Risk Factors Dashboard
Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.
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Risk Factors - NJR
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Item 1A. Risk Factors, as well as the following, which are neither presented in order of importance nor weighted:
•our ability to obtain governmental and regulatory approvals, permits, certificates, land-use rights, electric grid connection (in the case of clean energy projects) and/or financing for the construction, development and operation of our unregulated energy investments, pipeline transportation systems and NJNG and S&T infrastructure projects in a timely manner;
•our ability to address concerns over climate change and its impacts on business operations;
•risks associated with our investments in clean energy projects, including the availability of regulatory incentives and federal tax credits, the availability of viable projects, our eligibility for ITCs, the future market for RECs and electricity prices, our ability to complete construction of the projects and operational risks related to projects in service;
•risks associated with acquisitions and the related integration of acquired assets with our current operations;
•our ability to comply with current and future regulatory requirements;
•risks associated with our pipeline of projects and timely completion of such projects;
•commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale energy trading market;
•volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG’s BGSS incentive programs, ES operations and our risk management efforts;
•the performance of our subsidiaries;
•access to adequate supplies of natural gas and dependence on third-party S&T facilities for natural gas supply;
•the level and rate at which NJNG’s costs are incurred and the extent to which they are approved for recovery from customers through the regulatory process, including through future base rate case filings;
•impacts of inflation, including the current inflationary environment, and increased natural gas costs;
•the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;
•operating risks incidental to handling, storing, transporting and providing customers with natural gas;
•demographic changes in our service territory and their effect on our customer growth;
•changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the Company;
•the impact of events causing volatility in the equity and credit markets on our access to capital, including natural disasters, pandemic illness and other extreme events and risks, political and economic disruption and uncertainty related to Russia’s military invasion of Ukraine, the conflict in the Middle East, and the international community’s responses;
•risks of prolonged constriction of credit availability in the markets and our ability to secure short-term financing;
•our ability to comply with debt covenants;
•the results of legal or administrative proceedings with respect to claims, rates, environmental issues, natural gas cost prudence reviews and other matters;
•risks related to cyberattacks, including ransomware, terrorism and other malicious acts against, or failure of, information technology systems;
•the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of potential downturns in the financial markets, including, but not limited to, inflationary pressures, recessionary pressures, or rising interest rates, and/or reductions in bond yields;
•accounting effects and other risks associated with hedging activities and use of derivatives contracts;
•our ability to optimize our physical assets;
•weather and economic conditions, including those changes in weather and weather patterns that could be attributable to climate change;
•the costs of compliance with present and future environmental laws, potential climate change-related legislation or any legislation resulting from the 2019 New Jersey EMP, as well as future executive orders and the outcomes of regulatory proceedings concerning natural gas;
•uncertainties related to litigation, regulatory, administrative or environmental proceedings;
•changes to tax laws and regulations, including our ability to optimize those changes brought about by the passage of the Inflation Reduction Act;
•any potential need to record a valuation allowance for our deferred tax assets;
•the delay or prevention of a favorable transaction due to changes in control provisions or laws;
•risks related to our employee workforce and succession planning;
•risks associated with the management of our joint ventures and partnerships; and
•risks associated with keeping pace with technological change.
Forward-looking statements made in this report apply only as of the date of this report. While we periodically reassess material trends and uncertainties affecting our results of operations and financial condition in connection with the preparation of management’s discussion and analysis of results of operations and financial condition contained in our Quarterly and Annual Reports on Form 10-Q and Form 10-K, respectively, we do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.
Page 3
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS
| ORGANIZATIONAL STRUCTURE | ||
New Jersey Resources Corporation is a New Jersey corporation and a diversified energy services holding company whose principal business is the distribution of natural gas through a regulated utility, investing in and operating clean energy projects and natural gas storage and transportation assets, and providing other retail and wholesale energy services to customers. We are an exempt holding company under Section 1263 of the Energy Policy Act of 2005.
Our primary subsidiaries include the following:
New Jersey Natural Gas Company provides regulated natural gas utility service to residential and commercial customers throughout Burlington, Middlesex, Monmouth, Morris, Ocean and Sussex counties in New Jersey and participates in the off-system sales and capacity release markets. NJNG, a local natural gas distribution company, is regulated by the BPU and comprises the Company’s Natural Gas Distribution segment.
NJR Clean Energy Ventures Corporation includes the results of operations and assets related to the Company’s unregulated capital investments in clean energy projects, including commercial and residential solar projects. NJRCEV comprises the Company’s Clean Energy Ventures segment.
NJR Energy Services Company, LLC maintains and transacts around a portfolio of physical assets consisting of natural gas transportation and storage contracts in the U.S. NJRES also provides unregulated wholesale energy management services to other energy companies and natural gas producers. NJRES comprises our Energy Services segment.
NJR Midstream Holdings Corporation, which comprises the Storage and Transportation segment, invests in energy-related ventures through its subsidiaries: NJR Midstream Company, which includes our wholly-owned subsidiaries of Leaf River, located in southeastern Mississippi, and Adelphia, located in eastern Pennsylvania, which are subject to FERC regulation; and NJR Steckman Ridge Storage Company, which holds our 50% combined ownership interest in Steckman Ridge, located in Pennsylvania.
NJR Home Services Company provides heating, ventilation and cooling service, sales and installation of appliances, as well as solar installation projects, and is the primary contributor to Home Services and Other operations.
Page 4
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
| REPORTING SEGMENTS | ||
We operate within four reporting segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services and Storage and Transportation.
NJNG consists of regulated natural gas services, off-system sales, capacity and storage management operations. ES consists of unregulated wholesale and retail energy operations, as well as energy management services. CEV consists of capital investments in clean energy projects. S&T consists of operations and investments in the natural gas storage and transportation market, such as natural gas storage and transportation facilities.
Net income by reporting segment and other business operations for the fiscal years ended September 30, are as follows:
* HSO includes intercompany eliminations.
Asset composition by reporting segment and other business operations at September 30, are as follows:
| 2024 | 2023 | ||||
Page 5
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Management uses NFE, a non-GAAP financial measure, when evaluating its operating results. NFE is a measure of the earnings based on eliminating timing differences surrounding the recognition of certain gains or losses to effectively match the earnings effects of the economic hedges with the physical sale of natural gas and, therefore, eliminates the impact of volatility to GAAP earnings associated with the derivative instruments. To the extent we utilize forwards, futures or other derivatives to hedge natural gas transactions and forecasted SREC production, the resulting unrealized gains and losses are also eliminated from NFE. ES economically hedges its natural gas inventory with financial derivative instruments and calculates the related tax effect based on the statutory rate. ES economically hedges its natural gas inventory with financial derivative instruments and calculates the related tax effect based on the statutory rate. 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 and 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.
Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP, and should be considered in addition to, and not as a substitute for, the comparable GAAP measure. The following is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to NFE for the fiscal years ended September 30:
(1)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.
NFE by reporting segment and other business operations for the fiscal years ended September 30, are as follows:
* HSO includes intercompany eliminations.
Page 6
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Natural Gas Distribution
General
NJNG consists of regulated utility operations that provide natural gas service to residential and commercial customers. NJNG’s service territory includes Burlington, Middlesex, Monmouth, Morris, Ocean and Sussex counties in New Jersey. It encompasses 1,538 square miles, covering 109 municipalities with an estimated population of 1.7M people. It encompasses 1,516 square miles, covering 110 municipalities with an estimated population of 1.5 million people. It is primarily suburban, highlighted by approximately 100 miles of New Jersey coastline. It is in close proximity to New York City, Philadelphia and the metropolitan areas of northern New Jersey, and is accessible through a network of major roadways and mass transportation.
NJNG’s business is subject to various risks, such as those associated with adverse economic conditions, which can negatively impact customer growth and operating and financing costs; fluctuations in commodity prices, which can impact customer usage; certain regulatory actions; and environmental remediation. It is often difficult to predict the impact of trends associated with these risks. NJNG employs strategies to pursue customer conversions from other fuel sources and monitor new construction markets through contact with developers, utilize incentive programs through BPU-approved mechanisms to reduce natural gas costs, pursue rate and other regulatory strategies designed to stabilize and decouple gross margin, and work actively with consultants and the NJDEP to manage expectations related to its obligations associated with its former MGP sites.
Operating Revenues/Throughput
For the fiscal years ended September 30, operating revenues and throughput by customer class for NJNG are as follows:
(1)Does not include 17.3, 37.7 and 50.7 Bcf for the capacity release program and related amounts of approximately $0.8M, $0.9M and $0.7M, which are recorded as a reduction of natural gas purchases on the Consolidated Statements of Operations during fiscal 2024, 2023 and 2022, respectively.
In fiscal 2024, no single customer represented more than 10% of consolidated operating revenues.
Seasonality of Natural Gas Revenues
Therm sales are significantly affected by weather conditions, with customer demand being greatest during the winter months when natural gas is used for heating purposes. The relative measurement of the impact of weather is in Degree-days. Degree-day data is used to estimate amounts of energy required to maintain comfortable indoor temperature levels based on each day’s average temperature. Each degree of temperature below 65 degrees Fahrenheit is counted as one heating Degree-day. Normal heating Degree-days are based on a 20-year average, calculated based on three reference areas representative of NJNG’s service territory.
CIP, a mechanism authorized by the BPU, stabilizes NJNG’s Utility Gross Margin, regardless of variations in weather. In addition, CIP decouples the link between Utility Gross Margin and customer usage, allowing NJNG to promote energy conservation measures. Recovery of Utility Gross Margin is subject to additional conditions, including an earnings test, a revenue test and an evaluation of BGSS-related savings achieved over a 12-month period. The BPU approved the continuation of the CIP program with no expiration date.
Concurrent with its annual BGSS filing, NJNG files for an annual review of its CIP, at which time it can request rate changes, as appropriate. For additional information regarding CIP, including rate actions and impact to margin, see Note 4. Regulation in the accompanying Consolidated Financial Statements and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Natural Gas Distribution.
Page 7
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Natural Gas Supply
Firm Natural Gas Supplies
In fiscal 2024, NJNG purchased natural gas from approximately 56 suppliers under contracts ranging from one day to five months and purchased over 10% of its natural gas from two suppliers. NJNG believes the loss of either of these suppliers would not have a material adverse impact on its results of operations, financial position or cash flows, as an adequate number of alternative suppliers exist. NJNG believes that its supply strategy should adequately meet its expected firm load for the upcoming winter season.
Firm Transportation and Storage Capacity
NJNG maintains agreements for firm transportation and storage capacity with several interstate pipeline companies to take delivery of firm natural gas supplies, which ensures the ability to reliably service its customers. NJNG receives natural gas at 11 citygate stations located in Burlington, Middlesex, Morris and Passaic counties in New Jersey.
The pipeline companies that provide firm transportation service to NJNG’s citygate stations, the maximum daily deliverability of that capacity and the contract expiration dates are as follows:
(1) Numbers are shown net of any capacity release contracted amounts.
Eastern Gas Transmission and Storage, Inc., Tennessee Gas Pipeline Company, LLC, Transcontinental Gas Pipe Line Company, LLC and Adelphia provide NJNG upstream firm contract transportation service and supply pipelines included in the table above.
In addition, NJNG has storage contracts that provide an additional 102,941 Dths of maximum daily deliverability to NJNG’s citygate stations from storage fields in its Northeast market area. The storage suppliers, the maximum daily deliverability of that storage capacity and the contract expiration dates are as follows:
NJNG also has upstream storage contracts. The maximum daily deliverability and contract expiration dates are as follows:
NJNG utilizes its transportation contracts to transport natural gas to NJNG’s citygates from the Eastern Gas Transmission and Storage, Inc., Steckman Ridge and Stagecoach Pipeline & Storage Company LLC storage fields. NJNG has sufficient firm transportation, storage and supply capacity to fully meet its customer demand for natural gas within its service territory.
Citygate Supplies from ES
NJNG and ES had one AMA where NJNG released certain transportation and storage capacity to ES, which NJNG could have called upon if needed. This agreement expired on March 31, 2024 and was not renewed.
Page 8
New Jersey Resources Corporation
Part I
ITEM 1. BUSINESS (Continued)
Peaking Supply
To manage its winter peak day demand, NJNG maintains two LNG facilities with a combined deliverability of approximately 170,000 Dths/day, which represents approximately 17% of its estimated peak day sendout. NJNG’s liquefaction facility allows NJNG to convert natural gas into LNG to fill NJNG’s existing LNG storage tanks. See
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