Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Upon the occurrence and continuance of such an Event of Default, the Mortgage Indenture, subject to any provisions of law applicable thereto, provides that the Trustee may take possession and conduct the business of NJNG, may sell the trust estate or proceed to foreclose the lien of the Mortgage Indenture. The interest rate on defaulted principal and interest, to the extent permitted by law, on the FMBs issued under the Mortgage Indenture is the rate stated in the applicable supplement or, if no such rate is stated, 6% per annum.
Sale Leaseback
NJNG received approximately $11.7M, $8.8M and $8.4M in fiscal 2025, 2024 and 2023, respectively, in connection with the sale leaseback of its natural gas meters. 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 repurchase the assets sold or renew the lease at the end of the term. As NJNG retains control of the natural gas meters, these arrangements do not qualify as a sale. NJNG uses the financing method to account for the transactions. NJNG continues to evaluate this sale leaseback program based on current market conditions. Natural gas meters are excluded from the lien on NJNG property under the Mortgage Indenture.
CEV enters into transactions to sell the commercial solar assets concurrent with agreements to lease the assets back over a period of five to seven years. The Company has concluded that these arrangements do not qualify as a sale for accounting purposes, as the Company retains control of the underlying assets, and are therefore treated as financing obligations, which 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. During fiscal 2025, 2024 and 2023, CEV received proceeds of approximately $251.2M, $64.7M and $167.8M, respectively, in connection with the sale leaseback of commercial solar projects. The proceeds received were recognized as a financing obligation on the Consolidated Balance Sheets.
Contractual Obligations and Capital Expenditures
As of September 30, 2025, the Company had 26 outstanding letters of credit totaling approximately $22.1M, as previously mentioned, and there were NJR guarantees covering approximately $138.8M of natural gas purchases and ES demand fee commitments, not yet reflected in accounts payable on the Consolidated Balance Sheets.
Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory constraints, environmental regulations, unforeseen events and the ability to access capital.
NJNG’s total capital expenditures spent or accrued during fiscal 2025 were approximately $450.1M. During fiscal 2026 capital expenditures are projected to be between $430M and $480M. NJNG expects to fund its obligations with a combination of cash flows from operations, cash on hand, issuance of commercial paper, available capacity under its revolving credit facility and the issuance of long-term debt. As of September 30, 2025, NJNG’s future MGP expenditures are estimated to be approximately $167.0M. For a more detailed description of MGP expenditures, see Note 14. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.
During fiscal 2025, total capital expenditures spent or accrued related to the purchase and installation of solar equipment were approximately $271.4M. CEV’s expenditures include clean energy projects that support our goal to promote renewable energy. Accordingly, CEV enters into agreements to install solar equipment for commercial projects. We estimate solar-related capital expenditures during fiscal 2026 to be between $210M and $290M.
Capital expenditures related to clean energy projects are subject to change due to a variety of factors that may affect our ability to commence operations at these projects on a timely basis or at all, including sourcing projects that meet our investment criteria; logistics associated with the start-up of commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any delays related to electric grid interconnection, economic trends or unforeseen events; and the ability to access capital or allocation of capital to other investments or business opportunities.
Page 56
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
During fiscal 2025, S&T had capital expenditures spent or accrued for Adelphia totaling approximately $11.1M, and capital expenditures spent or accrued for Leaf River totaling approximately $19.4M. During fiscal 2026, we expect expenditures related to Adelphia to be between $5M and $10M and expenditures related to Leaf River to be between $40M and $50M.
ES does not currently anticipate any significant capital expenditures during fiscal 2026 and 2027.
In December 2020, ES entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts. The utility provides certain asset management services, and ES may deliver natural gas to the utility in exchange for aggregate net proceeds of approximately $500M, payable through November 1, 2030. The AMAs include a series of initial and permanent releases which commenced in November 2021. NJR received a total of approximately $260M in cash from fiscal 2022 through fiscal 2024 and will receive $34M per year from fiscal 2025 through fiscal 2031 under the agreements. During fiscal 2025, 2024 and 2023, ES recognized approximately $19.7M, $137.2M and $48.5M, respectively, of operating revenue related to the AMAs on the Consolidated Statements of Operations. Amounts received in excess of revenue, totaling approximately $36.8M and $22.3M as of September 30, 2025 and 2024, respectively, are included in deferred revenue on the Consolidated Balance Sheets.
Cash Flows
Operating Activities
Cash flows from operating activities during fiscal 2025 totaled approximately $466.3M compared with approximately $427.4M during fiscal 2024. Operating cash flows are primarily affected by variations in working capital, which can be impacted by several factors, including:
• seasonality of our business;
• fluctuations in wholesale natural gas prices and other energy prices, including changes in derivative asset and liability values;
• timing of storage injections and withdrawals;
• deferral and recovery of natural gas costs;
• changes in contractual assets utilized to optimize margins related to natural gas transactions;
• broker margin requirements;
• impact of unusual weather patterns on our wholesale business;
• timing of the collections of receivables and payments of current liabilities;
• volumes of natural gas purchased and sold; and
• timing of SREC deliveries.
The increase of approximately $38.9M in cash flows from operating activities during fiscal 2025, compared with fiscal 2024, was due primarily to higher base rates along with the changes in the mix of working capital components.
Investing Activities
Cash flows used in investing activities decreased approximately $0.8M during fiscal 2025, compared with fiscal 2024, due primarily to proceeds from the sale of the CEV’s residential solar portfolio, partially offset by increased utility plant and solar asset expenditures.
Financing Activities
Financing cash flows generally are seasonal in nature and are impacted by the volatility in pricing in the natural gas and other energy markets. NJNG’s inventory levels are built up during its natural gas injection season (April through October) and reduced during withdrawal season (November through March) in response to the supply requirements of its customers. Changes in financing cash flows can also be impacted by natural gas management and marketing activities at ES and clean energy investments at CEV.
Cash flows from financing activities decreased approximately $39.8M during fiscal 2025, compared with fiscal 2024, due primarily to increased payments of short and long-term debt, along with lower proceeds from the waiver discount feature of the DRP, partially offset by higher proceeds from solar sale leasebacks and long-term debt.
Page 57
New Jersey Resources Corporation
Part II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Credit Ratings
The table below summarizes NJNG’s credit ratings as of September 30, 2025, issued by two rating entities, Moody’s and Fitch:
Moody’s
Fitch
Corporate Rating N/A A-
Commercial Paper P-2 F-2
Senior Secured A1 A+
Ratings Outlook Stable Stable
The Moody’s ratings and outlook were reaffirmed on June 27, 2025. The Fitch ratings and outlook were reaffirmed on April 4, 2025. NJNG’s Moody’s and Fitch ratings are investment-grade ratings. NJR is not rated by Moody’s or Fitch.
Although NJNG is not party to any lending agreements that would accelerate the maturity date of any obligation caused by a failure to maintain any specific credit rating, if such ratings are downgraded below investment grade, borrowing costs could increase, as would the costs of maintaining certain contractual relationships, and future financing and our access to capital markets would be reduced. Even if ratings are downgraded without falling below investment grade, NJR and NJNG could face increased borrowing costs under their credit facilities. A rating set forth above is not a recommendation to buy, sell or hold NJR’s or NJNG’s securities and may be subject to revision or withdrawal at any time. Each rating set forth above should be evaluated independently of any other rating.
The timing and mix of any external financings will target a common equity ratio that is consistent with maintaining NJNG’s current short-term and long-term credit ratings.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
Commodity Market Risks
Natural gas is a nationally traded commodity. Its prices are determined effectively by the NYMEX, ICE and over-the-counter markets. The prices on the NYMEX, CME, ICE and over-the-counter markets generally reflect the national balance of natural gas supply and demand but are also significantly influenced from time to time by other events.
Our regulated and unregulated businesses are subject to market risk due to fluctuations in the price of natural gas. To economically hedge against such fluctuations, we have entered into forwards, futures, options and swap agreements. To manage these derivative instruments, we have well-defined risk management policies and procedures that include daily monitoring of volumetric limits and monetary guidelines. Our natural gas businesses are conducted through two of our operating subsidiaries. NJNG is a regulated utility that uses futures, options and swaps to provide relative price stability, and its recovery of natural gas costs is governed by the BPU. ES uses futures, options, swaps and physical contracts to economically hedge purchases and sales of natural gas.
The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and sales:
Balance Increase Less Balance
(Thousands) September 30,
2024 (Decrease) in Fair
Market Value Amounts
Settled September 30,
2025
NJNG $ (2) $ 5,494 $ 5,146 $ 346
ES 3,135 10,147 5,938 7,344
Total $ 3,133 $ 15,641 $ 11,084 $ 7,690
There were no changes in methods of valuations during the fiscal year ended September 30, 2025.
Page 58
New Jersey Resources Corporation
Part II