Based Restricted Stock was 100 % or 28,965 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 %. (4) As certified by the Company’s Leadership and Compensation Committee on November 15, 2023, the number of common shares earned related to TSR performance was 150 % or 59,192 shares, the number of common shares earned related to NFE performance was 150 % or 55,832 shares, and the number of common shares earned related to Performance Based Restricted Stock was 100 % or 30,598 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 %. Page 107 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The Company measures compensation expense related to performance shares based on the fair value of these awards at their date of grant. In accordance with ASC 718, Compensation - Stock Compensation , compensation expense for market condition grants are recognized for awards granted, and are not adjusted based on actual achievement of the performance goals. The Company estimated the fair value of these grants on the date of grant using a lattice model. Performance condition grants are initially fair valued at the Company’s stock price on the grant date and are subsequently adjusted for actual achievement of the performance goals. Restricted Stock Units The Company granted 64,080 , 54,826 and 67,726 shares of restricted stock during fiscal 2023, 2022 and 2021, respectively. The shares vest annually over a three-year period beginning in October of the fiscal year in which they were granted. There is approximately $ 1.4 M of deferred compensation related to unvested restricted stock shares that is expected to be recognized over the weighted average period of 1.8 years. The following table summarizes the restricted stock activity under the stock award and incentive plans for the past three fiscal years: Shares Weighted Average Grant Date Fair Value Total Fair Value of Vested Shares (in Thousands) Non-vested and outstanding at September 30, 2020 73,486 $ 43.52 — Granted 67,726 $ 33.34 — Vested ( 34,000 ) $ 44.30 $ 996 Cancelled/forfeited ( 5,591 ) $ 36.34 — Non-vested and outstanding at September 30, 2021 101,621 $ 36.87 — Granted 54,826 $ 38.84 — Vested ( 47,867 ) $ 39.01 $ 1,824 Cancelled/forfeited ( 10,756 ) $ 37.06 — Non-vested and outstanding at September 30, 2022 97,824 $ 36.90 — Granted 64,080 $ 46.00 — Vested ( 48,312 ) $ 40.30 $ 1,910 Cancelled/forfeited ( 4,716 ) $ 38.77 — Non-vested and outstanding at September 30, 2023 108,876 $ 41.55 — Deferred Retention Stock Units Deferred retention stock awards are granted upon approval by the Board of Directors, which generally occurs subsequent to the fiscal year end. Deferred retention stock awards vest immediately when granted, with shares delivered at a future date in accordance with the terms of the underlying agreements. The expense for these awards is recognized in the fiscal year in which services are rendered. The following table summarizes the deferred retention stock award under the stock award and incentive plans for the past three fiscal years: Shares Weighted Average Grant Date Fair Value Total Fair Value of Vested Shares (in Thousands) Outstanding at September 30, 2020 228,246 $ 46.32 — Granted/Vested 2,999 $ 33.34 — Delivered ( 22,389 ) $ 45.00 $ 641 Outstanding at September 30, 2021 208,856 $ 46.28 — Granted/Vested 192,728 $ 38.95 — Delivered ( 163,499 ) $ 47.95 $ 6,167 Forfeited ( 6,818 ) $ 40.33 — Outstanding at September 30, 2022 231,267 $ 39.16 — Granted/Vested 134,941 $ 45.85 — Delivered ( 38,115 ) $ 40.67 $ 1,517 Outstanding at September 30, 2023 328,093 $ 41.74 — Page 108 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Non-Employee Director Stock Non-employee director compensation includes an annual equity retainer that is awarded at the time of the Company’s annual meeting of shareowners. The shares vest upon the earlier of the first anniversary of the grant date or the date of the Company’s next annual meeting of shareowners following the grant date and are subsequently amortized to expense over a 12-month period. The following summarizes non-employee director share awards for the past three fiscal years: 2023 2022 2021 Shares granted 24,044 (1) 30,908 34,994 Weighted average grant date fair value $ 49.58 $ 39.09 $ 35.72 (1) Approximately $ 0.3 M of expense remains as of September 30, 2023, to be recognized through December 31, 2023. 11. EMPLOYEE BENEFIT PLANS Pension and Other Postemployment Benefit Plans The Company has two trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and non-represented employees with more than one year of service. Defined benefit plan benefits are based on years of service and average compensation during the highest 60 consecutive months of employment. The Company also provides postemployment medical and life insurance benefits to employees who meet certain eligibility requirements. All represented employees of NJRHS hired on or after October 1, 2000, non-represented employees hired on or after October 1, 2009 and NJNG represented employees hired on or after January 1, 2012 are covered by an enhanced defined contribution plan instead of the defined benefit plan. Participation in the postemployment medical and life insurance plan was also frozen to new employees as of the same dates, with the exception of new NJRHS represented employees, for which benefits were frozen beginning April 3, 2012. The Company maintains an unfunded nonqualified PEP that was established to provide employees with the full level of benefits as stated in the qualified plan without reductions due to various limitations imposed by the provisions of federal income tax laws and regulations. There are no plan assets in the nonqualified plan due to the nature of the plan. The Company’s funding policy for its pension plans is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In fiscal 2023 and 2022, the Company had no minimum funding requirements and did not make any discretionary contributions to the pension plans. The Company does not expect to be required to make additional contributions to fund the pension plans during the next fiscal year based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents. There are no federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts due to regulatory agreements with the BPU. The Company contributed $ 4.2 M and $ 6.1 M in fiscal 2023 and 2022, respectively, and estimates that it will contribute between $ 5 M and $ 10 M over each of the next five years. Additional contributions may be required based on market conditions and changes to assumptions. Page 109 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the Consolidated Balance Sheets as of September 30: Pension (1) OPEB (Thousands) 2023 2022 2023 2022 Change in Benefit Obligation Benefit obligation at beginning of year $ 290,823 $ 395,547 $ 173,217 $ 244,674 Service cost 5,402 8,291 2,471 4,305 Interest cost 15,174 9,632 9,146 6,355 Plan participants’ contributions (2) 32 59 552 423 Actuarial (gain) loss ( 7,057 ) ( 109,320 ) 25,363 ( 77,775 ) Benefits paid, net of retiree subsidies received ( 14,053 ) ( 13,386 ) ( 7,343 ) ( 4,765 ) Benefit obligation at end of year $ 290,321 $ 290,823 $ 203,406 $ 173,217 Change in plan assets Fair value of plan assets at beginning of year $ 284,347 $ 355,284 $ 99,736 $ 114,183 Actual return (loss) on plan assets 27,456 ( 58,239 ) 9,826 ( 15,996 ) Employer contributions 579 628 4,192 6,082 Benefits paid, net of plan participants’ contributions (2) ( 14,021 ) ( 13,326 ) ( 6,971 ) ( 4,533 ) Fair value of plan assets at end of year $ 298,361 $ 284,347 $ 106,783 $ 99,736 Funded status $ 8,040 $ ( 6,476 ) $ ( 96,623 ) $ ( 73,481 ) Amounts recognized on Consolidated Balance Sheets Postemployment employee benefit asset Noncurrent $ 18,684 $ 4,388 $ — $ — Postemployment employee benefit liability Current $ ( 538 ) $ ( 578 ) $ ( 4,201 ) $ ( 900 ) Noncurrent ( 10,106 ) ( 10,286 ) ( 92,422 ) ( 72,581 ) Total $ 8,040 $ ( 6,476 ) $ ( 96,623 ) $ ( 73,481 ) (1) Includes the Company’s PEP. (2) Employees hired prior to July 1, 1998, that were eligible to elect an additional participant contribution to enhance their benefits, and contributions made during the periods were immaterial. The Company recognizes a liability for its underfunded benefit plans as required by ASC 715, Compensation - Retirement Benefits . The Company records the offset to regulatory assets for the portion of liability relating to NJNG and to accumulated OCI for the portion of the liability related to its unregulated operations. The following table summarizes the amounts recognized in regulatory assets and accumulated OCI as of September 30: Regulatory Assets Accumulated Other Comprehensive Income (Loss) (Thousands) Pension OPEB Pension OPEB Balance at September 30, 2021 $ 56,187 $ 60,335 $ 22,790 $ 12,696 Amounts arising during the period: Net actuarial (gain) ( 14,922 ) ( 35,781 ) ( 14,885 ) ( 18,422 ) Amounts amortized to net periodic costs: Net actuarial (loss) ( 5,843 ) ( 4,577 ) ( 2,902 ) ( 1,107 ) Prior service (cost) credit ( 101 ) 133 — 11 Balance at September 30, 2022 $ 35,321 $ 20,110 $ 5,003 $ ( 6,822 ) Amounts arising during the period: Net actuarial (gain) loss ( 10,493 ) 9,936 ( 4,048 ) 12,320 Amounts amortized to net periodic costs: Net actuarial (loss) ( 87 ) — ( 213 ) — Prior service (cost) ( 103 ) — — — Balance at September 30, 2023 $ 24,638 $ 30,046 $ 742 $ 5,498 Page 110 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The amounts in regulatory assets and accumulated OCI not yet recognized as components of net periodic benefit cost as of September 30 are: Regulatory Assets Accumulated Other Comprehensive Income (Loss) Pension OPEB Pension OPEB (Thousands) 2023 2022 2023 2022 2023 2022 2023 2022 Net actuarial loss (gain) $ 24,577 $ 35,157 $ 30,046 $ 20,110 $ 742 $ 5,003 $ 5,498 $ ( 6,822 ) Prior service cost 61 164 — — — — — — Total $ 24,638 $ 35,321 $ 30,046 $ 20,110 $ 742 $ 5,003 $ 5,498 $ ( 6,822 ) To the extent the unrecognized amounts in accumulated OCI or regulatory assets exceed 10% of the greater of the benefit obligation or the fair value of plan assets, an amortized amount over the average expected future working lifetime of the active plan participants is recognized. Amounts included in regulatory assets and accumulated OCI expected to be recognized as components of net periodic benefit cost in fiscal 2024 are as follows: Regulatory Assets Accumulated Other Comprehensive Income (Loss) (Thousands) Pension OPEB Pension OPEB Net actuarial loss (gain) $ 815 $ 667 $ ( 12 ) $ 661 Prior service cost 62 — — — Total $ 877 $ 667 $ ( 12 ) $ 661 The projected benefit and accumulated benefit obligations and the fair value of plan assets as of September 30, are as follows: Pension (Thousands) 2023 2022 Projected benefit obligation $ 290,321 $ 290,823 Accumulated benefit obligation $ 267,794 $ 265,933 Fair value of plan assets $ 298,361 $ 284,347 The components of the net periodic cost for pension benefits, including the Company’s PEP, and OPEB costs (principally health care and life insurance) for employees and covered dependents for fiscal years ended September 30, are as follows: Pension OPEB (Thousands) 2023 2022 2021 2023 2022 2021 Service cost $ 5,402 $ 8,291 $ 8,730 $ 2,471 $ 4,305 $ 4,844 Interest cost 15,174 9,632 9,112 9,146 6,355 6,071 Expected return on plan assets ( 19,972 ) ( 21,275 ) ( 20,150 ) ( 6,721 ) ( 7,575 ) ( 6,497 ) Recognized actuarial loss 300 8,745 11,446 — 5,684 7,909 Prior service cost (credit) amortization 103 101 102 — ( 144 ) ( 179 ) Net periodic benefit cost recognized as expense $ 1,007 $ 5,494 $ 9,240 $ 4,896 $ 8,625 $ 12,148 Assumptions The weighted average assumptions used to determine the Company’s benefit costs during the fiscal years below and obligations as of September 30, are as follows: Pension OPEB 2023 2022 2021 2023 2022 2021 Benefit costs: Discount rate 5.50 / 5.50 % (1) 3.10 / 3.07 % (1) 2.95 / 2.92 % (1) 5.51 / 5.51 % (1) 3.24 / 3.17 % (1) 3.08 / 3.03 % (1) Expected asset return 7.00 % 6.75 % 6.75 % 7.00 % 6.75 % 6.75 % Compensation increase 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) Obligations: Discount rate 5.89 / 5.87 % (1) 5.50 / 5.50 % (1) 3.10 / 3.07 % (1) 5.97 / 5.94 % (1) 5.51 / 5.51 % (1) 3.24 / 3.17 % (1) Compensation increase 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) 3.00 / 3.50 % (1) (1) Percentages for represented and non-represented plans, respectively. Page 111 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) When measuring its PBO, the Company uses an aggregate discount rate at which its obligation could be effectively settled. The Company determines a single weighted average discount rate based on a yield curve comprised of rates of return on a population of high quality debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of its expected future benefit payments. The Company measures its service and interest costs using a disaggregated, or spot rate, approach. The Company applies the duration-specific spot rates from the full yield curve, as of the measurement date, to each year’s future benefit payments, which aligns the timing of the plans’ separate future cash flows to the corresponding spot rates on the yield curve. Information relating to the assumed HCCTR used to determine expected OPEB benefits as of September 30, and the effect of a 1% change in the rate, are as follows: ($ in thousands) 2023 2022 2021 HCCTR 7.4 % 6.6 % 6.9 % Ultimate HCCTR 4.5 % 4.5 % 4.5 % Year ultimate HCCTR reached 2032 2027 2027 Effect of a 1 percentage point increase in the HCCTR on: Year-end benefit obligation $ 30,818 $ 26,710 $ 43,217 Total service and interest cost $ 2,117 $ 2,544 $ 2,959 Effect of a 1 percentage point decrease in the HCCTR on: Year-end benefit obligation $ ( 25,283 ) $ ( 21,853 ) $ ( 34,669 ) Total service and interest costs $ ( 1,700 ) $ ( 1,966 ) $ ( 2,253 ) The Company’s investment objective is a long-term real rate of return on assets before permissible expenses that is approximately 5% greater than the assumed rate of inflation, as measured by the consumer price index. The expected long-term rate of return is based on the asset categories in which the Company invests and the current expectations and historical performance for these categories. The mix and targeted allocation of the pension and OPEB plans’ assets are as follows: 2024 Assets at Target September 30, Asset Allocation Allocation 2023 2022 U.S. equity securities 34 % 34 % 32 % International equity securities 17 16 16 Fixed income 33 31 32 Collective investment trusts at NAV 16 19 20 Total 100 % 100 % 100 % The Company adopted the revised mortality assumptions published by the Society of Actuaries for its pension and other postemployment benefit obligations, which reflected increased life expectancies in the U.S. The adoption of the new mortality projection scale, MP-2021, and the Pri-2012 mortality study, did not materially impact the projected benefit obligation for the plans. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following fiscal years: (Thousands) 2024 2025 2026 2027 2028 2029 - 2033 Pension $ 15,227 $ 16,233 $ 17,255 $ 18,246 $ 19,219 $ 110,341 OPEB $ 6,925 $ 7,602 $ 8,481 $ 9,337 $ 10,211 $ 63,780 The Company’s OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare Part D. Therefore, under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Company qualifies for federal subsidies. Estimated subsidy payments for fiscal 2024 and 2025 are immaterial and zero thereafter. Page 112 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Pension and OPEB assets held in the master trust, measured at fair value, are summarized as follows: Pension OPEB (Thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Total As of September 30, 2023 Assets Registered Investment Companies: Equity Funds: Large Cap Index 81,171 81,171 30,884 30,884 Extended Market Index 17,256 17,256 6,444 6,444 International Stock 48,557 48,557 17,966 17,966 Fixed Income Funds: Emerging Markets 11,471 11,471 4,306 4,306 Core Fixed Income — — 22,241 22,241 High Yield Bond Fund 20,685 20,685 7,651 7,651 Long Duration Fund 58,484 58,484 — — Total assets in the fair value hierarchy $ 237,624 237,624 $ 89,492 89,492 Investments measured at net asset value Collective investment trusts 60,737 17,291 Total assets at fair value $ 298,361 $ 106,783 As of September 30, 2022 Assets Money market funds $ — $ — $ 28 $ 28 Registered Investment Companies: Equity Funds: Large Cap Index 75,394 75,394 26,939 26,939 Extended Market Index 15,783 15,783 5,578 5,578 International Stock 44,846 44,846 16,106 16,106 Fixed Income Funds: Emerging Markets 11,074 11,074 4,026 4,026 Core Fixed Income — — 16,594 16,594 Opportunistic Income — — 3,283 3,283 Ultra Short Duration — — 3,296 3,296 High Yield Bond Fund 19,816 19,816 7,320 7,320 Long Duration Fund 59,084 59,084 — — Total assets in the fair value hierarchy $ 225,997 225,997 $ 83,170 83,170 Investments measured at net asset value Collective investment trusts 58,350 16,566 Total assets at fair value $ 284,347 $ 99,736 The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2023 and 2022, and there have been no changes in valuation methodologies as of September 30, 2023. The Plan held assets that are valued using NAV as a practical expedient, which are excluded from the fair value hierarchy. The following is a description of the valuation methodologies used for assets measured at fair value: Asset Types Description of the Valuation Methodologies Money Market funds Represents bank balances and money market funds that are valued based on the NAV of shares held at year end. Registered Investment Companies Equity and fixed income funds valued at the NAV of shares held by the plan at year end as reported on the active market on which the individual securities are traded. Collective investment trusts The NAV for collective investment trusts is provided by the Trustee and is used as a practical expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund less liabilities. Page 113 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Defined Contribution Plan The Company offers a Savings Plan to eligible employees. The Company matches 85 % of participants’ contributions up to 6 % of base compensation. Represented NJRHS employees, non-represented employees hired on or after October 1, 2009, and NJNG represented employees hired on or after January 1, 2012, are eligible for an employer special contribution of between 3.5 % and 4.5 % of base compensation, depending on years of service, into the Savings Plan on their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was $ 5.9 M in fiscal 2023, $ 5.5 M in fiscal 2022 and $ 5.1 M in fiscal 2021. The amount contributed for the employer special contribution of the Savings Plan was $ 2.1 M in fiscal 2023, $ 2.4 M in fiscal 2022 and $ 2.1 M in fiscal 2021. 12. INCOME TAXES The income tax provision from operations for the fiscal years ended September 30, consists of the following: (Thousands) 2023 2022 2021 Current: Federal $ 13,393 $ 4,238 $ 651 State 7,716 2,104 1,703 Deferred: Federal 36,825 55,968 25,030 State ( 8,381 ) 14,185 6,224 Investment/production tax credits ( 278 ) ( 300 ) ( 322 ) Income tax provision $ 49,275 $ 76,195 $ 33,286 As of September 30, the temporary differences, which give rise to deferred tax assets (liabilities), consist of the following: (Thousands) 2023 2022 Deferred tax assets Investment tax credits (1) $ 191,948 $ 212,506 State net operating losses 39,612 36,950 Deferred revenue 8,205 — Fair value of derivatives 5,386 6,506 Impairment of equity method investment 14,004 14,124 Postemployment benefits 6,502 2,751 Incentive compensation 8,949 7,297 Amortization of intangibles 6,308 6,474 Overrecovered natural gas costs 8,564 4,977 Allowance for doubtful accounts 4,485 5,761 Other 7,636 5,748 Total deferred tax assets 301,599 303,094 Less: Valuation allowance ( 5,747 ) ( 22,241 ) Total deferred tax assets net of valuation allowance $ 295,852 $ 280,853 Deferred tax liabilities Property-related items $ ( 487,294 ) $ ( 468,115 ) Remediation costs ( 18,532 ) ( 18,490 ) Investments in equity investees ( 28,325 ) ( 19,176 ) Conservation incentive program ( 14,075 ) ( 6,457 ) Other ( 4,670 ) ( 4,615 ) Total deferred tax liabilities $ ( 552,896 ) $ ( 516,853 ) Total net deferred tax liabilities $ ( 257,044 ) $ ( 236,000 ) (1) Includes approximately $ 0.7 M for NJNG for both fiscal 2023 and 2022, which is being amortized over the life of the related assets. Page 114 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) A reconciliation of the U.S. federal statutory rate to the effective rate from operations for the fiscal years ended September 30, is as follows: (Thousands) 2023 2022 2021 Statutory income tax expense $ 65,940 $ 73,735 $ 31,747 Change resulting from: Investment/production tax credits ( 278 ) ( 300 ) ( 322 ) Cost of removal of assets placed in service prior to 1981 ( 4,758 ) ( 3,533 ) ( 5,366 ) AFUDC equity ( 1,499 ) ( 2,361 ) ( 786 ) State income taxes, net of federal benefit 13,293 13,072 6,124 Valuation allowance ( 16,494 ) ( 1,372 ) 5,974 Tax Act - utility excess deferred income taxes amortized ( 3,573 ) ( 3,573 ) ( 3,573 ) Other ( 3,356 ) 527 ( 512 ) Income tax provision $ 49,275 $ 76,195 $ 33,286 Effective income tax rate 15.7 % 21.7 % 22.0 % The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S. federal jurisdiction and in the states of Colorado, Connecticut, Delaware, Florida, Indiana, Louisiana, Maryland, Michigan, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Texas and Virginia. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions other than Canada. Due to certain available tax treaty benefits, the Company incurs no tax liability in Canada. The Company’s U.S. federal income tax returns through fiscal 2019 have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. U.S. federal income tax returns for periods subsequent to fiscal 2019 are open to examination by the IRS. For all periods subsequent to those ended September 30, 2019, the Company’s state income tax returns are statutorily open to examination in all applicable states with the exception of Colorado, New Jersey and Texas. In Colorado, New Jersey and Texas, all periods subsequent to September 30, 2018, are statutorily open to examination. NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with uncertain tax positions. A tax benefit claimed, or expected to be claimed, on a tax return may be recognized only if it is more likely than not that the tax position will be upheld upon examination by the applicable taxing authority and is measured based on the largest tax benefit that is more than 50% likely to be realized. 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. CARES Act On March 27, 2020, the President of the U.S. signed the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act provided for the delay in the required deposit of the employer portion of the OASDI payroll tax from the date of enactment through the end of 2020. Of the taxes that the Company can defer, 50% of the deferred taxes were required to be deposited by the end of 2021 and the remaining 50% were required to be deposited by the end of 2022. As of September 30, 2021, the Company deferred approximately $ 5.1 M related to the employer portion of the OASDI tax. During fiscal 2022, the Company made the first of two installment payments, which reduced the balance to approximately $ 2.7 M. The second installment payment was made during the first quarter of fiscal 2023, which reduced the balance to zero as of September 30, 2023. Inflation Reduction Act In August 2022, the President of the U.S. signed the Inflation Reduction Act, which contains provisions addressing inflation, clean energy, healthcare and taxes beginning in 2023. The Inflation Reduction Act imposes a 15% minimum tax rate on corporations with higher than $1B of annual income, along with a 1% excise tax on corporate stock repurchases. The Inflation Reduction Act raised the ITC from 26% to 30% through the end of 2032, dropping to 26% for property under construction before the end of 2033 and to 22% for property under construction before the end of 2034. The ITC expires Page 115 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) starting in 2035 unless it is renewed. There are additional opportunities to increase the credit amount for certain facilities that are placed in service after December 31, 2022. The credit amount can be increased by 10% if certain domestic content requirements are satisfied or if the facility is located in an energy community, such as a brownfield site. ITCs are also expanded to include stand-alone energy storage projects without being integrated into a solar facility, allowing solar to claim production tax credits that are a production-based credit extending for 10 years following the placed-in-service date of the facility, and introducing the concept of transferability of tax credits, providing an additional option to monetize such credits. The Company evaluated the impacts of the Inflation Reduction Act on its financial position, results of operations and cash flows, noting the corporate alternative minimum tax does not impact the Company as the applicable income thresholds have not been met. Upon the repurchase of common stock through the Company’s share repurchase program, the Company would be subject to the 1% excise tax. Other Tax Items As of September 30, 2023 and 2022, the Company has tax credit carryforwards of approximately $ 191.2 M and $ 211.8 M, respectively, which each have a life of 20 years. The Company expects to utilize this entire carryforward prior to expiration, which would begin in fiscal 2036. The impairment of the equity method investment in PennEast created net capital loss attributes totaling approximately $ 56.6 M, which could only be utilized to offset capital gains income and carried back three years and forward five years prior to expiration. During the fourth quarter of fiscal 2023, the Company determined that the tax losses created by the impairment may qualify as an ordinary loss, rather than a capital loss. As of September 30, 2023 and 2022, the Company had a valuation allowance of approximately $ 5.0 M and $ 5.1 M, respectively. As of September 30, 2023, the Company evaluated certain tax benefits recorded in the Consolidated Financial Statements and concluded that a portion of the tax benefits are uncertain at this time. As a result, the Company recorded a reserve for uncertain tax benefits. The reserve for uncertain tax benefits is as follows: (Thousands) 2023 2022 Balance at October 1, $ — $ — Additions based on tax positions related to the current fiscal period 4,978 — Balance at September 30, $ 4,978 $ — As of September 30, 2023, there are $ 5.0 M of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The tax benefits relate to fiscal tax years open to examination by the IRS and the state of Pennsylvania and may be subject to subsequent adjustment. As of September 30, 2023 and 2022, the Company has state income tax net operating losses of approximately $ 631.2 M and $ 544.4 M, respectively. These state net operating losses have varying carry-forward periods dictated by the state in which they were incurred; these state carry-forward periods range from seven to 20 years, with the majority expiring after 2037. The Company expects to utilize this entire carryforward, other than as described below. As of September 30, 2022, the Company had a valuation allowance of approximately $ 17.2 M related to the recognition of state net operating loss carryforwards. As of September 30, 2023, it was determined that the realization of certain deferred tax assets was more likely than not, and thus the associated valuation allowance of approximately $ 15.8 M was no longer required. Reversal of the valuation allowance resulted in a corresponding income tax benefit on the Consolidated Statement of Operations. As of September 30, 2023, the remaining valuation allowance of approximately $ 0.7 M related primarily to other state income tax attributes which the Company could not conclude were realizable on a more-likely-than-not basis. The Consolidated Appropriations Act extended the 30% ITC for solar property that is under construction on or before December 31, 2019. Projects placed in service after December 31, 2019, may also qualify for a 30% federal ITC if 5% or more of the total costs of a solar property are incurred before the end of the applicable year and there are continuous efforts to advance toward completion of the project, based on the IRS guidance around ITC safe harbor determination. The credit declined to 26 % for property under construction before the end of 2020. The Consolidated Appropriations Act of 2021 extended the 26 % tax credit for property under construction during 2021 and 2022. The Inflation Reduction Act raised the ITC from 26% to 30% through the end of 2032, as previously stated. Page 116 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 13. LEASES Lessee Accounting The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. After the criteria are satisfied, the Company accounts for these arrangements as leases in accordance with ASC 842, Leases . Right-of-use assets represent the Company’s right to use the underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases. The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of certain natural gas meters. Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. The variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns. Generally, the Company’s solar land lease terms are between 20 and 50 years and may include multiple options to extend the terms for an additional five to 20 years. The Company’s office leases vary in duration, ranging from two to 17 years, and may or may not include extension or early purchase options. The Company’s meter lease terms are between seven and 10 years with purchase options available prior to the end of the term. Equipment leases include general office equipment that also vary in duration, with an average term of eight years . The Company’s storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company’s lease terms may include options to extend, purchase the leased asset or terminate a lease, and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases . The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with various NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation. Page 117 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The following table presents the Company’s lease costs included in the Consolidated Statements of Operations for the fiscal year ended September 30: (Thousands) Income Statement Location 2023 2022 2021 Operating lease cost (1) Operation and maintenance $ 9,336 $ 9,702 $ 8,182 Finance lease cost Amortization of right-of-use assets Depreciation and amortization 2,105 1,769 $ 3,442 Interest on lease liabilities Interest expense, net of capitalized interest 1,084 612 710 Total finance lease cost $ 3,189 $ 2,381 4,152 Short-term lease cost Operation and maintenance — 34 543 Variable lease cost Operation and maintenance 1,128 781 1,381 Total lease cost $ 13,653 $ 12,898 $ 14,258 (1) Net of capitalized costs. The following table presents supplemental cash flow information related to leases for the fiscal year ended September 30: (Thousands) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for operating leases $ 8,942 $ 7,417 $ 6,675 Operating cash flows for finance leases $ 1,084 $ 831 $ 1,167 Financing cash flows for finance leases $ 7,379 $ 7,145 $ 8,180 Assets obtained or modified for operating lease liabilities totaled approximately $ 13.2 M and $ 0.9 M during fiscal 2023 and 2022, respectively. Assets obtained or modified through other leases, including those which are finance leases and financing transactions for accounting purposes, totaled approximately $ 8.4 M and $ 17.3 M during fiscal 2023 and 2022, respectively. The following table presents the balance and classifications of the Company’s right of use assets and lease liabilities included in the Consolidated Balance Sheets for the fiscal year ended September 30: (Thousands) Balance Sheet Location 2023 2022 Assets Noncurrent Operating lease assets Operating lease assets $ 175,740 $ 168,520 Finance lease assets Utility plant 28,248 21,913 Total lease assets $ 203,988 $ 190,433 Liabilities Current Operating lease liabilities Operating lease liabilities $ 4,772 $ 4,562 Finance lease liabilities Current maturities of long-term debt 8,477 6,538 Noncurrent Operating lease liabilities Operating lease liabilities 148,023 138,382 Finance lease liabilities Long-term debt 22,875 23,752 Total lease liabilities $ 184,147 $ 173,234 For operating lease assets and liabilities, the weighted average remaining lease term was 29.2 years for both September 30, 2023 and 2022, and the weighted average discount rate used in the valuation over the remaining lease term was 3.5 % and 3.2 % for September 30, 2023 and 2022, respectively. For finance lease assets and liabilities as of September 30, 2023 and 2022, the weighted average remaining lease term was 3.3 years and 4.0 years, respectively, and the weighted average discount rate used in the valuation over the remaining lease term was 2.7 % as of both September 30, 2023 and 2022. Page 118 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The following table presents the Company’s maturities of lease liabilities as of September 30, 2023: (Thousands) Operating Finance 2024 $ 7,913 $ 9,362 2025 7,875 7,479 2026 7,799 6,407 2027 7,743 4,083 2028 7,803 4,715 Thereafter 213,927 1,676 Total future payments 253,060 33,722 Less: interest ( 100,265 ) ( 2,370 ) Total liability $ 152,795 $ 31,352 14. COMMITMENTS AND CONTINGENT LIABILITIES Cash Commitments NJNG has entered into long-term contracts, expiring at various dates through September 2039, for the supply, transportation and storage of natural gas. These contracts include annual fixed charges of approximately $ 198.3 M at current contract rates and volumes, which are recoverable through BGSS. For the purpose of securing storage and pipeline capacity, ES enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by ES to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to 10 years. Demand charges are established by interstate storage and pipeline operators and are regulated by FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and/or transport natural gas utilizing their respective assets. Commitments as of September 30, 2023, for natural gas purchases and future demand fees for the next five fiscal year periods, are as follows: (Thousands) 2024 2025 2026 2027 2028 Thereafter ES: Natural gas purchases $ 66,525 $ 2,498 $ — $ — $ — $ — Storage demand fees 16,944 8,099 6,010 4,878 3,505 6,780 Pipeline demand fees 43,755 43,271 31,749 24,234 13,719 14,457 Sub-total ES $ 127,224 $ 53,868 $ 37,759 $ 29,112 $ 17,224 $ 21,237 NJNG: Natural gas purchases $ 23,952 $ — $ — $ — $ — $ — Storage demand fees 42,469 30,673 14,975 10,163 5,084 — Pipeline demand fees 155,875 155,559 134,555 128,651 113,998 966,963 Sub-total NJNG $ 222,296 $ 186,232 $ 149,530 $ 138,814 $ 119,082 $ 966,963 Total $ 349,520 $ 240,100 $ 187,289 $ 167,926 $ 136,306 $ 988,200 Certain pipeline demand fees totaling approximately $ 4.0 M per year, for which ES is the responsible party, are being paid for by the counterparty to a capacity release transaction beginning November 1, 2021 for a period of 10 years. As of September 30, 2023, the Company’s future minimum lease payments under various operating leases will not be more than $ 7.9 M annually for the next five years and $ 213.9 M in the aggregate for all years thereafter. Guarantees As of September 30, 2023, there were NJR guarantees covering approximately $ 192.3 M of ES’s natural gas purchases and demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets. Page 119 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) Legal Proceedings Manufactured Gas Plant Remediation NJNG is responsible for the remedial cleanup of certain former MGP sites, dating back to gas operations in the late 1800s and early 1900s, which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative proceedings with the NJDEP, and is participating in various studies and investigations by outside consultants, to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under NJDEP regulations. NJNG periodically, and at least annually, performs an environmental review of former MGP sites located in Atlantic Highlands, Berkeley, Long Branch, Manchester, Toms River, Freehold and Aberdeen, New Jersey, including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures at the former MGP sites for which it is responsible, including potential liabilities for natural resource damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range from approximately $ 137.3 M to $ 201.5 M. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, as of September 30, 2023, NJNG recorded a MGP remediation liability and a corresponding regulatory asset of approximately $ 169.4 M on the Consolidated Balance Sheets based on the most likely amount. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and insurance recoveries, if any. NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC approved by the BPU. In March 2022, the BPU approved an increase in the RAC, which increased the pre-tax annual recovery from $ 11.1 M to $ 11.7 M, effective April 1, 2022. On April 12, 2023, the BPU approved on a final basis NJNG’s annual SBC filing of RAC expenditures through June 30, 2022, as well as an increase to the RAC annual recoveries of $ 3.7 M, which increased the pre-tax annual recovery to $ 15.4 M, effective May 1, 2023. As of September 30, 2023, $ 66.3 M of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Consolidated Balance Sheets. NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination. General The Company is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory and arbitration proceedings relating to matters that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, the Company cannot state with confidence what the eventual outcome of the pending litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, the Company establishes accruals for litigation for those matters that present loss contingencies as to which it is both probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company also discloses contingent matters for which there is a reasonable possibility of a loss. Based upon currently available information, the Company believes that the results of litigation that are currently pending, taken together, will not have a materially adverse effect on the Company’s financial condition, results of operations or cash flows. The actual results of resolving the pending litigation matters may be substantially higher than the amounts accrued. The foregoing statements about the Company’s litigation are based upon the Company’s judgments, assumptions and estimates and are necessarily subjective and uncertain. The Company has a number of threatened and pending litigation matters at various stages. Page 120 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 15. REPORTING SEGMENT AND OTHER OPERATIONS DATA The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other business operations: NJNG consists of regulated energy and off-system, capacity and storage management operations; CEV consists of capital investments in clean energy projects; ES consists of unregulated wholesale and retail energy operations; S&T consists of the Company’s investments in natural gas transportation and storage facilities; the HSO business operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities. Information related to the Company’s various reporting segments and other business operations, as of September 30, is detailed below: Segments (Thousands) NJNG CEV ES S&T Subtotal HSO Elims Total 2023 Operating revenues External customers $ 1,011,284 124,131 681,446 (1) 88,700 $ 1,905,561 57,433 — $ 1,962,994 Intercompany $ 1,349 — 10,170 4,159 $ 15,678 205 ( 15,883 ) $ — Depreciation and amortization $ 102,326 25,320 221 (2) 24,185 $ 152,052 889 — $ 152,941 Interest income (3) $ 1,713 — 1,119 6,957 $ 9,789 2,977 ( 3,847 ) $ 8,919 Interest expense, net of capitalized interest $ 56,595 28,569 11,400 25,803 $ 122,367 647 — $ 123,014 Income tax provision (benefit) $ 33,065 ( 7,683 ) 24,343 3,444 $ 53,169 ( 1,477 ) ( 2,417 ) $ 49,275 Equity in earnings of affiliates $ — — — 3,126 $ 3,126 — 804 $ 3,930 Net financial earnings $ 131,414 44,458 68,517 12,835 $ 257,224 4,758 ( 155 ) $ 261,827 Capital expenditures $ 390,394 107,303 — 40,916 $ 538,613 2,306 — $ 540,919 2022 Operating revenues External customers $ 1,127,417 128,280 1,529,178 (1) 65,286 $ 2,850,161 55,818 — $ 2,905,979 Intercompany $ 1,350 — 94 2,449 $ 3,893 364 ( 4,257 ) $ — Depreciation and amortization $ 94,579 21,396 148 (2) 12,302 $ 128,425 824 — $ 129,249 Interest income (3) $ 895 — 16 2,110 $ 3,021 944 ( 1,249 ) $ 2,716 Interest expense, net of capitalized interest $ 46,394 21,968 4,725 12,097 $ 85,184 646 — $ 85,830 Income tax provision $ 40,141 11,361 21,776 1,879 $ 75,157 1,059 ( 21 ) $ 76,195 Equity in earnings of affiliates $ — — — 9,865 $ 9,865 — ( 1,688 ) $ 8,177 Net financial earnings (loss) $ 140,124 39,403 39,121 22,454 $ 241,102 ( 781 ) — $ 240,321 Capital expenditures $ 298,374 146,676 — 151,988 $ 597,038 1,390 — $ 598,428 Return of capital from equity investees $ — — — ( 5,479 ) $ ( 5,479 ) — — $ ( 5,479 ) 2021 Operating revenues External customers $ 731,796 95,275 1,228,846 (1) 49,252 $ 2,105,169 51,444 — $ 2,156,613 Intercompany $ — — ( 426 ) 1,768 $ 1,342 785 ( 2,127 ) $ — Depreciation and amortization $ 80,045 20,567 111 (2) 9,960 $ 110,683 980 ( 276 ) $ 111,387 Interest income (3) $ 85 241 11 2,243 $ 2,580 522 ( 935 ) $ 2,167 Interest expense, net of capitalized interest $ 36,405 22,548 2,204 13,348 $ 74,505 4,054 — $ 78,559 Income tax provision (benefit) $ 19,054 5,048 18,371 ( 10,043 ) $ 32,430 ( 196 ) 1,052 $ 33,286 Equity in loss of affiliates $ — — — ( 81,072 ) $ ( 81,072 ) — ( 2,140 ) $ ( 83,212 ) Net financial earnings (loss) $ 107,375 16,789 71,117 13,046 $ 208,327 ( 826 ) 211 $ 207,712 Capital expenditures $ 426,628 87,852 — 107,500 $ 621,980 2,630 — $ 624,610 Investments in equity investees $ — — — 690 $ 690 — — $ 690 (1) Includes sales to Canada for ES, which are $ 8.4 M, $ 2.4 M and $ 0.1 M in the fiscal years ended September 30, 2023, 2022 and 2021, respectively. (2) The amortization of acquired wholesale energy contracts is excluded above and is included in natural gas purchases - nonutility on the Consolidated Statements of Operations. (3) Included in other income, net on the Consolidated Statements of Operations. Page 121 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) The Company’s assets at end of period for the various reporting segments and other business operations, as of September 30, are detailed below: Segments Intercompany (Thousands) NJNG CEV ES S&T Subtotal HSO Assets (1) Total 2023 $ 4,414,829 1,128,577 123,775 1,011,959 $ 6,679,140 171,275 ( 312,919 ) $ 6,537,496 2022 $ 4,030,686 1,015,065 333,064 999,520 $ 6,378,335 159,068 ( 275,987 ) $ 6,261,416 2021 $ 3,707,461 914,788 365,423 862,407 $ 5,850,079 162,134 ( 289,935 ) $ 5,722,278 (1) Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation. The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company’s reporting segments and other business operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income, as of September 30, is as follows: (Thousands) 2023 2022 2021 Net financial earnings $ 261,827 $ 240,321 $ 207,712 Less: Unrealized (gain) loss on derivative instruments and related transactions ( 38,081 ) ( 59,906 ) 54,203 Tax effect 9,050 14,248 ( 12,887 ) Effects of economic hedging related to natural gas inventory 34,699 19,939 ( 42,405 ) Tax effect ( 8,246 ) ( 4,738 ) 10,078 (Gain on) impairment of equity method investment ( 300 ) ( 5,521 ) 92,000 Tax effect ( 19 ) 1,377 ( 11,167 ) Net income $ 264,724 $ 274,922 $ 117,890 The Company uses derivative instruments as economic hedges of purchases and sales of physical natural gas inventory. For GAAP purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues and cost of natural gas related to physical natural gas flow are recognized when the natural gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical natural gas flows. Timing differences occur in two ways: • unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical natural gas inventory flows; and • unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in the same period as physical natural gas inventory movements occur. NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of natural gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current-period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Realized derivative gains and losses are also included in current-period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical natural gas flows. NFE also excludes certain transactions associated with equity method investments, including impairment charges, which are non-cash charges, and return of capital in excess of the carrying value of our investment. These are considered unusual in nature and occur infrequently such that they are not indicative of the Company’s performance for its ongoing operations. Included in the tax effects are current and deferred income tax expense corresponding with the components of NFE. Page 122 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 16. RELATED PARTY TRANSACTIONS Effective April 1, 2020, NJNG entered into a 5-year agreement for 3 Bcf of firm storage capacity with Steckman Ridge, which expires on March 31, 2025. Under the terms of the agreement, NJNG incurs demand fees, at market rates, of approximately $ 9.3 M annually, a portion of which is eliminated in consolidation. These fees are recoverable through NJNG’s BGSS mechanism and are included as a component of regulatory assets. ES may periodically enter into storage or park and loan agreements with an affiliated FERC-jurisdictional natural gas storage facility, Steckman Ridge. As of September 30, 2023, ES has entered into transactions with Steckman Ridge for varying terms, all of which expire by March 31, 2024. Demand fees, net of eliminations, associated with Steckman Ridge during the fiscal years ended September 30, were as follows: (Thousands) 2023 2022 2021 NJNG $ 6,549 $ 6,663 $ 6,449 ES 657 732 564 Total $ 7,206 $ 7,395 $ 7,013 The following table summarizes demand fees payable to Steckman Ridge as of September 30: (Thousands) 2023 2022 NJNG $ 775 $ 775 ES 84 76 Total $ 859 $ 851 NJNG and ES enter into various AMAs, the effects of which are eliminated in consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to ES. As of September 30, 2023, NJNG and ES had one AMA with an expiration date of March 31, 2024. NJNG entered into a 5-year transportation agreement with Adelphia for committed capacity of 130,000 Dths per day in Zone South, which began on August 9, 2022. ES has a 5-year agreement for 3 Bcf of firm storage capacity with Leaf River, which is eliminated in consolidation and expires in March 2024. In March 2021, NJNG and CEV entered into a 15-year sublease and PPA related to an onsite solar array and the related energy output at the Company’s headquarters in Wall, New Jersey, the effects of which are immaterial to the consolidated financial statements. In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with various NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation. In June 2022, NJNG and CEV entered into a 20-year sublease and PPA related to an onsite solar array and the related energy output at the Company’s LNG plant in Howell, New Jersey, the effects of which are immaterial to the consolidated financial statements. NJNG entered into a 15-year transportation agreement with Adelphia for committed capacity of 130,000 Dth per day in Zone North, beginning November 1, 2023. The intercompany profits for certain transactions between NJNG and ES and NJNG and Adelphia are not eliminated in accordance with ASC 980, Regulated Operations. Page 123 New Jersey Resources Corporation Part II ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None