0000356309 us-gaap:OperatingSegmentsMember njr:MidstreamInvestmentsMember 2020-06-30


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
 
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                           

Commission File Number: 001-08359

NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
         
New Jersey    22-2376465 
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
         
1415 Wyckoff Road  (732)938‑1480 
WallNew Jersey07719  
(Registrant's telephone number,
including area code)
      (Address of principal executive offices) 
         
Securities registered pursuant to Section 12 (b) of the Act:
         
Title of each classTrading symbol(s)Name of each exchange on which registered)
Common Stock - $2.50 Par Value NJRNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes:             No:

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes:             No:

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
   Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes:             No:

The number of shares outstanding of $2.50 par value Common Stock as of August 2, 20195, 2020 was 89,980,410.95,930,191.
 


New Jersey Resources Corporation

TABLE OF CONTENTS
   Page
PART I. FINANCIAL INFORMATION 
 ITEM 1.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 ITEM 2.
 ITEM 3.
 ITEM 4.
PART II. OTHER INFORMATION 
 ITEM 1.
 ITEM 1A.
 ITEM 2.
ITEM 5.
 ITEM 6.
  



New Jersey Resources Corporation

GLOSSARY OF KEY TERMS                                                                                                                                                        
AdelphiaAdelphia Gateway, LLC
AFUDCAllowance for Funds Used During Construction
ASCAccounting Standards Codification
ASUAccounting Standards Update
BcfBillion Cubic Feet
BGSSBasic Gas Supply Service
BPUNew Jersey Board of Public Utilities
CEOBridge FacilityChief Executive OfficerThe $350 million term loan credit agreement expiring in October 2020
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CIPConservation Incentive Program
CMEChicago Mercantile Exchange
COOCOVID-19Chief Operating OfficerNovel coronavirus disease
CR&RCommercial Realty & Resources Corp.
DominionDominion Energy, Inc.
DMDominion Energy Midstream Partners, L.P., a master limited partnership
DM Common UnitsCommon units representing limited partnership interests in DM
DRPNJR Direct Stock Purchase and Dividend Reinvestment Plan
DthsDekatherms
EEEnergy Efficiency
Energy ServicesEnergy Services segment
EPSEarnings Per Share
FASBFinancial Accounting Standards Board
FCMFutures Commission Merchant
FERCFederal Energy Regulatory Commission
Financial marginA non-GAAP financial measure, which represents revenues earned from the sale of natural gas less costs of natural gas sold including any transportation and storage costs, and excludes any accounting impact from the change in the fair value of certain derivative instruments
FitchFitch Ratings Company
FMBFirst Mortgage Bond
GAAPGenerally Accepted Accounting Principles of the United States
Home Services and OtherHome Services and Other Operations
ICEIntercontinental Exchange
IECInterstate Energy Company, LLC
IIPInfrastructure Investment Program
IRSInternal Revenue Service
ISDAThe International Swaps and Derivatives Association
ITCFederal Investment Tax Credit
Leaf RiverLeaf River Energy Center LLC
LIBORLondon Inter-Bank Offered Rate
MGPManufactured Gas Plant
Moody'sMoody's Investors Service, Inc.
Mortgage IndentureThe Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement between NJNG and U.S. Bank National Association dated as of September 1, 2014
MWMegawatts
MWhMegawatt Hour
NAESBThe North American Energy Standards Board
Natural Gas ActThe Natural Gas Act of 1938, as amended; the federal law regulating interstate natural gas pipeline and storage companies, among other things, codified beginning at 15 U.S.C. Section 717.
NFENet Financial Earnings
New Jersey Resources Corporation

GLOSSARY OF KEY TERMS (cont.)                                                                                                                                           
NJ RISENew Jersey Reinvestment in System Enhancement
NJCEPNew Jersey's Clean Energy Program
NJDEPNew Jersey Department of Environmental Protection
NJNGNew Jersey Natural Gas Company
New Jersey Resources Corporation

GLOSSARY OF KEY TERMS (cont.)                                                                                                                                           
NJNG Credit FacilityNJNG's $250 million unsecured committed credit facility expiring in December 2023
NJR Credit FacilityNJR's $425 million unsecured committed credit facility expiring in December 2023
NJR or The CompanyNew Jersey Resources Corporation
NJRHSNJR Home Services Company
Non-GAAPNot in accordance with Generally Accepted Accounting Principles of the United States
NPNSNormal Purchase/Normal Sale
NYMEXNew York Mercantile Exchange
OASDIOld Age, Survivors and Disability Insurance tax
O&MOperation and Maintenance
OPEBOther Postemployment Benefit Plans
PennEastPennEast Pipeline Company, LLC
PPAPower Purchase Agreement
PTCFederal Production Tax Credit
RACRemediation Adjustment Clause
RECRenewable Energy Certificate
S&PStandard & Poor's Financial Services, LLC
SAFESafety Acceleration and Facility Enhancement
SAVEGREENThe SAVEGREEN Project®
SBCSocietal Benefits Charge
SECU.S. Securities and Exchange Commission
SRECSolar Renewable Energy Certificate
SRLSouthern Reliability Link
Steckman RidgeCollectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
TalenTalen Energy Marketing, LLC
TetcoTETCOTexas Eastern Transmission
The Exchange ActThe Securities Exchange Act of 1934, as amended
The Tax ActAn 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
Third CircuitThe United States Court of Appeals for the Third Circuit
TrusteeU.S. Bank National Association
U.S.The United States of America
USFUniversal Service Fund

New Jersey Resources Corporation

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS                                                                           

Certain statements contained in this report, including, without limitation, statements as to management expectations, assumptions and beliefs presented in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations,” Part I, Item 3. “Quantitative and Qualitative Disclosures About Market Risk,” Part II, Item I.1. “Legal Proceedings” and in the notes to the financial statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “anticipate,” “estimate,” “may,” “could,” “might,” “intend,” “expect,” “believe,” “will” “plan,” or “should,” or comparable terminology and are made based upon management's current expectations, assumptions and beliefs as of this date concerning future developments and their potential effect on us. There can be no assurance that future developments will be in accordance with management's expectations, assumptions or beliefs, or that the effect of future developments on us will be those anticipated by management.

We caution readers that the expectations, assumptions and beliefs that form the basis for forward-looking statements regarding customer growth, customer usage, qualifications for ITCs and SRECs, future rate case proceedings, completion of infrastructure projects, impacts of COVID-19, financial condition, results of operations, cash flows, capital requirements, future capital expenditures, market risk, effective tax rate and other matters for fiscal 20192020 and thereafter include many factors that are beyond our ability to control or estimate precisely, such as estimates of future market conditions, the behavior of other market participants and changes in the debt and equity capital markets. The factors that could cause actual results to differ materially from our expectations, assumptions and beliefs include, but are not limited to, those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018,2019 and Item 1A. Risk Factors of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, as well as the following:

risks related to the impact of COVID-19 on business operations, financial performance and condition and cash flows;
our ability to obtain governmental and regulatory approvals, 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 Midstream infrastructure projects, including PennEast and Adelphia, in a timely manner;
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 SRECs and electricity prices, and operational risks related to projects in service;
our ability to obtain governmental and regulatory approvals, 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 Midstream infrastructure projects, including NJ RISE, SRL, PennEast and Adelphia, in a timely manner;
risks associated with acquisitions and the related integration of acquired assets with our current operations, including the acquisitions of Leaf River and Adelphia;
our planned Adelphia acquisition;ability to comply with current and future regulatory requirements;
volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNGs BGSS incentive programs, our Energy Services segment operations and our risk management efforts;
the performance of our abilitysubsidiaries;
access to comply with currentadequate supplies of natural gas and future regulatory requirements;dependence on third-party storage and transportation facilities for natural gas supply;
the level and rate at which NJNGs costs and expenses 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;
the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;
the performanceregulatory and pricing policies of our subsidiaries;federal and state regulatory agencies;
operating risks incidental to handling, storing, transporting and providing customers with natural gas;
access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;
the regulatory and pricing policies of federal and state regulatory agencies;
demographic changes in ourservice territory and their effect on our customer growth;
timing of qualifying for ITCs due to delays or failures to complete planned solar projects and the resulting effectimpact on our effective tax rate and earnings;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the Company;
the impact of volatility in the equity and credit markets on our access to capital;
our ability to comply with debt covenants;
the results of legal or administrative proceedings with respect to claims, rates, environmental issues, gas cost prudence reviews and other matters;
changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to our Company;
risks related to cyberattacks or failure of information technology systems;
the impact of volatility in the equity and credit markets on our access to capital;
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, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection and the Affordable Care Act;
commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale energy trading market;
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;
the costs of compliance with present and future environmental laws, potential climate change-related legislation or any legislation resulting from the 2019 New Jersey Energy Master Plan;
uncertainties related to litigation, regulatory, administrative or environmental proceedings;
changes to tax laws and regulations;
any potential need to record a valuation allowance for our deferred tax assets;
our ability to comply with debt covenants;
demographic changes in ourservice territory and their effect on our customer growth;
the impact of natural disasters, terrorist activities and other extreme events on our operations and customers;
the costs of compliance with present and future environmental laws, including potential climate change-related legislation;
environmental-related and other uncertainties related to litigation or administrative proceedings;
risks related to our employee workforce;workforce and succession planning;
risks associated with the management of our joint ventures and partnership.partnerships; and
risks associated with keeping pace with technological change.

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.
New Jersey Resources Corporation
Part I


ITEM 1. FINANCIAL STATEMENTS                                                                                                                                          

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands, except per share data)2019 20182019
20182020 20192020
2019
OPERATING REVENUES          
Utility$120,782
 $104,538
$622,167
 $631,389
$128,532
 $120,782
$645,375
 $622,167
Nonutility314,160
 438,897
1,490,797
 1,636,394
170,442
 314,160
908,249
 1,490,797
Total operating revenues434,942
 543,435
2,112,964
 2,267,783
298,974
 434,942
1,553,624
 2,112,964
OPERATING EXPENSES          
Gas purchases:          
Utility54,861
 53,080
280,627
 227,268
45,665
 54,861
249,042
 280,627
Nonutility289,757
 422,734
1,370,408
 1,489,041
166,761
 289,757
802,501
 1,370,408
Related parties2,126
 2,156
6,455
 6,392
1,518
 2,126
4,548
 6,455
Operation and maintenance62,559
 68,496
185,620
 179,453
68,541
 64,932
198,718
 194,298
Regulatory rider expenses4,136
 5,542
32,159
 36,915
5,464
 4,136
32,536
 32,159
Depreciation and amortization23,149
 20,320
67,292
 64,634
31,216
 23,149
89,758
 67,292
Energy and other taxes2,373
 7,822
8,678
 45,855
Total operating expenses438,961
 580,150
1,951,239
 2,049,558
319,165
 438,961
1,377,103
 1,951,239
OPERATING (LOSS) INCOME(4,019) (36,715)161,725
 218,225
(20,191) (4,019)176,521
 161,725
Other income, net1,829
 1,731
5,456
 8,735
2,713
 1,829
10,260
 5,456
Interest expense, net of capitalized interest11,648
 11,037
37,643
 34,740
15,144
 11,648
50,417
 37,643
(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES(13,838) (46,021)129,538
 192,220
(32,622) (13,838)136,364
 129,538
Income tax benefit(1,941) (28,534)(11,854) (47,801)(2,190) (1,941)(4,092) (11,854)
Equity in earnings of affiliates3,495
 3,213
10,027
 9,670
3,213
 3,495
10,191
 10,027
NET (LOSS) INCOME$(8,402) $(14,274)$151,419
 $249,691
$(27,219) $(8,402)$150,647
 $151,419
          
(LOSS) EARNINGS PER COMMON SHARE     
EARNINGS PER COMMON SHARE     
Basic$(0.09) $(0.16)$1.70 $2.85$(0.28) $(0.09)$1.60 $1.70
Diluted$(0.09) $(0.16)$1.69 $2.84$(0.28) $(0.09)$1.59 $1.69
WEIGHTED AVERAGE SHARES OUTSTANDING          
Basic89,600
 87,888
88,995
 87,493
95,764
 89,600
94,420
 88,995
Diluted89,600
 87,888
89,402
 87,884
95,764
 89,600
94,718
 89,402

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 Three Months EndedNine Months Ended Three Months EndedNine Months Ended
 June 30, June 30,
(Thousands) 2019201820192018 2020201920202019
Net (loss) income $(8,402)$(14,274)$151,419
$249,691
 $(27,219)$(8,402)$150,647
$151,419
Other comprehensive income (loss), net of tax  
Unrealized loss on investments in equity securities, net of tax of $0, $854, $0 and $9,071, respectively 
(2,364)
(25,055)
Reclassifications of losses to net income on investments in equity securities, net of tax of $0, $0, $0 and $(858), respectively 


11,647
Adjustment to postemployment benefit obligation, net of tax of $(118), $(104), $(333) and $(344), respectively 305
272
844
784
Other comprehensive (loss) income, net of tax  
Loss on derivatives designated as hedging instruments, net of tax of $180, $0, $2,961 and $0, respectively (626)
(10,337)
Adjustment to postemployment benefit obligation, net of tax of $(191), $(118), $(2,161) and $(333), respectively 663
305
7,522
844
Other comprehensive income (loss) $305
$(2,092)$844
$(12,624) $37
$305
$(2,815)$844
Comprehensive (loss) income $(8,097)$(16,366)$152,263
$237,067
 $(27,182)$(8,097)$147,832
$152,263


See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months EndedNine Months Ended
June 30,June 30,
(Thousands)2019 20182020 2019
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income$151,419
 $249,691
$150,647
 $151,419
Adjustments to reconcile net income to cash flows from operating activities      
Unrealized (gain) loss on derivative instruments(25,353) 25,904
Unrealized gain on derivative instruments(21,827) (25,353)
Realized and unrealized gains on investments in equity securities(1,567) (5,332)
 (1,567)
Gain on sale of businesses(645) (4,687)
 (645)
Depreciation and amortization67,292
 64,634
89,758
 67,292
Amortization of acquired wholesale energy contracts7,813
 17,813
4,356
 7,813
Allowance for equity used during construction(6,135) (3,730)(12,328) (6,135)
Allowance for doubtful accounts1,686
 1,672
1,657
 1,686
Non cash lease expense2,864
 
Deferred income taxes(29,092) 17,351
(3,066) (29,092)
Deferred income tax benefit due to the Tax Act
 (73,784)
Manufactured gas plant remediation costs(9,582) (13,624)(6,629) (9,582)
Equity in earnings, net of distributions received from equity investees(2,700) (935)(4,985) (2,700)
Cost of removal - asset retirement obligations(194) (93)(183) (194)
Contributions to postemployment benefit plans(5,994) (4,708)(5,969) (5,994)
Tax benefit from stock-based compensation1,289
 2,841
644
 1,289
Changes in:      
Components of working capital(14,829) 64,527
(17,397) (14,829)
Other noncurrent assets16,906
 41,793
10,177
 16,906
Other noncurrent liabilities15,476
 13,224
(4,936) 15,476
Cash flows from operating activities165,790
 392,557
182,783
 165,790
CASH FLOWS USED IN INVESTING ACTIVITIES      
Expenditures for:      
Utility plant(207,357) (130,727)(213,667) (207,357)
Solar equipment(91,333) (88,416)(110,968) (91,333)
Midstream and other(13,116) (4,879)(18,261) (13,116)
Cost of removal(32,212) (42,683)(24,343) (32,212)
Acquisition of assets, net of cash acquired of $5.1 million(523,647) 
Distribution from equity investees in excess of equity in earnings1,473
 2,515
1,411
 1,473
Investments in equity investees(2,696) (14,496)(1,491) (2,696)
Cash paid related to acquisition
 (10,000)
Proceeds from sale of businesses, net of closing costs205,745
 27,916

 205,745
Proceeds from sale of investments in equity securities, net34,484
 6,616

 34,484
Cash flows used in investing activities(105,012) (254,154)(890,966) (105,012)
CASH FLOWS USED IN FINANCING ACTIVITIES   
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES   
Proceeds from term loan350,000
 
Payments of term loan(212,900) 
Proceeds from long-term debt35,800
 225,000
50,000
 35,800
Payments of long-term debt(15,001) (133,717)(11,947) (15,001)
Payments of short-term debt, net(52,650) (208,900)
Proceeds from (payments of) short-term debt, net390,562
 (52,650)
Proceeds from sale-leaseback transaction - solar42,927
 
Proceeds from sale-leaseback transaction9,895
 7,820
4,000
 9,895
Payments of common stock dividends(77,730) (71,334)(86,709) (77,730)
Proceeds from issuance of common stock - public equity offering212,900
 
Proceeds from waiver discount issuance of common stock57,391
 41,677

 57,391
Proceeds from issuance of common stock13,199
 13,572
Proceeds from issuance of common stock - DRP14,498
 13,199
Tax withholding payments related to net settled stock compensation(6,704) (13,625)(3,966) (6,704)
Cash flows used in financing activities(35,800) (139,507)
Cash flows from (used in) financing activities749,365
 (35,800)
Change in cash, cash equivalents and restricted cash24,978
 (1,104)41,182
 24,978
Cash, cash equivalents and restricted cash at beginning of period1,710
 2,469
4,063
 1,710
Cash, cash equivalents and restricted cash at end of period$26,688
 $1,365
$45,245
 $26,688
CHANGES IN COMPONENTS OF WORKING CAPITAL      
Receivables$28,385
 $(5,757)$(3,019) $28,385
Inventories51,833
 63,838
42,566
 51,833
Recovery of gas costs(14,870) 28,524
(5,722) (14,870)
Gas purchases payable(66,060) 28,041
(55,593) (66,060)
Prepaid expenses1,487
 (2,385)
Prepaid and accrued taxes10,110
 (22,993)(991) 10,110
Accounts payable and other(31,883) 5,213
(13,084) (31,883)
Restricted broker margin accounts13,092
 (29,497)11,900
 13,092
Customers' credit balances and deposits(7,832) (745)(7,060) (7,832)
Other current assets2,396
 (2,097)12,119
 4,781
Total$(14,829) $64,527
$(17,397) $(14,829)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION      
Cash paid for:      
Interest (net of amounts capitalized)$42,107
 $35,295
$47,642
 $42,107
Income taxes$8,550
 $4,195
$1,127
 $8,550
Accrued capital expenditures$32,143
 $30,019
$20,814
 $32,143
Inception gain on natural gas swap contract recognized as non-cash proceeds from sale of business$
 $14,579
See Notes to Unaudited Condensed Consolidated Financial Statements
New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS
(Thousands)June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
PROPERTY, PLANT AND EQUIPMENT  
Utility plant, at cost$2,549,347
$2,368,914
$2,741,021
$2,625,730
Construction work in progress219,570
192,481
362,970
237,011
Nonutility plant and equipment, at cost784,763
697,406
1,410,428
861,904
Construction work in progress64,000
45,690
167,807
62,492
Total property, plant and equipment3,617,680
3,304,491
4,682,226
3,787,137
Accumulated depreciation and amortization, utility plant(568,996)(530,753)(586,711)(585,160)
Accumulated depreciation and amortization, nonutility plant and equipment(147,248)(122,689)(191,520)(156,033)
Property, plant and equipment, net2,901,436
2,651,049
3,903,995
3,045,944
CURRENT ASSETS  
Cash and cash equivalents26,297
1,458
42,821
2,676
Customer accounts receivable  
Billed174,670
205,490
143,059
139,263
Unbilled revenues7,413
7,199
8,738
6,510
Allowance for doubtful accounts(6,347)(5,704)(6,975)(6,148)
Regulatory assets32,920
18,297
52,251
32,871
Gas in storage, at average cost132,635
184,633
123,962
169,803
Materials and supplies, at average cost14,075
13,910
18,128
14,475
Prepaid expenses7,700
8,333
Prepaid and accrued taxes24,533
23,047
25,546
22,602
Derivatives, at fair value28,337
27,396
29,367
25,103
Restricted broker margin accounts44,827
53,719
52,212
73,723
Assets held for sale
206,905
Other30,611
33,730
24,269
22,395
Total current assets509,971
770,080
521,078
511,606
NONCURRENT ASSETS  
Investments in equity method investees197,660
190,866
205,800
200,268
Regulatory assets388,769
368,592
451,115
496,637
Operating lease assets101,657

Derivatives, at fair value14,476
10,560
6,347
7,426
Investments in equity securities
32,917
Intangible assets, net15,261
23,375
11,006
14,611
Other noncurrent assets95,839
96,225
81,086
96,493
Total noncurrent assets712,005
722,535
857,011
815,435
Total assets$4,123,412
$4,143,664
$5,282,084
$4,372,985

See Notes to Unaudited Condensed Consolidated Financial Statements
New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CAPITALIZATION AND LIABILITIES
(Thousands, except share data)June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
CAPITALIZATION  
Common stock, $2.50 par value; authorized 150,000,000 shares; outstanding
June 30, 2019 — 89,917,854; September 30, 2018 — 88,292,956
$226,627
$226,196
Common stock, $2.50 par value; authorized 150,000,000 shares; outstanding June 30, 2020 — 95,830,500; September 30, 2019 — 89,998,788$240,227
$226,649
Premium on common stock290,414
274,748
492,365
291,331
Accumulated other comprehensive loss, net of tax(15,212)(12,610)(34,602)(31,787)
Treasury stock at cost and other; shares June 30, 2019 — 732,777;
September 30, 2018 — 2,185,013
(15,628)(76,473)
Treasury stock at cost and other; shares June 30, 2020 — 260,462;
September 30, 2019 —660,734
4,012
(10,436)
Retained earnings1,085,996
1,007,117
1,136,925
1,075,960
Common stock equity1,572,197
1,418,978
1,838,927
1,551,717
Long-term debt1,211,811
1,180,619
1,664,517
1,537,177
Total capitalization2,784,008
2,599,597
3,503,444
3,088,894
CURRENT LIABILITIES  
Current maturities of long-term debt124,592
123,545
25,954
21,419
Short-term debt99,300
151,950
553,112
25,450
Gas purchases payable145,243
211,303
81,677
137,271
Gas purchases payable to related parties1,150
1,150
791
790
Accounts payable and other96,873
135,240
109,987
129,724
Dividends payable26,301
25,824
29,947
28,122
Accrued taxes13,164
1,568
5,347
3,394
Regulatory liabilities
8,185
6,774

New Jersey Clean Energy Program15,252
14,052
17,062
15,468
Derivatives, at fair value40,677
46,652
47,094
57,623
Liabilities held for sale
4,182
Operating lease liabilities4,458

Customers' credit balances and deposits19,493
27,325
20,056
27,116
Total current liabilities582,045
750,976
902,259
446,377
NONCURRENT LIABILITIES  
Deferred income taxes219,319
242,436
187,508
190,663
Deferred investment tax credits3,734
3,976
3,412
3,653
Deferred gain1,751
9,104
1,035
1,554
Derivatives, at fair value24,923
22,982
23,600
18,821
Manufactured gas plant remediation125,566
130,800
128,886
131,080
Postemployment employee benefit liability141,187
137,007
196,664
246,517
Regulatory liabilities203,660
209,139
197,281
202,435
Operating lease liabilities96,118

Asset retirement obligation30,149
28,688
33,305
31,046
Other7,070
8,959
8,572
11,945
Total noncurrent liabilities757,359
793,091
876,381
837,714
Commitments and contingent liabilities (Note 12)



Commitments and contingent liabilities (Note 13)



Total capitalization and liabilities$4,123,412
$4,143,664
$5,282,084
$4,372,985

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY (Unaudited)
(Thousands)Number of SharesCommon StockPremium on Common StockAccumulated Other Comprehensive (Loss) IncomeTreasury Stock And OtherRetained EarningsTotalNumber of SharesCommon StockPremium on Common StockAccumulated Other Comprehensive (Loss) IncomeTreasury Stock And OtherRetained EarningsTotal
Balance at September 30, 201888,293
$226,196
$274,748
 $(12,610) $(76,473)$1,007,117
$1,418,978
Balance at September 30, 201989,999
$226,649
$291,331
 $(31,787) $(10,436)$1,075,960
$1,551,717
Net income


 
 
86,248
86,248



 
 
89,361
89,361
Other comprehensive income


 759
 

759
Common stock issued:      
Common stock offering5,333
13,333
199,567
 
 

212,900
Incentive compensation plan96
239
3,053
 
 

3,292
Dividend reinvestment plan (1)
80

314
 
 3,185

3,499
Cash dividend declared
($.3125 per share)



 
 
(29,846)(29,846)
Treasury stock and other


 
 (3,879)
(3,879)
Balance at December 31, 201995,508
$240,221
$494,265
 $(31,028) $(11,130)$1,135,475
$1,827,803
Net income


 
 
88,505
88,505
Other comprehensive loss


 (3,611) 

(3,611)
Common stock issued:      
Dividend reinvestment plan (1)
143

(416) 
 5,621

5,205
Cash dividend declared
($.3125 per share)



 
 
(29,888)(29,888)
Treasury stock and other(8)
107
 
 986

1,093
Balance at March 31, 202095,643
$240,221
$493,956
 $(34,639) $(4,523)$1,194,092
$1,889,107
Net loss


 
 
(27,219)(27,219)
Other comprehensive income


 234
 

234



 37
 

37
Common stock issued:      

 

 


Incentive compensation plan137
343
1,791
 
 

2,134
2
6
113
 
 

119
Dividend reinvestment plan (1)
82

454
 
 3,238

3,692
185

(1,694) 
 7,417

5,723
Waiver discount168

1,293
 
 6,671

7,964
Cash dividend declared
($.2925 per share)



 
 
(25,938)(25,938)
Cash dividend declared
($.3125 per share)



 
 
(29,948)(29,948)
Treasury stock and other


 
 1,504

1,504


(10) 
 1,118

1,108
Adoption of ASU 2016-01 (2)



 (3,446) 
3,446

Adoption of ASU 2017-05 (2)



 
 
4,970
4,970
Adoption of ASU 2014-09/ASC 606 (2)



 
 
(2,736)(2,736)
Balance at December 31, 201888,680
$226,539
$278,286
 $(15,822) $(65,060)$1,073,107
$1,497,050
Net income


 
 
73,573
73,573
Other comprehensive income


 305
 

305
Common stock issued:      
Incentive compensation plan30
74
1,150
 
 

1,224
Dividend reinvestment plan (1)
123

870
 
 4,892

5,762
Waiver discount339

3,123
 
 13,452

16,575
Cash dividend declared
($.2925 per share)



 
 
(25,981)(25,981)
Treasury stock and other(8)

 
 654

654
Balance at March 31, 201989,164
$226,613
$283,429
 $(15,517) $(46,062)$1,120,699
$1,569,162
Net income


 
 
(8,402)(8,402)
Other comprehensive income


 305
 

305
Common stock issued:

 

 


Incentive compensation plan6
14
194
 
 

208
Dividend reinvestment plan (1)
74

676
 
 2,956

3,632
Waiver discount674

6,115
 
 26,737

32,852
Cash dividend declared
($.2925 per share)



 
 
(26,301)(26,301)
Treasury stock and other


 
 741

741
Balance at June 30, 201989,918
$226,627
$290,414
 $(15,212) $(15,628)$1,085,996
$1,572,197
Balance at June 30, 202095,830
$240,227
$492,365
 $(34,602) $4,012
$1,136,925
$1,838,927

(1)Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.
(2)
See Note 2. Summary of Significant Accounting Policies- Recently Adopted Updates to the Accounting Standards Codification section for more details.

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

(Thousands)Number of SharesCommon StockPremium on Common StockAccumulated Other Comprehensive (Loss) IncomeTreasury Stock And OtherRetained EarningsTotal
Balance at September 30, 201786,556
$222,258
$219,696
 $(3,256) $(70,039)$867,984
$1,236,643
Balance at September 30, 201888,293
$226,196
$274,748
 $(12,610) $(76,473)$1,007,117
$1,418,978
Net income


 
 
123,699
123,699



 
 
86,248
86,248
Other comprehensive loss


 (5,204) 

(5,204)
Other comprehensive income


 234
 

234
Common stock issued:      
Incentive compensation plan137
343
1,791
 
 

2,134
Dividend reinvestment plan (1)
82

454
 
 3,238

3,692
Waiver discount168

1,293
 
 6,671

7,964
Cash dividend declared
($.2925 per share)



 
 
(25,938)(25,938)
Treasury stock and other


 
 1,504

1,504
Adoption of ASU 2016-01


 (3,446) 
3,446

Adoption of ASU 2017-05


 
 
4,970
4,970
Adoption of ASU 2014-09/ASC 606


 
 
(2,736)(2,736)
Balance at December 31, 201888,680
$226,539
$278,286
 $(15,822) $(65,060)$1,073,107
$1,497,050
Net income


 
 
73,573
73,573
Other comprehensive income


 305
 

305
Common stock issued:            
Incentive plan525
1,453
13,951
 
 

15,404
30
74
1,150
 
 

1,224
Dividend reinvestment plan (1)
90

245
 
 3,554

3,799
123

870
 
 4,892

5,762
Waiver discount554
1,384
21,306
 
 

22,690
339

3,123
 
 13,452

16,575
Cash dividend declared
($.2725 per share)



 
 
(23,831)(23,831)
Cash dividend declared
($.2925 per share)



 
 
(25,981)(25,981)
Treasury stock and other(250)
(56) 
 (25,374)
(25,430)(8)

 
 654

654
Balance at December 31, 201787,475
$225,095
$255,142
 $(8,460) $(91,859)$967,852
$1,347,770
Net income


 
 
140,266
140,266
Other comprehensive loss


 (5,328) 

(5,328)
Common stock issued:      
Incentive plan30
78
1,047
 
 

1,125
Dividend reinvestment plan (1)
152

(73) 
 6,029

5,956
Cash dividend declared
($.2725 per share)



 
 
(23,886)(23,886)
Treasury stock and other(1)
42
 
 1,429

1,471
Balance at March 31, 201887,656
$225,173
$256,158
 $(13,788) $(84,401)$1,084,232
$1,467,374
Balance at March 31, 201989,164
$226,613
$283,429
 $(15,517) $(46,062)$1,120,699
$1,569,162
Net loss


 
 
(14,274)(14,274)


 
 
(8,402)(8,402)
Other comprehensive loss


 (2,092) 

(2,092)
Other comprehensive income


 305
 

305
Common stock issued:

 
 






 
 




Incentive plan3
(135)143
 
 

8
6
14
194
 
 

208
Dividend reinvestment plan (1)
92

1
 
 3,641

3,642
74

676
 
 2,956

3,632
Waiver discount460
1,151
17,836
 
 

18,987
674

6,115
 
 26,737

32,852
Cash dividend declared
($.2725 per share)



 
 
(24,038)(24,038)
Cash dividend declared
($.2925 per share)



 
 
(26,301)(26,301)
Treasury stock and other1


 
 355

355



 
 741

741
Balance at June 30, 201888,212
$226,189
$274,138
 $(15,880) $(80,405)$1,045,920
$1,449,962
Balance at June 30, 201989,918
$226,627
$290,414
 $(15,212) $(15,628)$1,085,996
$1,572,197
(1)Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.



New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                              

1. NATURE OF THE BUSINESS

New Jersey Resources Corporation provides regulated gas distribution services, transportation and storage services and operates certain unregulated businesses primarily through the following:

New Jersey Natural Gas Company provides natural gas utility service to approximately 546,500 retail555,000 customers in central and northern New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment.

NJR Clean Energy Ventures Corporation, the Company's clean energy subsidiary, comprises the Clean Energy Ventures segment and consists of the Company's capital investments in commercial and residential solar projects located throughout New Jersey. Clean Energy Ventures finalized the sale of its remaining wind assets on February 7, 2019,2019; see Note 15.18. Acquisitions and Dispositions for more details.

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

NJR Midstream Holdings Corporation, which comprises the Midstream segment, invests in energy-related ventures through its subsidiaries, NJR Steckman Ridge Storage Company, which holdsinclude the Company's 50 percent combined ownership interest in Steckman Ridge, located in Pennsylvania; NJNR Pipeline, which held our investment in Dominion; andPennsylvania, NJR Pipeline Company, which includes Adelphia Gateway, LLC and the Company's 20 percent ownership interest in PennEast and the wholly-owned subsidiaries of Leaf River, which was acquired on October 11, 2019 and Adelphia, which was acquired on January 13, 2020, and is subject to FERC regulation. See Note 7. Investments in Equity Investees 17. Acquisitions and Dispositionsfor more information.information regarding these acquisitions.

NJR Retail Holdings Corporation has two2 principal subsidiaries, NJR Home Services Company, which provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey, and Commercial Realty & Resources Corporation,Corp., which owns commercial real estate. NJR Home Services Company and Commercial Realty & Resources CorporationCorp. are included in Home Services and Other operations.

Impacts of the COVID-19 Pandemic

In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention and has spread globally, including throughout the United States. The Company’s Unaudited Condensed Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting periods presented. The Company considered the impacts of COVID-19 on the assumptions and estimates used and determined that there have been no material adverse impacts on the Company’s results of operations as of June 30, 2020.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by NJR in accordance with the rules and regulations of the SEC and GAAP. The September 30, 20182019 Balance Sheet data is derived from the audited financial statements of the Company. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in NJR's 20182019 Annual Report on Form 10-K.

The Unaudited Condensed Consolidated Financial Statements include the accounts of NJR and its subsidiaries. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary for a fair presentation of the results of the interim periods presented. These adjustments are of a normal and recurring nature. Because of the seasonal nature of NJR's utility and wholesale energy services operations, in addition to other factors, the financial results for the interim periods presented are not indicative of the results that are to be expected for the fiscal year ending September 30, 2019.2020. Intercompany transactions and accounts have been eliminated.
Sales Tax Accounting
As a result of the adoption of ASC 606, Revenue from Contracts with Customers, as of October 1, 2018, the Company excludes from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax on a net basis in operating revenues on the Unaudited Condensed Consolidated Statements of Operations. Prior to October 1, 2018, sales tax was presented in both operating revenues and operating expenses on the Unaudited Condensed Consolidated Statements of Operations.
Gas in Storage
The following table summarizes gas in storage, at average cost by segment as of:
 June 30, 2019September 30, 2018
($ in thousands)Gas in Storage BcfGas in Storage Bcf
Energy Services $59,354
26.3
 $90,166
34.1
Natural Gas Distribution 73,281
16.6
 94,467
24.9
Total $132,635
42.9
 $184,633
59.0

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


InvestmentsUse of Estimates

The preparation of financial statements in Equity Securitiesconformity with GAAP requires the Company to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period. On a quarterly basis or more frequently whenever events or changes in circumstances indicate a need, the Company evaluates its estimates, including those related to the calculation of the fair value of derivative instruments, debt, equity method investments, unbilled revenues, allowance for doubtful accounts, provisions for depreciation and amortization, long-lived assets, regulatory assets and liabilities, income taxes, pensions and other postemployment benefits, contingencies related to environmental matters and litigation. ARO are evaluated as often as needed. The Company’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

The Company has legal, regulatory and environmental proceedings during the normal course of business that can result in loss contingencies. When evaluating the potential for a loss, the Company will establish a reserve if a loss is probable and can be reasonably estimated, in which case it is the Company’s policy to accrue the full amount of such estimates. Where the information is sufficient only to establish a range of probable liability, and no point within the range is more likely than any other, it is the Company’s policy to accrue the lower end of the range. In the normal course of business, estimated amounts are subsequently adjusted to actual results that may differ from estimates.

Acquisitions

InvestmentsThe Company follows the guidance in equity securitiesASC 805, Business Combinations, for determining the appropriate accounting treatment for acquisitions. ASU No. 2017-01, Clarifying the Definition of a Business, provides an initial fair value screen to determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets. If the initial screening test is not met, the set is considered a business based on whether there are carriedinputs and substantive processes in place. Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or an asset acquisition, the accounting treatment is derived.

If the acquisition is deemed to be a business, the acquisition method of accounting is applied. Identifiable assets acquired and liabilities assumed at the acquisition date are recorded at fair value. If the transaction is deemed to be an asset purchase, the cost accumulation and allocation model is used whereby the assets and liabilities are recorded based on the purchase price and allocated to the individual assets and liabilities based on relative fair values.

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates and the number of years on which to base the cash flow projections, as well as other assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent in the acquired assets, specific risks, industry beta and capital structure of guideline companies. The valuation of an acquired business is based on available information at the acquisition date and assumptions that are believed to be reasonable. However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date.

Revenues

Revenues from the sale of natural gas to NJNG customers are recognized in the period that gas is delivered and consumed by customers, including an estimate for unbilled revenue. NJNG records unbilled revenue for natural gas services. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the month. At the end of each month, the amount of natural gas delivered to each customer after the last meter reading through the end of the respective accounting period is estimated, and recognizes unbilled revenues related to these amounts. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects, unaccounted-for gas and the most current tariff rates.

Clean Energy Ventures recognizes revenue when SRECs are transferred to counterparties. SRECs are physically delivered through the transfer of certificates as per contractual settlement schedules.

Revenues for Energy Services are recognized when the natural gas is physically delivered to the customer. In addition, changes in the fair value of derivatives that economically hedge the forecasted sales of the natural gas are recognized in operating
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


revenues as they occur, as noted above. Energy Services also recognizes changes in the fair value of SREC derivative contracts as a component of operating revenues.

Midstream generates revenues from firm storage contracts and transportation contracts, related usage fees and hub services for the use of storage space, injections and withdrawals from their natural gas storage facility and the delivery of natural gas to customers. Demand fees are recognized as revenue over the term of the related agreement while usage fees and hub services revenues are recognized as services are performed.
Revenues from all other activities are recorded in the period during which products or services are delivered and accepted by customers, or over the related contractual term. See Note 3. Revenue for further information.

Gas in Storage

The following table summarizes gas in storage, at average cost by segment as of:
 June 30, 2020September 30, 2019
($ in thousands)Gas in Storage BcfGas in Storage Bcf
Energy Services $50,400
33.1
 $52,390
25.6
Natural Gas Distribution 73,501
17.5
 117,413
27.0
Midstream 61

 

Total $123,962
50.6
 $169,803
52.6


Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit and temporary investments with maturities of three months or less, and excludes restricted cash related to escrow balances for utility plant projects at NJNG and irrevocable letters of credit at Leaf River, which is recorded in other current and noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets. ForSheets, respectively.

ASU No. 2016-18, an amendment to ASC 230, Statement of Cash Flows, required that any amounts that are deemed to be restricted cash or restricted cash-equivalents be included in cash and cash-equivalent balances on the fiscal year ended September 30, 2018,cash flow statement. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Unaudited Condensed Consolidated Balance Sheets to the total unrealized gains and losses associated with equity securities were included as a part of accumulated other comprehensive income, a component of common stock equity, and reclassifications of realized gains or losses out of other comprehensive income into earnings were recordedamounts in other income, net on the Unaudited Condensed Consolidated Statements of Operations, based on average cost. On October 1, 2018, the Company adopted ASU No. 2016-01, an amendment to ASC 825, Financial Instruments. As a result, both realized unrealized gains and losses are recorded in other income, net on the Unaudited Condensed Consolidated Statements of Operations, based on average cost.Cash Flows as follows:
(Thousands)June 30,
2020
September 30,
2019
June 30,
2019
September 30,
2018
Balance Sheet    
Cash and cash equivalents$42,821
$2,676
$26,297
$1,458
Restricted cash in other noncurrent assets2,424
1,387
391
252
Statements of Cash Flow    
Cash, cash equivalents and restricted cash in the statement of cash flows$45,245
$4,063
$26,688
$1,710

As of September 30, 2018, the Company's investments in equity securities were comprised of an investment in DM Common Units, which had a fair value of $32.9 million. On January 28, 2019, Dominion and DM finalized an agreement and plan of merger and outstanding DM Common Units held immediately before the closing of the merger were converted into 0.2492 shares of Dominion common stock. This resulted in the conversion of the Company's 1.84 million DM Common Units into approximately 458,000 Dominion shares. On March 6, 2019, the Company sold its investment in Dominion and received proceeds of approximately $34.5 million related to the sale and recorded total realized gains of $1.6 million in other income, net on the Unaudited Condensed Consolidated Statements of Operations.

Loans Receivable

NJNG currently provides loans, with terms ranging from threetwo to 10 years, to customers that elect to purchase and install certain energy-efficient equipment in accordance with its BPU-approved SAVEGREEN program. The loans are recognized at net presentfair value on the Unaudited Condensed Consolidated Balance Sheets. The Company recorded $11.8$13 million and $10.4$12.4 million in other current assets and $38.5$36.3 million and $39.5$38.8 million in other noncurrent assets as of June 30, 20192020 and September 30, 2018,2019, respectively, on the Unaudited Condensed Consolidated Balance Sheets, related to the loans. The Company regularly evaluates the credit quality and collection profile of its customers. If NJNG determines a loan is impaired, the basis of the loan would be subject to regulatory review for recovery. As of June 30, 20192020 and September 30, 2018,2019, the Company has not recorded an allowance for doubtful accountsany impairments for SAVEGREEN loans.

Assets Held for Sale
New Jersey Resources Corporation
Part I

The wind assets classified as held for sale are measured at the lower of their carrying value or fair value less cost to sell. The major classes of assets and liabilities included within the disposal group as held for sale were as follows:
(Thousands)September 30, 2018 Assets reclassified as held for sale Assets Sold 
Other adjustments (1)
 June 30, 2019
Assets held for sale:         
Nonutility plant and equipment - wind equipment, at cost$224,356
 $
 $(224,356) $
 $
Nonutility plant and equipment - accumulated depreciation, wind equipment(18,501) 
 18,501
 
 
Prepaid and other current assets789
 1,747
 (1,541) (995) 
Other noncurrent assets261
 
 (261) 
 
 $206,905
 $1,747
 $(207,657) $(995) $
Liabilities held for sale:         
Accounts payable and other$186
 $
 $(186) $
 $
Asset retirement obligation3,996
 
 (3,996) 
 
 $4,182
 $
 $(4,182) $
 $

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1)Activity relates to amortization of prepaid and other current assets.

On February 7, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets, see Note 15. Acquisitions and Dispositions for more details.

Software Costs

The Company capitalizes certain costs, such as software design and configuration, coding, testing and installation, that are incurred to purchase or create and implement computer software for internal use. Capitalized costs include external costs of materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related costs for employees who are directly associated with and devote time to the internal-use software project. Maintenance costs are expensed as incurred. Upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Amortization is recorded on the straight-line basis over the estimated useful lives. The Company capitalized $4.3 million and $1.7 million in other noncurrent assets and $12.2 million and $4.8 million in utility plant construction work in progress on the Unaudited Condensed Consolidated Balance Sheets at June 30, 2020 and September 30, 2019, respectively. The Company recorded $1.9 million and $4.5 million in O&M on the Unaudited Condensed Consolidated Statements of Operations during the three and nine months ended June 30, 2020, respectively and $3.7 million in O&M on the Unaudited
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Condensed Consolidated Statements of Operations as ofduring both the three and nine months ended June 30, 2019, related to information technology replacement and enhancement projects.2019.

Accumulated Other Comprehensive Loss

The following table presents the changes in the components of accumulated other comprehensive income (loss), net of related tax effects during the three months ended June 30, 20192020 and 2018:2019:
(Thousands)Investments in Equity SecuritiesPostemployment Benefit ObligationTotal
Balance at March 31, 2019$
 $(15,517) $(15,517)
Other comprehensive loss (income), net of tax     
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0, $(118), $(118)
 305
(1) 
305
Balance at June 30, 2019$
 $(15,212) $(15,212)
Balance at March 31, 2018$
 $(13,788) $(13,788)
Other comprehensive (loss) income, net of tax     
Other comprehensive (loss),before reclassifications, net of tax of $854, $0, $854(2,364) 
 (2,364)
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(104), $(104)
 272
(1) 
272
Net current-period other comprehensive (loss) income, net of tax of $854, $(104), $750(2,364) 272
 (2,092)
Balance at June 30, 2018$(2,364) $(13,516) $(15,880)
(Thousands)Investments in Equity SecuritiesCash Flow HedgesPostemployment Benefit ObligationTotal
Balance at March 31, 2020$
 $(9,711) $(24,928) $(34,639)
Other comprehensive income (loss), net of tax       
Other comprehensive (loss) income, before reclassifications, net of tax of $0, $180, $0, $180
 (626) 
 (626)
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0, $0, $(191), $(191)
 
 663
(1) 
663
Net current-period other comprehensive income, net of tax of $0, $180, $(191), $(11)
 (626) 663
 37
Balance at June 30, 2020$
 $(10,337) $(24,265) $(34,602)
Balance at March 31, 2019$
 $
 $(15,517) $(15,517)
Other comprehensive income (loss), net of tax       
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0, $(118), $(118)
 
 305
(1) 
305
Balance at June 30, 2019$
 $
 $(15,212) $(15,212)
(1)Included in the computation of net periodic pension cost, a component of operations and maintenance expense on the Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table presents the changes in the components of accumulated other comprehensive income (loss), net of related tax effects during the nine months ended June 30, 20192020 and 2018:2019:
(Thousands)Investments in Equity SecuritiesPostemployment Benefit ObligationTotalInvestments in Equity SecuritiesCash Flow HedgesPostemployment Benefit ObligationTotal
Balance at September 30, 2019$
 $
 $(31,787) $(31,787)
Other comprehensive income (loss), net of tax       
Other comprehensive (loss) income, before reclassifications, net of tax of $0, $2,961, $(1,681), $1,280
 (10,337) 5,378
 (4,959)
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0, $0, $(480), $(480)
 
 2,144
(1) 
2,144
Net current-period other comprehensive income, net of tax of $0, $2,961, $(2,161), $800
 (10,337) 7,522
 (2,815)
Balance at June 30, 2020$
 $(10,337) $(24,265) $(34,602)
Balance at September 30, 2018$3,446
 $(16,056) $(12,610)$3,446
 $
 $(16,056) $(12,610)
Other comprehensive income (loss), net of tax            
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $0, $(333), $(333)
 844
(1) 
844

 
 844
(1) 
844
Reclassification to retained earnings(3,446)
(2) 

 (3,446)$(3,446)
(2) 


 $
 $(3,446)
Balance at June 30, 2019$
 $(15,212) $(15,212)$
 $
 $(15,212) $(15,212)
Balance at September 30, 2017$11,044
 $(14,300) $(3,256)
Other comprehensive (loss) income, net of tax     
Other comprehensive (loss),before reclassifications, net of tax of $9,071, $0, $9,071(25,055) 
 (25,055)
Amounts reclassified from accumulated other comprehensive income, net of tax of $(858), $(344), $(1,202)11,647
 784
(1) 
12,431
Net current-period other comprehensive (loss) income, net of tax of $8,213, $(344), $7,869(13,408) 784
 (12,624)
Balance at June 30, 2018$(2,364) $(13,516) $(15,880)
(1)Included in the computation of net periodic pension cost, a component of operations and maintenance expense on the Unaudited Condensed Consolidated Statements of Operations.
(2)
Due to the adoption of ASU No. 2016-01, an amendment to ASC 825, Financial Instruments. See Note 2. Summary of Significant Accounting Policies- Recently Adopted Updates to the Accounting Standards Codification section for more details.

Reclassification

Certain prior period amounts related to restricted cashenergy and other taxes on the Unaudited Condensed Consolidated Statements of Cash FlowsOperations and compensation costsprepaid expenses on the Unaudited Condensed Consolidated Balance Sheets and Unaudited Consolidated Condensed Statements of OperationsCash Flows have been reclassified to conform to the current period presentation duepresentation. Certain amounts related to software costs on the Unaudited Condensed Consolidated Balance Sheets have been reclassified to utility plant construction work in progress to conform to the ASU adoptions listed below.current period presentation.

Recently Adopted Updates to the Accounting Standards Codification

Revenue

In May 2014, the FASB issued ASU No. 2014-09, and added ASC 606, Revenue from Contracts with Customers, to the ASC. ASC 606 supersedes ASC 605, Revenue Recognition, as well as most industry-specific guidance, and prescribes a single,
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


comprehensive revenue recognition model designed to improve financial reporting comparability across entities, industries, jurisdictions and capital markets. The Company adopted the new guidance in the first quarter of fiscal 2019 and applied the new provisions on a modified retrospective basis.

The Company recorded a cumulative-effect adjustment of $3.8 million, $2.7 million net of deferred income taxes, to retained earnings at Home Services and Other. As of October 1, 2018, NJRHS recognizes contract revenue on a straight line basis over the term of the contract. Previously, contract revenue was recognized over the term of the service contract based on expected demand for services. Revenue for Home Services and Other after adopting ASC 606 was $13.1 million and $37.9 million, as opposed to $14.9 million and $33.7 million under ASC 605 for the three and nine months ended June 30, 2019, respectively. The Company 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 on a net basis in operating revenues on the Unaudited Condensed Consolidated Statements of Operations. Prior to adoption, operating revenue and energy taxes and other would have been $6.6 million and $40.9 million higher for the three and nine months ended June 30, 2019, respectively, due to the Company's sales tax presentation. There was no additional impact on the Company’s financial position, results of operations or cash flows.

The Company concluded that its tariff-based sales of natural gas are within the scope of the new guidance and the adoption did not result in any modification to the pattern of revenue recognition from such sales. Revenues from derivative instruments, such as those related to the Company’s SREC sales and natural gas purchases and sales will continue to be accounted for under ASC 815 and thus are outside the scope of ASC 606. Additionally, NJNG revenues generated by the CIP have been determined to be alternative revenue programs under ASC 980 and are also outside the scope of ASC 606, as they are deemed to be a contract with the BPU. The Company also evaluated its renewable asset PPA arrangements and determined that no modification to the pattern of revenue recognition of the related electricity, capacity and REC sales was necessary. Revenues from RECs sold as part of a bundled arrangement continue to be recognized in the same period as the related generation.

Based on the completion of the Company’s evaluation and assessment of its revenue streams, the Company concluded that the new guidance did not have a material impact on its financial position, results of operations or cash flows. ASC 606 requires expanded disclosures, including the disclosure of performance obligations, disaggregated revenues and contract balances, which is included in Note 3. Revenue.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, an amendment to ASC 230, Statement of Cash Flows, which addresses eight specific cash flow issues for which there has been diversity in practice. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a retrospective basis, which did not impact its statement of cash flows.

In November 2016, the FASB issued ASU No. 2016-18, an amendment to ASC 230, Statement of Cash Flows, which requires that any amounts that are deemed to be restricted cash or restricted cash-equivalents be included in cash and cash-equivalent balances on the cash flow statement and, therefore, transfers between cash and restricted cash accounts will no longer be recognized within the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a retrospective basis, which did not materially impact its statement of cash flows.

Accordingly, the following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Unaudited Condensed Consolidated Balance Sheets to the total amounts in the Unaudited Condensed Consolidated Statements of Cash Flows as follows:
(Thousands)June 30,
2019
September 30,
2018
June 30,
2018
September 30,
2017
Balance Sheet    
Cash and cash equivalents$26,297
$1,458
$1,070
$2,226
Restricted cash in other noncurrent assets391
252
295
243
Statements of Cash Flow    
Cash, cash equivalents and restricted cash in the statement of cash flows$26,688
$1,710
$1,365
$2,469


Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, an amendment to ASC 825, Financial Instruments, to address certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard affects investments in equity securities that do not result in consolidation and are not accounted for under the equity method and the presentation of certain fair value changes for financial liabilities measured at fair value. It also simplifies the impairment assessment of equity
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


investments without a readily determinable fair value by requiring a qualitative assessment. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a modified retrospective basis which resulted in the reclassification of $4.7 million, $3.4 million net of deferred income tax expense, to the opening balance of retained earnings from accumulated other comprehensive income related to investments in equity securities. Subsequent changes to the fair value of the Company’s investments in equity securities are recorded in other income, net in the Unaudited Condensed Consolidated Statement of Operations.

Business Combinations

In January 2017, the FASB issued ASU No. 2017-01, an amendment to ASC 805, Business Combinations, clarifying the definition of a business in the ASC, which is intended to reduce the complexity surrounding the assessment of a transaction as an asset acquisition or business combination. The amendment provides an initial fair value screen to reduce the number of transactions that would fit the definition of a business, and when the screen threshold is not met, provides an updated model that further clarifies the characteristics of a business. The Company adopted this guidance in the first quarter of fiscal 2019 and the new provisions will be applied on a prospective basis. The amendment could potentially have material impacts on future transactions that the Company may enter into by altering the Company’s conclusion on the accounting framework that is applied to acquisitions.

Gains and Losses from the Derecognition of Nonfinancial Assets

In February 2017, the FASB issued ASU No. 2017-05, an amendment to ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, which clarifies the scope and accounting related to the derecognition of nonfinancial assets, including partial sales and contributions of nonfinancial assets to a joint venture or other non-controlled investee. The Company adopted this guidance in the first quarter of 2019, concurrently with ASC 606, and applied the new provisions on a modified retrospective basis through a cumulative effect adjustment of $6.8 million, $5 million net of deferred income tax expense, to the opening balance of retained earnings related to a transfer of a nonfinancial asset that was previously recorded as a deferred gain on the Unaudited Condensed Consolidated Balance Sheets.

Compensation - Retirement Benefits

In March 2017, the FASB issued ASU No. 2017-07, an amendment to ASC 715, Compensation - Retirement Benefits, which changes the presentation of net periodic benefit cost on the income statement by requiring companies to present all components of net periodic benefit cost, other than service cost, outside a subtotal of income from operations. The amendment also states that only the service cost component of net periodic benefits costs is eligible for capitalization, when applicable. The amendment establishes a practical expedient that permits entities to use their previously disclosed service and other costs in their pension and other postretirement benefit plan footnotes in the prior comparative periods as the estimation basis when applying the retrospective presentation of these costs in the income statement. The Company adopted this guidance in the first quarter of 2019, and applied the new provisions on a retrospective basis for income statement presentation, and is applying the new provisions on a prospective basis for changes to capitalization of costs. Accordingly, the following amounts on the Unaudited Condensed Consolidated Statement of Operations for the three and nine months ended June 30, 2019, have been adjusted:
(Thousands)As Previously ReportedEffect of ChangeAs Adjusted
Three Months Ended   
Statements of Operations   
Operation and maintenance$69,447
$(951)$68,496
Total operating expenses$581,101
$(951)$580,150
Operating income$(37,666)$951
$(36,715)
Other income (expense), net$2,682
$(951)$1,731
Nine Months Ended   
Statements of Operations   
Operation and maintenance$182,307
$(2,854)$179,453
Total operating expenses$2,052,412
$(2,854)$2,049,558
Operating income$215,371
$2,854
$218,225
Other income (expense), net$11,589
$(2,854)$8,735


The changes related to the costs that will be eligible for capitalization will not have a material impact on the Company's financial position, results of operations or cash flows upon adoption. There was no additional impact to the Company's financial position, results of operations or cash flows.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Stock Compensation

In May 2017, the FASB issued ASU No. 2017-09, an amendment to ASC 718, Compensation - Stock Compensation, which clarifies the accounting for changes to the terms or conditions of share-based payments. The Company adopted this guidance in the first quarter of fiscal 2019, and will apply the new provisions prospectively to awards modified on or after October 1, 2018. There was no impact to the Company's financial position, results of operations or cash flows upon adoption.

Intangibles

In August 2018, the FASB issued ASU No. 2018-15, an amendment to ASC 350, Intangibles - Goodwill and Other, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company elected to early adopt this guidance in the second quarter of fiscal 2019, as the Company has begun work on key technology replacement and enhancement initiatives and will apply the new provisions on a prospective basis. There was no material impact to the Company's financial position, results of operations or cash flows upon adoption, however as work progresses on the Company's key technology initiatives there may be a material impact in the future.

Other Recent Updates to the Accounting Standards Codification

Leases

In February 2016, the FASB issued ASU No. 2016-02, an amendment to ASC 842, Leases, which, along with other ASU's containing minor amendments and technical corrections, provides for a comprehensive overhaul of the lease accounting model and changes the definition of a lease within the accounting literature. Under the new standard, all leases with aan original term greater than one year will beare recorded on the balance sheet. AmortizationThe related asset is amortized straight-line over the term of the related asset will be accounted for using one of two approaches prescribed by the guidance.lease. Additional disclosures will beare required to allow the userprovide transparency as to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach is required for leases existing at the time of adoption.

In January 2018, the FASB issued ASU No. 2018-01, a further amendment to ASC 842, Leases, which was introduced by ASU No. 2016-02, as discussed above. This update provides an optional practical expedient that allows companies to not evaluate existing or expired land easements that were not previously accounted for under Topic 840 as leases.leases as of October 1, 2019. The Company expects to electadopted this practical expedient upon adoption. The guidance is effective for the Company beginning October 1, 2019.

expedient. In July 2018, the FASB issued ASU No. 2018-11, which provides an optional transition method to ASC 842 that allows the Company to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.adoption, if any. The Company expects to electelected this transition method upon adoption. At this time,and did not have any cumulative impact to the Company does not plan to early adopt the new guidance and expects to transition on a modified retrospective basis.opening balance of retained earnings.

The Company is currently in the process of reviewing its contracts to identify all of its leases and evaluating its lease population. The Company’s operating leases primarily consist of office and land leases related to solar assets. While the Company is currently evaluating the full impact of the standard and its related updates, it expects to recognize right-of-use assets and liabilities arising from current operating leases on its statement of financial position upon adoption where the Company is the lessee, however, these amounts are not reasonably estimable at this time. The Company has no material arrangements as a lessor at this time.

The Company expects to electother practical expedient elections include the package of practical expedients whereby the Company wouldwas not be required to reassess all of its leases identified, lease classifications and initial direct costs associated with leases. Additionally, theThe Company plans to electalso elected to not separate nonleasenon-lease components from lease components as well as make the electionand elected to exclude short-term leases from the recognition requirements of ASC 842. The Company doesdid not expectelect the portfolio approach for the application of the discount rate and therefore applies a discount rate individually to each lease in its population. The Company adopted ASC 842 and all related amendments toon October 1, 2019, using the standard to have any impact on its results of operations or cash flows.modified retrospective transition method.

Financial Instruments

In June 2016,The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property leases, including land and office facility leases and office equipment and the FASB issued ASU No. 2016-13, an amendment to ASC 326, Financial Instruments - Credit Losses, which changes the impairment model for certain financialsale-leaseback of its natural gas meters. The total right-of-use assets that have a contractual right to receive cash, including trade and loan receivables. The new model requires recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred. An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. The Company is currently evaluating the amendment and all subsequent amendments related to this topic, to understand the impact on its financial position, results of operations and cash flowsoperating lease liabilities recorded upon adoption and will applywere $67.1 million. Upon the new guidance to its trade and loan receivables on a modified retrospective basis.acquisition
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


of Leaf River, on October 11, 2019, the Company adopted ASC 842 for Leaf River which resulted in additional right-of-use asset and lease liability of $21.6 million.

Derivatives and Hedging

In August 2017, the FASB issued ASU No. 2017-12, an amendment to ASC 815, Derivatives and Hedging, which, along with other ASU's containing minor amendments and technical corrections, is intended to make targeted improvements to the accounting for hedging activities by better aligning an entity’s risk management activities and financial reporting for hedging relationships. These amendments modify the accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments are intended to simplify the application of the hedge accounting guidance and provide relief to companies by easing certain hedge documentation requirements. The Company adopted this guidance is effective for the Company beginningon October 1, 2019. As October 1, 2019, with early adoption permitted. Upon adoption, the transition requirements and elections will be applied to hedging relationships existing on the date of adoption. The Company doesdid not currently apply hedge accounting to any of its risk management activities, and thus does not expecttherefore the amendments todid not have anyan impact on its financial position, results of operations andor cash flows upon adoption.flows.

In October 2018, the FASB issued ASU No. 2018-16, an amendment to ASC 815, Derivatives and Hedging, which permits the use of the Overnight Index Swap Index rate based on the Secured Overnight Financing Rate as an additional acceptable U.S. benchmark interest rate for hedge accounting purposes. The Company adopted this guidance is effective foron October 1, 2019. As the Company beginning October 1, 2019, with early adoption permitted. The Company doesdid not currently apply hedge accounting to any of its risk management activities and thus does not expectas of October 1, 2019, the amendments todid not have anyan impact on its financial position, results of operations andor cash flows upon adoption.flows.

Stock Compensation

In June 2018, the FASB issued ASU No. 2018-07, an amendment to ASC 718, Compensation - Stock Compensation, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The Company adopted this guidance on October 1, 2019. There was no impact to the Company's financial position, results of operations or cash flows.

Financial Instruments

In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This accounting standard provides clarification of guidance for financial instruments and makes narrow scope amendments related to various issues. The Company adopted this standard effective upon issuance. There was no impact to the Company's financial position, results of operations or cash flows as a result of its adoption.

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, an amendment to ASC 848, Reference Rate Reform, which provides relief for companies preparing for discontinuation of interest rates such as LIBOR. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The amendments in this update are elective and are effective upon the ASU issuance through December 31, 2022. There was no impact to the Company's financial position, results of operations or cash flows as a result of its adoption.

Other Recent Updates to the Accounting Standards Codification

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, an amendment to ASC 326, Financial Instruments - Credit Losses, which changes the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables. The new model requires recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred. An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective for the Company beginning October 1, 2019,2020, with early adoption permitted. The Company is currently evaluatingin the process of assessing the impact of the guidance on NJR's reserve methodologies and credit policies and procedures for any assets that could be impacted. The Company is currently evaluating the amendment and all subsequent amendments related to this topic, but does not expect that the pending adoption of this ASU will have a material effect on its consolidated financial statements and its disclosures since the Company’smajority of NJR's financial position, results of operations and cash flows upon adoption.assets are short-term in nature, such as trade receivables.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Fair Value

In August 2018, the FASB issued ASU No. 2018-13, an amendment to ASC 820, Fair Value Measurement, which removes, modifies and adds to certain disclosure requirements of fair value measurements. Disclosure requirements removed include the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Modifications include considerations around the requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse. The additions include the requirement to disclose changes in unrealized gains and losses for the period in other comprehensive income for recurring Level 3 fair value measurements held and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. Upon adoption, the amendments will be applied on a prospective or retrospective basis depending on the specific amendments’ transition requirements. The Company is currently evaluating the amendmentsimpact of the adoption of this ASU but does not expect that its pending adoption will have a material effect on its consolidated financial statements. The Company does not have either Level 3 fair value measurements or transfers between Level 1 or Level 2 in its current portfolios, and therefore, does not expect this ASU to understand thehave an impact on itsthe Company's financial position, results of operations, cash flowsstatements and disclosures upon adoption and will apply the new guidance.disclosures.

Compensation - Retirement Benefits

In August 2018, the FASB issued ASU No. 2018-14, an amendment to ASC 715, Compensation - Retirement Benefits, which removes disclosures that no longer are considered cost-beneficial, clarifies the specific requirements of certain disclosures and adds new disclosure requirements identified as relevant. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. Upon adoption, the amendmentsamended presentation and disclosure guidance will be applied on a retrospective basis. The Company is continuing to evaluate the amendment to fully understand the impact on the Company's disclosures upon adoption but it is not expecting this ASU to materially affect the financial statements and disclosures.

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, an amendment to ASC 740, Income Taxes, which is intended to simplify the accounting for income taxes and changes the accounting for certain income tax transactions, among other minor improvements. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. Upon adoption, the amendments will be applied on a prospective basis. The Company is currently evaluating the amendments to understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption.

Investments - Equity Method and Derivatives and Hedging

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The update states that an entity is required to evaluate observable transactions that necessitate applying or discontinuing the equity method of accounting, when applying the measurement alternative in Topic 321. This evaluation occurs prior to applying or upon ceasing the equity method. The update also states that when applying paragraph 815-10-15-141(a) for forward contracts and purchased options, an entity is not required to assess whether the underlying securities will be accounted for under the equity method in accordance with Topic 323 or fair value method under Topic 825 upon settlement or exercise. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this ASU but does not expect that its pending adoption will have a material effect on its consolidated financial statements.

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 Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


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:
SegmentPerformance ObligationDescription
Natural Gas DistributionNatural 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 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 partythird-party supplier, revenue is recorded for the delivery of natural gas to the customer.
Clean Energy VenturesCommercial solar and wind electricity
Clean Energy Ventures operates wholly-owned solar and formerly operated wind 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. Due to the sale of ourAll wind assets wind electricity sales ceased inwere sold as of February 2019.

Revenue is recognized as invoiced and the payment is due each month for the previous month's services.
Clean Energy VenturesResidential solar electricity
Clean Energy Ventures 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.
Energy ServicesWholesale naturalNatural gas services
The performance obligation of Energy Services is to provide the customer transportation, storage and asset management services on an as neededas-needed basis. Energy Services 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. Energy Services invoices customers on a monthly basis in line with the terms of the contract and based on the services provided. Payment is due each month for the previous month's invoiced services.
MidstreamNatural gas services
The performance obligation of Midstream is to provide the customer with storage and transportation services. Midstream generates revenues from firm storage contracts and transportation contracts, related usage fees for the use of storage space, injection and withdrawal at the storage facility and the delivery of natural gas to customers. Revenue is recognized over time as our customers receive the benefits of our 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.
Home Services and OtherService contracts
Home Services enters into service contracts with homeowners to provide maintenance and replacement services of applicable heating, cooling or ventilation equipment. 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 linestraight-line basis over the term of the contract and payment is due upon receipt of the invoice.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Revenue Recognized at a Point in Time:
MidstreamNatural gas services
The performance obligation of Midstream is to provide the customer with storage and transportation services. Midstream generates revenues from hub services for the use of storage space, injection and withdrawal from the storage facility. Hub services include park and loan transactions and wheeling.

Hub services revenues are recognized as services are performed.
Home Services and OtherInstallations
Home Services installs appliances, including but not limited to, furnaces, air conditioning units, boilers and generators to 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 recognition at a point in time upon completion of the installation, which is when the customer is billed.


Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during the three months ended June 30, 2020, is as follows:
(Thousands)Natural Gas DistributionClean Energy VenturesEnergy ServicesMidstream
Home Services
and Other
Total
2020       
Natural gas utility sales$124,888

 


$124,888
Wholesale natural gas services

 3,536
11,863

15,399
Service contracts

 

8,126
8,126
Installations and maintenance

 

4,243
4,243
Electricity sales
5,294
 


5,294
Eliminations (1)


 
(720)(206)(926)
Revenues from contracts with customers124,888
5,294
 3,536
11,143
12,163
157,024
Alternative revenue programs(2,665)
 


(2,665)
Derivative Instruments6,309
8,102
(2) 
130,007


144,418
Eliminations (1)


 197


197
Revenues out of scope3,644
8,102
 130,204


141,950
Total operating revenues$128,532
13,396
 133,740
11,143
12,163
$298,974
2019       
Natural gas utility sales$115,525

 


$115,525
Wholesale natural gas services

 3,876


3,876
Service contracts

 

7,890
7,890
Installations and maintenance

 

5,193
5,193
Electricity sales
4,745
 


4,745
Eliminations (1)


 

(456)(456)
Revenues from contracts with customers115,525
4,745
 3,876

12,627
136,773
Alternative revenue programs2,025

 


2,025
Derivative Instruments3,232
6,705
(2) 
286,145


296,082
Eliminations (1)


 62


62
Revenues out of scope5,257
6,705
 286,207


298,169
Total operating revenues$120,782
11,450
 290,083

12,627
$434,942

(1)Consists of transactions between subsidiaries that are eliminated in consolidation.
(2)Includes SREC revenue.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during the threenine months ended June 30, 2020 and 2019, is as follows:
RegulatedUnregulated 
(Thousands)Natural Gas DistributionClean Energy VenturesEnergy Services
Home Services
and Other
TotalNatural Gas DistributionClean Energy VenturesEnergy ServicesMidstream
Home Services
and Other
Total
2020     
Natural gas utility sales$115,525



$115,525
$611,650

 


$611,650
Wholesale natural gas services

3,876

3,876
Natural gas services

 20,491
32,011

52,502
Service contracts


7,890
7,890


 

24,237
24,237
Installations and maintenance


5,193
5,193


 

13,404
13,404
Electricity sales
4,745


4,745

13,770
 


13,770
Eliminations(1)



(456)(456)

 
(2,062)(947)(3,009)
Revenues from contracts with customers115,525
4,745
3,876
12,627
136,773
611,650
13,770
 20,491
29,949
36,694
712,554
Alternative revenue programs2,025



2,025
17,465

 


17,465
Derivative Instruments3,232
6,705
286,145

296,082
16,260
11,833
(2)797,168


825,261
Eliminations(1)


62

62


 (1,656)

(1,656)
Revenues out of scope5,257
6,705
286,207

298,169
33,725
11,833
 795,512


841,070
Total operating revenues$120,782
11,450
290,083
12,627
$434,942
$645,375
25,603
 816,003
29,949
36,694
$1,553,624
2019     
Natural gas utility sales$598,676

 


$598,676
Natural gas services

 26,204


26,204
Service contracts

 

23,533
23,533
Installations and maintenance

 

14,373
14,373
Electricity sales
16,944
 


16,944
Eliminations (1)


 

(1,653)(1,653)
Revenues from contracts with customers598,676
16,944
 26,204

36,253
678,077
Alternative revenue programs9,059

 


9,059
Derivative Instruments14,432
20,763
(2)1,398,909


1,434,104
Eliminations (1)


 (8,276)

(8,276)
Revenues out of scope23,491
20,763
 1,390,633


1,434,887
Total operating revenues$622,167
37,707
 1,416,837

36,253
$2,112,964
(1)Consists of transactions between subsidiaries that are eliminated in consolidation.
(2)Includes SREC revenue.

Disaggregated revenues from contracts with customers by product linecustomer type and by reporting segment and other business operations during the ninethree months ended June 30, 2020 and 2019, is as follows:
 RegulatedUnregulated 
(Thousands)Natural Gas DistributionClean Energy VenturesEnergy Services
Home Services
and Other
Total
Natural gas utility sales$598,676



$598,676
Wholesale natural gas services

26,204

26,204
Service contracts


23,533
23,533
Installations and maintenance


14,373
14,373
Electricity sales
16,944


16,944
Eliminations(1)



(1,653)(1,653)
Revenues from contracts with customers598,676
16,944
26,204
36,253
678,077
Alternative revenue programs9,059



9,059
Derivative Instruments14,432
20,763
1,398,909

1,434,104
Eliminations(1)


(8,276)
(8,276)
Revenues out of scope23,491
20,763
1,390,633

1,434,887
Total operating revenues$622,167
37,707
1,416,837
36,253
$2,112,964
(1)Consists of transactions between subsidiaries that are eliminated in consolidation.

(Thousands)Natural Gas DistributionClean Energy VenturesEnergy ServicesMidstream
Home Services
and Other
Total
2020      
Residential$89,095
2,587


11,845
$103,527
Commercial and industrial20,050
2,707
3,536
11,143
318
37,754
Firm transportation14,331




14,331
Interruptible and off-tariff1,412




1,412
Revenues out of scope3,644
8,102
130,204


141,950
Total operating revenues$128,532
13,396
133,740
11,143
12,163
$298,974
       
2019      
Residential$63,984
2,304


12,388
$78,676
Commercial and industrial37,511
2,441
3,876

239
44,067
Firm transportation12,296




12,296
Interruptible and off-tariff1,734




1,734
Revenues out of scope5,257
6,705
286,207


298,169
Total operating revenues$120,782
11,450
290,083

12,627
$434,942
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the threenine months ended June 30, 2020 and 2019, is as follows:
 RegulatedUnregulated 
(Thousands)Natural Gas DistributionClean Energy VenturesEnergy Services
Home Services
and Other
Total
Residential$63,984
2,304

12,388
$78,676
Commercial and industrial37,511
2,441
3,876
239
44,067
Firm transportation12,296



12,296
Interruptible and off-tariff1,734



1,734
Revenues out of scope5,257
6,705
286,207

298,169
Total operating revenues$120,782
11,450
290,083
12,627
$434,942

Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the nine months ended June 30, 2019, is as follows:
RegulatedUnregulated 
(Thousands)Natural Gas DistributionClean Energy VenturesEnergy Services
Home Services
and Other
TotalNatural Gas DistributionClean Energy VenturesEnergy ServicesMidstream
Home Services
and Other
Total
2020   
Residential$402,192
6,627

35,522
$444,341
$442,093
7,516


35,955
$485,564
Commercial and industrial139,691
10,317
26,204
731
176,943
107,107
6,254
20,491
29,949
739
164,540
Firm transportation52,006



52,006
58,043




58,043
Interruptible and off-tariff4,787



4,787
4,407




4,407
Revenues out of scope23,491
20,763
1,390,633

1,434,887
33,725
11,833
795,512


841,070
Total operating revenues$622,167
37,707
1,416,837
36,253
$2,112,964
$645,375
25,603
816,003
29,949
36,694
$1,553,624
   
2019   
Residential$402,192
6,627


35,522
$444,341
Commercial and industrial139,691
10,317
26,204

731
176,943
Firm transportation52,006




52,006
Interruptible and off-tariff4,787




4,787
Revenues out of scope23,491
20,763
1,390,633


1,434,887
Total operating revenues$622,167
37,707
1,416,837

36,253
$2,112,964


Customer Accounts Receivable/Credit Balances and Deposits

The timing of revenue recognition, customer billings and cash collections resultresulting in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Unaudited Condensed Consolidated Balance Sheets during the nine months ended June 30, 2019,2020, are as follows:
Customer Accounts ReceivableCustomers' CreditCustomer Accounts ReceivableCustomers' Credit
(Thousands)BilledUnbilledBalances and DepositsBilledUnbilledBalances and Deposits
Balance as of October 1, 2018$205,490
$7,199
$27,325
Balance as of October 1, 2019$139,263
$6,510
$27,116
Increase (decrease)(30,820)214
(7,832)3,796
2,228
(7,060)
Balance as of June 30, 2019$174,670
$7,413
$19,493
Balance as of June 30, 2020$143,059
$8,738
$20,056


The following table provides information about receivables, and revenue earned on contracts in progress in excess of billings, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits, respectively, on the Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019:2020:
(Thousands)Natural Gas DistributionClean Energy VenturesEnergy Services
Home Services
and Other
EliminationsTotalNatural Gas DistributionClean Energy VenturesEnergy ServicesMidstream
Home Services
and Other
Total
Customer accounts receivable      
Billed$60,852
2,942
108,372
2,504

$174,670
$78,370
3,469
55,364
3,828
2,028
$143,059
Unbilled7,413




7,413
8,738




8,738
Customers' credit balances and deposits(19,490)

(3)
(19,493)(20,056)



(20,056)
Total$48,775
2,942
108,372
2,501

$162,590
$67,052
3,469
55,364
3,828
2,028
$131,741

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4. REGULATION

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 annual filings to the BPU for review of its BGSS, CIP and various other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. All rate and program changes are subject to
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


proper notification and BPU review and approval. In addition, NJNG is also permitted to implement certain BGSS rate changes on a provisional basis with proper notification to the BPU.

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:
(Thousands)June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
Regulatory assets-current  
New Jersey Clean Energy Program$15,252
$14,052
$17,062
$15,468
Underrecovered gas costs9,949
4,137
Under-recovered gas costs
9,506
Conservation Incentive Program2,065

20,836
3,371
Derivatives at fair value, net5,654
108
9,845
4,526
Other4,508

Total current regulatory assets$32,920
$18,297
$52,251
$32,871
Regulatory assets-noncurrent  
Environmental remediation costs  
Expended, net of recoveries$34,340
$33,017
$36,053
$38,351
Liability for future expenditures125,566
130,800
128,886
131,080
Deferred income taxes19,419
17,225
22,477
19,631
Derivatives at fair value, net750


486
SAVEGREEN7,684
8,636
15,229
10,201
Postemployment and other benefit costs132,605
136,716
161,847
212,461
Deferred storm damage costs9,229
10,858
7,058
8,687
Cost of removal49,929
22,339
62,831
65,660
Other noncurrent regulatory assets9,247
9,001
16,720
10,080
Total noncurrent regulatory assets$388,769
$368,592
$451,101
$496,637
Regulatory liabilities-current  
Conservation Incentive Program$
$6,994
Derivatives at fair value, net
1,191
Over-recovered gas costs6,774

Total current regulatory liabilities$
$8,185
$6,774
$
Regulatory liabilities-noncurrent  
Tax Act impact (1)
$201,664
$205,410
$196,705
$200,417
Derivatives at fair value, net
123
New Jersey Clean Energy Program207
1,902
128
197
Other noncurrent regulatory liabilities1,789
1,704
448
1,821
Total noncurrent regulatory liabilities$203,660
$209,139
$197,281
$202,435

(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.

Regulatory filings and/or actions that occurred during the current fiscal year include the following:

On October 25, 2019, the BPU approved NJNG’s annual filing to increase its EE recovery rate, which resulted in an annual recovery of approximately $11.3 million, effective November 1, 2019.

On November 13, 2019, the BPU issued an order adopting a stipulation of settlement approving a $62.2 million increase to base rates, effective on November 15, 2019. The increase includes an overall rate of return on rate base of 6.95 percent, return on common equity of 9.6 percent, a common equity ratio of 54 percent and a depreciation rate of 2.78 percent.

On March 16, 2020, a stipulation was signed in NJNG's annual SBC application which included an increase in the RAC rate of $1.2 million annually and a decrease to the NJCEP factor of $600,000. The stipulation is pending BPU approval.

On March 30, 2020, NJNG filed a petition with the BPU requesting a base rate increase of approximately $7.4 million for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $57.9 million made through June 30, 2020. On July 24, 2020, the Company updated this filing for actual information through June 30, 2020 and the revised rate increase requested is $7.1 million based on $55.1 million of actual capital investments. Changes to base rates are anticipated to be effective October 1, 2020.

On May 29, 2020, NJNG filed its annual petition with the BPU to decrease its BGSS rate for residential and small commercial customers. The rate changes will result in a $20.4 million decrease to the annual revenues credited to BGSS, a $3.9 million annual decrease related to its balancing charge, as well as changes to CIP rates, which will result in a $22.3 million annual recovery increase, anticipated to be effective October 1, 2020.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Regulatory filings and/or actions that occurred during the current fiscal year include the following:

On December 18, 2018, the BPU approved a decrease in NJNG's EE recovery rate reflecting actual costs incurred through September 30, 2018, which will result in an annual decrease of $8.8 million, effective January 1, 2019.

On December 28, 2018, NJNG notified the BPU that it will increase the BGSS rate, effective February 1, 2019, resulting in an estimated $10.9 million increase to the revenues credited to BGSS from February through September 30, 2019.

On February 28, 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 million. All approved investments will be recovered through annual filings to adjust base rates.

On March 29, 2019, the BPU approved NJNG’s annual SBC application requesting recovery of remediation expenses incurred through June 30, 2018, an increase in the RAC rate of $1.4 million and an increase in the NJCEP factor of $1.9 million, effective April 1, 2019.

On March 29, 2019, NJNG filed a petition with the BPU requesting a base rate increase of approximately $8.7 million for the recovery associated with NJ RISE and SAFE II capital investment costs of approximately $75 million made through June 30, 2019. On July 17, 2019, this filing was updated to reflect the actual results through June 30, 2019, which resulted in a revised base rate increase of $7.8 million, with changes effective October 1, 2019.

On March 29, 2019, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $128.2 million, including a change in the Company’s overall rate of return on rate base to 7.87 percent. NJNG is also seeking permission to request recovery for SRL in a future filing, upon completion of the project. On July 2, 2019, the Company filed an update with actual information through May 31, 2019. The requested increase was revised from $128.2 million to $129.8 million.

On May 31, 2019, NJNG filed its annual petition with the BPU to decrease its BGSS rate for residential and small commercial customers. The rate changes will result in a $6.8 million decrease to the annual revenues credited to BGSS, a $15.6 million annual increase related to its balancing charge, as well as increases to CIP rates, which will result in a $12.8 million annual recovery increase, effective October 1, 2019.

On May 31, 2019,29, 2020, NJNG filed a petition with the BPU to increase its EE recovery rate, which will result in an annual increasedecrease of $3.5 million,approximately $70,000, anticipated to be effective October 1, 2019.2020.

On June 24, 2019,25, 2020, NJNG filed its annual USF compliance filing proposing an increasea decrease to the statewide USF rate, which will result in the annual recovery increasingdecreasing by $1.2 million,approximately $400,000, to be effective October 1, 2019.2020.

On July 2, 2020, the BPU issued an order which authorized New Jersey utilities to create a regulatory asset by deferring incremental COVID-19 related costs and required a related quarterly report be filed for the COVID-19-related costs and savings incurred.

Regulatory assets at Adelphia, not included in the table above, were immaterial as of June 30, 2020.

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 the Companyand may utilize foreign currency derivatives to hedge Canadian dollar denominated 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. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. For a more detailed discussion of the Company's fair value measurement policies and level disclosures associated with NJR's derivative instruments, see Note 6. Fair Value.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Energy Services

Energy Services 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 gas purchases or operating revenues, as appropriate for Energy Services, on the Unaudited Condensed Consolidated Statements of Operations as unrealized gains or losses. For Energy Services at settlement, realized gains and losses on all financial derivative instruments are recognized as a component of 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 gas purchases or operating revenues.

Energy Services 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. Energy Services 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 gas purchase agreements.

As a result of Energy Services 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 gas is expected to occur, and is considered a derivative transaction that is recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets, with changes in value recognized in current period earnings.

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. Energy Services 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 Unaudited Condensed 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 Unaudited Condensed 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 all physical forward commodity contracts. However, since NPNS is a contract-by-contract election, where it makes sense to do so, NJNG can and may elect certain contracts to be normal. Because NJNG
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


recovers these amounts through future BGSS rates as increases or decreases to the cost of natural gas in NJNG’s tariff for gas service, the changes in fair value of these contracts are deferred as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets.

In June 2015,February 2020 and March 2020, NJNG entered into a treasury lock transactiontransactions to fix athe benchmark treasury rate of 3.26 percent associated with a $125 millionforecasted debt issuance that was finalizedexpected during the fiscal year. The change in May 2018. This debt issuance coincided with the maturityfair value of NJNG's $125 million, 5.6 percent notes that came due May 15, 2018. This treasury lock was settled on March 13, 2018, which coincided with the pricing of the new debt being issued. Settlement of the treasury lock resulted in a $2.6 million loss, whichagreement is recorded as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets andsince NJNG believes that the market value upon settlement will be reflected in future rates. Upon settlement, any gain or loss will be amortized in earnings over the termlife of the $125 million, 4.01 percent notes that were issuedfuture debt issuance as a component of interest expense on May 11, 2018.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the Consolidated Statements of Operations.

Clean Energy Ventures

The Company elects NPNS accounting treatment on PPA contracts that Clean Energy Ventures enters into 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 certain contracts to be normal.

Home Services and Other

In January 2018, NJR entered into a variable-for-fixed interest rate swap on its existing $100 million variable rate term loan, which fixed the variable rate at 2.84 percent. The swap will terminateterminated on August 16, 2019, which coincidescoincided with the maturity of the debt. The change in the fair value of the interest rate swap iswas recorded as a component of interest expense on the Unaudited Condensed Consolidated Statements of Operations.

In February 2020 and March 2020, NJR entered into treasury lock transactions, designated as cash flow hedges, to fix the benchmark treasury rate associated with a forecasted debt issuance expected during the fiscal year. The treasury lock transaction is recorded as a derivative asset or liability at fair value on the Unaudited Condensed Consolidated Balance Sheets. Upon settlement, any gain or loss will be amortized in earnings over the life of the future debt issuance as a component of interest expense on the Consolidated Statements of Operations.

Fair Value of Derivatives

The following table reflectspresents the fair value of NJR's derivative assets and liabilities recognized on the Unaudited Condensed Consolidated Balance Sheets as of:
 Fair Value Fair Value
 June 30, 2019 September 30, 2018  June 30, 2020 September 30, 2019
(Thousands)Balance Sheet Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Balance Sheet Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:        Derivatives not designated as hedging instruments:        
Natural Gas Distribution:                
Physical commodity contractsDerivatives - current $55
 $62
 $85
 $192
Derivatives - current $66
 $133
 $67
 $245
Financial commodity contractsDerivatives - current 216
 19
 94
 
Derivatives - current 
 190
 382
 570
Interest rate contractsDerivatives - current 
 5,056
 
 
Energy Services:                
Physical commodity contractsDerivatives - current 7,874
 17,988
 7,667
 18,158
Derivatives - current 5,440
 17,242
 6,847
 27,540
Derivatives - noncurrent 3,126
 19,068
 3,930
 11,316
Derivatives - noncurrent 2,671
 22,448
 1,710
 12,641
Financial commodity contractsDerivatives - current 20,162
 22,425
 19,169
 28,176
Derivatives - current 23,852
 13,447
 17,806
 29,057
Derivatives - noncurrent 11,350
 5,774
 6,630
 11,548
Derivatives - noncurrent 3,647
 1,129
 5,716
 6,105
Foreign currency contractsDerivatives - current 10
 183
 
 126
Derivatives - current 9
 230
 1
 211
Derivatives - noncurrent 
 81
 
 118
Derivatives - noncurrent 29
 23
 
 75
Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:        
Home Services and Other:                
Interest rate contractsDerivatives - current 20
 
 381
 
Derivatives - current 
 10,796
 
 
Total fair value of derivatives $42,813
 $65,600
 $37,956
 $69,634
 $35,714
 $70,694
 $32,529
 $76,444


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 Unaudited Condensed Consolidated Balance Sheets.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but elects not to, financial collateral, as well as the net amounts the Company could present on the Unaudited Condensed Consolidated Balance Sheets but elects not to.
(Thousands)
Amounts Presented on Balance Sheets (1)
Offsetting Derivative Instruments (2)
Financial Collateral Received/Pledged (3)
Net Amounts (4)
Amounts Presented on Balance Sheets (1)
Offsetting Derivative Instruments (2)
Financial Collateral Received/Pledged (3)
Net Amounts (4)
As of June 30, 2019:        
As of June 30, 2020:        
Derivative assets:        
Energy Services        
Physical commodity contracts $8,111
 $(3,097) $(200) $4,814
Financial commodity contracts 27,499
 (14,576) 
 12,923
Foreign currency contracts 38
 (38) 
 
Total Energy Services $35,648
 $(17,711) $(200) $17,737
Natural Gas Distribution        
Physical commodity contracts $66
 $(39) $
 $27
Total Natural Gas Distribution $66
 $(39) $
 $27
Derivative liabilities:        
Energy Services        
Physical commodity contracts $39,690
 $(3,097) $
 $36,593
Financial commodity contracts 14,576
 (14,576) 
 
Foreign currency contracts 253
 (38) 
 215
Total Energy Services $54,519
 $(17,711) $
 $36,808
Natural Gas Distribution        
Physical commodity contracts $133
 $(39) $
 $94
Financial commodity contracts 190
 
 (190) 
Interest rate contracts 5,056
 
 
 5,056
Total Natural Gas Distribution $5,379
 $(39) $(190) $5,150
Home Services and Other        
Interest rate contracts $10,796
 $
 $
 $10,796
Total Home Services and Other $10,796
 $
 $
 $10,796
As of September 30, 2019:        
Derivative assets:                
Energy Services                
Physical commodity contracts $11,000
 $(4,187) $(200) $6,613
 $8,557
 $(2,906) $(200) $5,451
Financial commodity contracts 31,512
 (26,906) (614) 3,992
 23,522
 (19,646) 
 3,876
Foreign currency contracts 10
 (10) 
 
 1
 (1) 
 
Total Energy Services $42,522
 $(31,103) $(814) $10,605
 $32,080
 $(22,553) $(200) $9,327
Natural Gas Distribution                
Physical commodity contracts $55
 $
 $
 $55
 $67
 $(9) $
 $58
Financial commodity contracts 216
 (19) 
 197
 382
 (382) 
 
Total Natural Gas Distribution $271
 $(19) $
 $252
 $449
 $(391) $
 $58
Home Services and Other        
Interest rate contracts $20
 $
 $
 $20
Total Home Services and Other $20
 $
 $
 $20
Derivative liabilities:                
Energy Services                
Physical commodity contracts $37,056
 $(4,187) $
 $32,869
 $40,181
 $(2,906) $
 $37,275
Financial commodity contracts 28,199
 (26,906) (654) 639
 35,162
 (19,646) (15,516) 
Foreign currency contracts 264
 (10) 
 254
 286
 (1) 
 285
Total Energy Services $65,519
 $(31,103) $(654) $33,762
 $75,629
 $(22,553) $(15,516) $37,560
Natural Gas Distribution                
Physical commodity contracts $62
 $
 $
 $62
 $245
 $(9) $
 $236
Financial commodity contracts 19
 (19) 
 
 570
 (382) (188) 
Total Natural Gas Distribution $81
 $(19) $
 $62
 $815
 $(391) $(188) $236
As of September 30, 2018:        
Derivative assets:        
Energy Services        
Physical commodity contracts $11,597
 $(3,944) $(200) $7,453
Financial commodity contracts 25,799
 (18,775) 
 7,024
Total Energy Services $37,396
 $(22,719) $(200) $14,477
Natural Gas Distribution        
Physical commodity contracts $85
 $(3) $
 $82
Financial commodity contracts 94
 
 (94) 
Total Natural Gas Distribution $179
 $(3) $(94) $82
Home Services and Other        
Interest rate contracts $381
 $
 $
 $381
Total Home Services and Other $381
 $
 $
 $381
Derivative liabilities:        
Energy Services        
Physical commodity contracts $29,474
 $(3,944) $
 $25,530
Financial commodity contracts 39,724
 (18,775) (20,949) 
Foreign currency contracts 244
 
 
 244
Total Energy Services $69,442
 $(22,719) $(20,949) $25,774
Natural Gas Distribution        
Physical commodity contracts $192
 $(3) $
 $189
Total Natural Gas Distribution $192
 $(3) $
 $189
(1)
Derivative assets and liabilities are presented on a gross basis on the balance sheet 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.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Energy Services utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical 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 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 Energy Services, although the Company's intended economic results relating to the entire transaction are unaffected.

The following table reflectspresents the effect of derivative instruments recognized on the Unaudited Condensed Consolidated Statements of Operations as of:for the periods set forth below:
(Thousands)Location of gain (loss) recognized in income on derivatives
Amount of gain (loss) recognized
in income on derivatives
Location of gain (loss) recognized in income on derivatives
Amount of gain (loss) recognized
in income on derivatives
 Three Months EndedNine Months Ended Three Months EndedNine Months Ended
 June 30, June 30,
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:2019 20182019 2018Derivatives not designated as hedging instruments:2020 20192020 2019
Energy Services:            
Physical commodity contractsOperating revenues$1,435
 $3,046
$74
 $(7,696)Operating revenues$(18,061) $1,435
$3,871
 $74
Physical commodity contractsGas purchases2,392
 1,008
266
 (66,335)Gas purchases1,014
 2,392
(2,288) 266
Financial commodity contractsGas purchases22,919
 (6,777)17,732
 (19,007)Gas purchases2,408
 22,919
71,820
 17,732
Foreign currency contractsGas purchases37
 (194)(188) (457)Gas purchases181
 37
(179) (188)
Home Services and Other:            
Interest rate contractsInterest expense(43) 165
(228) 286
Interest expense
 (43)

 (228)
Total unrealized and realized gains (losses)Total unrealized and realized gains (losses)$26,740
 $(2,752)$17,656
 $(93,209)Total unrealized and realized gains (losses)$(14,458) $26,740
$73,224
 $17,656


NJNG’s derivative contracts are part of the Company's risk management activities that relate to its natural gas purchases and BGSS incentive programs and debt financing. These transactions are entered into pursuant to regulatory approval.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 (losses) gains associated with NJNG's derivative instruments as of:for the periods set forth below:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)2019 20182019 20182020 20192020 2019
Natural Gas Distribution:          
Physical commodity contracts$812
 $(178)$5,225
 $(16,033)$308
 $812
$1,357
 $5,225
Financial commodity contracts(10,368) 3,306
(7,129) 1,730
1,029
 (10,368)(11,493) (7,129)
Interest rate contracts
 

 8,467
1,636
 
(5,056) 
Total unrealized and realized (losses) gains$(9,556) $3,128
$(1,904) $(5,836)$2,973
 $(9,556)$(15,192) $(1,904)


NJNGNJR 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 Energy Services hadupon settlement of the contracts, realized gains and (losses) are reclassified from OCI to interest expense on the Unaudited Condensed Consolidated Statements of Operations. The following outstanding long (short) derivativestable reflects the effect of derivative instruments designated as of:cash flow hedges in OCI for the periods set forth below:
   Volume (Bcf)
   June 30,
2019
 September 30,
2018
Natural Gas DistributionFutures 28.7
 27.9
 Physical 14.6
 23.1
Energy ServicesFutures (26.9) (7.0)
 Physical 17.0
 51.2
 Swaps (6.2) (17.3)
(Thousands)Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
 Three Months EndedThree Months Ended
 June 30,June 30,
Derivatives in cash flow hedging relationships:2020201920202019
Interest rate contracts$(807)$
$
$
 Nine Months EndedNine Months Ended
 June 30,June 30,
Derivatives in cash flow hedging relationships:2020201920202019
Interest rate contracts$(13,299)$
$
$


Not included in the previous table are Energy Services' net notional amount of foreign currency transactions of approximately $3.8 million, NJR's interest rate swap, as previously discussed, and 1,015,000 SRECs at Energy Services that were open as of June 30, 2019.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


NJNG and Energy Services had the following outstanding long (short) derivatives as of:
   Volume (Bcf)
   June 30,
2020
 September 30,
2019
Natural Gas DistributionFutures 18.8
 27.6
 Physical 10.3
 11.6
Energy ServicesFutures (38.4) (29.6)
 Physical 12.6
 44.5
 Swaps (2.3) (5.0)


Not included in the previous table are Energy Services' net notional amount of foreign currency transactions of approximately $6.4 million, notional amounts related to treasury lock transactions of approximately $60 million and $195 million at NJNG and NJR respectively, and 1,276,000 SRECs at Energy Services that were open as of June 30, 2020.

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 the Natural Gas Distribution and Energy Services segments. The balances are as follows:
(Thousands)Balance Sheet LocationJune 30,
2019
September 30,
2018
Balance Sheet LocationJune 30,
2020
September 30,
2019
Natural Gas DistributionRestricted broker margin accounts$1,460
$2,038
Restricted broker margin accounts$
$1,982
Accounts payable and other$(219)$
Energy ServicesRestricted broker margin accounts$43,367
$51,681
Restricted broker margin accounts$52,211
$71,741


Wholesale Credit Risk

NJNG, Energy Services, and Clean Energy Ventures and Midstream are exposed to credit risk as a result of their sales/wholesale marketing activities. As a result of services performed or sold, the inherent volatility in the prices of natural gas commodities, derivatives, SRECs, electricity and RECs, 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 (e.g., failed to deliver or pay for natural gas, SRECs, electricity, RECs or RECs)Midstream services), then the Company could sustain a loss.

NJR 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 traderscommercial teams 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 NJR's election not to extend credit or because exposure exceeds defined thresholds. Most of NJR'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 FitchS&P or Moody's. In these cases, the counterparty's or guarantor's financial statements are reviewed, and similar methodologies and ratios used by FitchS&P 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.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of June 30, 2019.2020. 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 Clean Energy Ventures residential solar installations.
(Thousands)Gross Credit ExposureGross Credit Exposure
Investment grade $127,602
  $126,026
 
Noninvestment grade 19,542
  8,915
 
Internally rated investment grade 18,415
  22,877
 
Internally rated noninvestment grade 32,296
  12,319
 
Total $197,855
  $170,137
 


Conversely, certain of NJR's, NJNG's and Energy Services' 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.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on June 30, 2019 and September 30, 2018,2020, was $483,000 and $124,000, respectively,$15.9 million, for which the Company had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements had been invoked on June 30, 2019 and September 30, 2018,2020, the Company would have been required to post an additional $40,000 and $33,000, respectively,$15.9 million to its counterparties. These amounts differ from the respective net derivative liabilities reflected on the Unaudited Condensed 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.

6. FAIR VALUE

Fair Value of Assets and Liabilities

The fair value of cash and cash equivalents, accounts receivable, current loan receivables, 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 loan receivables are recorded basedat fair value in other noncurrent assets on what the Company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.Unaudited Condensed Consolidated Balance Sheets.

The estimated fair value of long-term debt, at NJNG and NJR, including current maturities, excluding capital leases, debt issuance costs and solar asset financing obligations, is as follows:
(Thousands)June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
Carrying value (1) (2) (3)
$1,207,845
$1,172,045
Carrying value (1) (2) (3) (4)
$1,492,845
$1,442,845
Fair market value$1,276,912
$1,158,051
$1,719,734
$1,568,864
(1)
Excludes financecapital leases of $38.6$77.6 million and $35.9$35.4 million as of June 30, 20192020 and September 30, 20182019, respectively.
(2)
Excludes NJNG's debt issuance costssolar asset financing obligations of of $7.7 million and $6.5$130.8 million and $91.4 millionas of June 30, 20192020 and September 30, 20182019, respectively.
(3)
Excludes NJNG's debt issuance costs of $9.2 million and $9 million as of June 30, 2020 and September 30, 2019, respectively.
(4)
Excludes NJR's debt issuance costs of $1$1.5 million and $1.1$2 million as of June 30, 20192020 and September 30, 20182019, respectively.

NJRClean Energy Ventures 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 Unaudited Condensed Consolidated Balance Sheets. The estimated fair value of solar asset financing obligations as of June 30, 2020 and September 30, 2019 was $148.3 million and $98.6 million, 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 June 30, 20192020, NJR discloses its debt within Level 2 of the fair value hierarchy.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Fair Value Hierarchy

NJR 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. 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 include the following:

Level 1
Unadjusted quoted prices for identical assets or liabilities in active markets. NJR'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 NJR refers to internally to as basis swaps, fixed swaps, futures and financial options that are cleared through a 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. NJR'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). NJNG's treasury lock is also considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation model. 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:
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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 3Inputs derived from a significant amount of unobservable market data. These include NJR's best estimate of fair value and are derived primarily through the use of internal valuation methodologies.

Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
 Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs 
(Thousands)(Level 1)(Level 2)(Level 3)Total
As of June 30, 2019:          
Assets:          
Physical commodity contracts $
  $11,055
  $
 $11,055
Financial commodity contracts 27,122
  4,606
  
 31,728
Financial commodity contracts - foreign exchange 
  10
  
 10
Interest rate contracts 
  20
  
 20
Money market funds 21,513
  
  
 21,513
Other 1,681
  
  
 1,681
Total assets at fair value $50,316
  $15,691
  $
 $66,007
Liabilities:          
Physical commodity contracts $
  $37,118
  $
 $37,118
Financial commodity contracts 28,193
  25
  
 28,218
Financial commodity contracts - foreign exchange 
  264
  
 264
Total liabilities at fair value $28,193
  $37,407
  $
 $65,600
As of September 30, 2018:          
Assets:          
Physical commodity contracts $
  $11,682
  $
 $11,682
Financial commodity contracts 18,868
  7,025
  
 25,893
Interest rate contracts 
  381
  
 381
Investments in equity securities 32,917
  
  
 32,917
Other (1)
 1,217
  
  
 1,217
Total assets at fair value $53,002
  $19,088
  $
 $72,090
Liabilities:          
Physical commodity contracts $
  $29,666
  $
 $29,666
Financial commodity contracts 39,724
  
  
 39,724
Financial commodity contracts - foreign exchange 
  244
  
 244
Total liabilities at fair value $39,724
  $29,910
  $
 $69,634
(1)Includes money market funds.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
 Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs 
(Thousands)(Level 1)(Level 2)(Level 3)Total
As of June 30, 2020:          
Assets:          
Physical commodity contracts $
  $8,177
  $
 $8,177
Financial commodity contracts 25,349
  2,150
  
 27,499
Financial commodity contracts - foreign exchange 
  38
  
 38
Money market funds 36,172
  
  
 36,172
Other (1)
 1,814
  
  
 1,814
Total assets at fair value $63,335
  $10,365
  $
 $73,700
Liabilities:          
Physical commodity contracts $
  $39,823
  $
 $39,823
Financial commodity contracts 14,766
  
  
 14,766
Financial commodity contracts - foreign exchange 
  253
  
 253
Interest rate contracts 
  15,852
  
 15,852
Total liabilities at fair value $14,766
  $55,928
  $
 $70,694
As of September 30, 2019:          
Assets:          
Physical commodity contracts $
  $8,624
  $
 $8,624
Financial commodity contracts 20,028
  3,876
  
 23,904
Financial commodity contracts - foreign exchange 
  1
  
 1
Other (1)
 1,706
  
  
 1,706
Total assets at fair value $21,734
  $12,501
  $
 $34,235
Liabilities:          
Physical commodity contracts $
  $40,426
  $
 $40,426
Financial commodity contracts 35,732
  
  
 35,732
Financial commodity contracts - foreign exchange 
  286
  
 286
Total liabilities at fair value $35,732
  $40,712
  $
 $76,444

7. INVESTMENTS IN EQUITY INVESTEES

NJR's investments in equity method investees include the following as of:
(Thousands)June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
Steckman Ridge (1)
$115,419
$117,001
$112,909
$114,428
PennEast(1)82,241
73,865
92,891
85,840
Total$197,660
$190,866
$205,800
$200,268

(1)
Includes loans with a total outstanding principal balancedeferred tax component related to AFUDC equity of $70.4$4.6 million and $4.1 million for both June 30, 20192020 and September 30, 20182019, respectively.

The Company, through its subsidiary NJR Pipeline Company holds a 50 percent ownership interest in Steckman Ridge, a storage facility that operates under market-based rates. NJR's investment in Steckman Ridge includes loans with a total outstanding principal balance of $70.4 million for both June 30, 2020 and September 30, 2019. The loans accrue interest at a variable rate that resets quarterly and are due October 1, 2023.

NJNG and Energy Services have entered into storage and park and loan agreements with Steckman Ridge. In addition, NJNG and Energy Services are each partiesparty to a precedent capacity agreementsagreement with PennEast. See Note 14.16. Related Party Transactions for more information on these intercompany transactions.

The Company, through its subsidiary NJR Pipeline Company, is ana 20 percent investor in PennEast, a partnership whose purpose is to construct and operate a 120-mile natural gas pipeline that will extend from northeast Pennsylvania to western New Jersey. PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018. As
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


On September 10, 2019, the United States Court of June 30,Appeals for the Third Circuit issued an order overturning the United States District Court for the District of New Jersey’s order granting PennEast condemnation and immediate access in accordance with the Natural Gas Act to certain properties in which the State of New Jersey holds an interest. A Petition for Rehearing was denied by the Third Circuit on November 5, 2019.

On October 8, 2019, the NJDEP issued a letter indicating that it deemed PennEast’s freshwater wetlands permit application to be administratively incomplete and closed the matter without prejudice. On October 11, 2019, PennEast completed all the necessary land surveys and expectssubmitted a letter to resubmit the NJDEP objecting to its position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.

On October 4, 2019, PennEast filed a petition for Declaratory Order with FERC requesting an interpretation of the eminent domain authority of a FERC certificate holder under the Natural Gas Act. The Declaratory Order was granted on January 30, 2020.

On January 30, 2020, PennEast filed an amendment with FERC to construct the PennEast pipeline in August 2019.2 phases. Phase one consists of construction of a 68-mile pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction of PennEast is expected to begin following approval by FERC of the phased approach and receipt of all necessaryany remaining governmental and regulatory permitspermits.

On February 18, 2020, PennEast filed a writ of certiorari with the Supreme Court of the United States to review the September 10, 2019 Third Circuit decision.

On June 29, 2020, the Supreme Court requested that the Solicitor General of the United States file a brief that expresses the views on the question of the use of eminent domain to acquire state owned lands for pipeline construction. 

The Company evaluated its investment in PennEast for an other-than-temporary impairment and any remaining land use rights. Construction could be delayed due to factorsdetermined an impairment charge was not necessary. It is reasonably possible that are beyondfuture unfavorable developments, such as a reduced likelihood of success from development options and legal outcomes, estimated increases in construction costs, increases in the ability of PennEast to control, including unforeseen construction delays, the receipt of governmental and regulatory approvals, and intervention, challenges, and litigation by others to governmental and regulatory proceedings. The timing and outcome of such actions and proceedings cannot be predicted with any certainty at this time. Delays in receipt of regulatory approvals and other unforeseendiscount rate, or further significant delays, could result in increased costs thatan impairment of our equity method investment. Also, the use of alternate judgments and assumptions could negatively impact PennEast operations if not resolvedresult in a timely manner.different calculation of fair value, which could ultimately result in the recognition of an impairment charge in the Unaudited Condensed Consolidated Financial Statements.

8. EARNINGS PER SHARE

The following table presents the calculation of the Company's basic and diluted earnings per share for:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands, except per share amounts)2020201920202019
Net income, as reported$(27,219)$(8,402)$150,647
$151,419
Basic earnings per share    
Weighted average shares of common stock outstanding-basic95,764
89,600
94,420
88,995
Basic earnings per common share$(0.28)$(0.09)$1.60$1.70
Diluted earnings per share    
Weighted average shares of common stock outstanding-basic95,764
89,600
94,420
88,995
Incremental shares (1)


298
407
Weighted average shares of common stock outstanding-diluted95,764
89,600
94,718
89,402
Diluted earnings per common share (2)
$(0.28)$(0.09)$1.59$1.69
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands, except per share amounts)2019201820192018
Net (loss) income, as reported$(8,402)$(14,274)$151,419
$249,691
Basic (loss) earnings per share    
Weighted average shares of common stock outstanding-basic89,600
87,888
88,995
87,493
Basic (loss) earnings per common share$(0.09)$(0.16)$1.70$2.85
Diluted earnings per share    
Weighted average shares of common stock outstanding-basic89,600
87,888
88,995
87,493
Incremental shares (1)


407
391
Weighted average shares of common stock outstanding-diluted89,600
87,888
89,402
87,884
Diluted (loss) earnings per common share (2)
$(0.09)$(0.16)$1.69$2.84

(1)Incremental shares consist
Consist primarily of unvested stock awards and performance shares.
(2)
There were anti-dilutive shares of 251,780 and 95,817 excluded from the calculation of diluted earnings per share related to the equity forward sale agreement during the three and nine months ended June 30, 2020, respectively. Since therethere was a net loss for the three months ended June 30, 20192020 and 20192018,, incremental shares of 409,000310,000 and 402,000,409,000, respectively, were not included in the computation of diluted loss per common share, as their effect would have been anti-dilutive.anti-dilutive. There were no0 anti-dilutive shares excluded from the calculation of diluted earnings per share during the nine months ended June 30, 2019 and 2018.2019.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9. DEBT

NJR and NJNG 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.

New Jersey Resources Corporation
Part ICredit Facilities

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Credit FacilitiesOn April 24, 2020, NJR entered into a 364-day $250 million revolving credit facility with an interest rate based on LIBOR plus 1.625 percent. After six months, all outstanding amounts under the credit facility will convert to a term loan and will be due on April 23, 2021. Proceeds will be used to fund ongoing ordinary working capital requirements and other general corporate purposes. In connection with entry into this credit facility, all outstanding borrowings under NJR's December 13, 2019, $150 million revolving line of credit facility were repaid.

A summary of NJR's credit facility and NJNG's commercial paper program and credit facility are as follows:
(Thousands)June 30,
2019
 September 30,
2018
 Expiration DatesJune 30,
2020
 September 30,
2019
 Expiration Dates
NJR        
Bank revolving credit facilities (1)
$425,000
 $425,000
 December 2023
Notes outstanding at end of period$416,300
 $25,450
 
Weighted average interest rate at end of period1.06% 3.04% 
Amount available at end of period (2)
$244
 $394,800
 
Bank revolving credit facilities (1)
$425,000
 $425,000
 December 2023$250,000
 $
 April 2021
Notes outstanding at end of period$
 $87,950
 $
 $
 
Weighted average interest rate at end of period% 3.07% % % 
Amount available at end of period (2)
$420,775
 $322,144
 $250,000
 $
 
NJNG        
Bank revolving credit facilities (1)
$250,000
 $250,000
 December 2023$250,000
 $250,000
 December 2023
Commercial paper outstanding at end of period$99,300
 $64,000
 $
 $
 
Weighted average interest rate at end of period2.62% 2.18% 0.25% % 
Amount available at end of period (3)
$149,969
 $185,269
 $249,269
 $249,269
 
(1)Committed credit facilities, which require commitment fees on the unused amounts.
(2)
Letters of credit outstanding total $4.2$8.5 million and $14.9$4.8 million for June 30, 20192020 and September 30, 20182019, respectively, which reduces amount available by the same amount.
(3)
Letters of credit outstanding total $731,000 for both June 30, 20192020 and September 30, 20182019, which reduces the amount available by the same amount.

On December 5, 2018, NJNG entered into an Amended and Restated Credit Agreement governing a $250 million NJNG Credit Facility. The NJNG Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension beyond that date. The NJNG Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJNG Credit Facility also includes an accordion feature, which would allow 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 million up to a maximum of $100 million.

On December 5, 2018, NJR entered into an Amended and Restated Credit Agreement governing a $425 million NJR Credit Facility. The NJR Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension beyond that date. The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJR Credit Facility also includes an accordion feature, which would allow 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 minimum increments of $50 million up to a maximum of $250 million. Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility.

For accounting purposes, the Company treated both of the new credit facilities as a debt modification.

On December 21, 2018, NJR entered into a four-month, $100 million revolving line of credit facility, which expired on April 18, 2019 and was not renewed. There were no amounts outstanding under this credit facility at expiration.

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.

On October 9, 2019, NJR entered into a $350 million Bridge Facility, which was used primarily to finance the Leaf River acquisition. The Bridge Facility accrues interest at the LIBOR rate for a 1-month interest period plus 0.875 percent during the first 180 days, and 1.075 percent after 180 days. Loans under the Bridge Facility are required to be prepaid to the extent of new cash proceeds received upon the issuance of equity of NJR, the incurrence of indebtedness by NJR or its subsidiaries, the disposition of assets by NJR or its subsidiaries or upon other specified events, in each case subject to certain exceptions set forth in the Bridge Facility. As of June 30, 2020, there were $137.1 million in borrowings remaining against the facility. The net proceeds from the December 2019 equity issuance were used to pay down the Bridge Facility. On July 23, 2020, the remaining $137.1 million in borrowings were repaid.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Long-term Debt

NJNG

NJNG received $9.9$4 million and $7.8$9.9 million in December 20182019 and 2017,2018, respectively, in connection with the sale-leaseback of its natural gas meters. NJNG records a capital lease obligation that is paid over the term of the lease and has the option to purchase the meters back at fair value upon expiration of the lease. NJNG exercised early purchase options with respect to certain outstanding meter leases by making final principal payments of $1.2 million and $1.1 million during both the nine months ended June 30, 20192020 and 2018.2019, respectively.

On April 18, 2019, NJNG remarketed three FMBs, in the amount of $35.8 million, with a weighted average interest rate of 3.02 percent. The bonds have maturity dates ranging from April 2038 to April 2059.

On July 17, 2019,May 14, 2020, NJNG entered into a Note Purchase Agreement underfor $125 million of its senior notes, of which $100 million were at an interest rate of 3.13 percent, maturing in 2050, and $25 million were at an interest rate of 3.33 percent, maturing in 2060. On June 30, 2020, NJNG issued $100$50 million of 3.76the 3.13 percent senior notes due June 30, 2050. On July 23, 2020, NJNG issued the remaining $50 million of 3.13 percent senior notes due July 17, 204923, 2050, and $85$25 million of 3.863.33 percent senior notes due July 17, 2059.23, 2060. The senior notes are secured by an equal principal amount of NJNG'sNJNG’s FMBs issued under NJNG'sNJNG’s Mortgage Indenture.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NJR

On July 17, 2019,May 14, 2020, NJR entered into a Note Purchase Agreement underfor $260 million of its senior notes, of which $130 million were at an interest rate of 3.5 percent, maturing in 2030, and $130 million were at an interest rate of 3.6 percent, maturing in 2032. On July 23, 2020, NJR issued $50all $260 million of 3.29 percentthe senior notes due July 17, 2029, and will issue an additional $100 million of such senior notes on or about August 15, 2019, subject to certain customary closing conditions.notes. The senior notes are not secured by assets, but are insteadunsecured and guaranteed by certain unregulated subsidiaries of NJR.

On April 29, 2020, NJR settled a treasury lock resulting in a $2.5 million loss, which was recorded to accumulated other comprehensive income on the Unaudited Condensed Consolidated Balance Sheets. When the related forecasted debt issuance occurs, the loss will be amortized to interest expense on the Unaudited Condensed Consolidated Statements of Operations.

Clean Energy Ventures

In June 2020, Clean Energy Ventures received proceeds of $42.9 million in connection with the sale-leaseback of three commercial solar projects. Clean Energy Ventures did 0t receive proceeds related to the sale-leaseback of commercial solar assets during the nine months ended June 30, 2019. Clean Energy Ventures 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 considered failed sale-leasebacks for accounting purposes and are therefore treated as financing obligations, which are typically secured by the renewable energy facility asset and its future cash flows from SREC and energy sales. ITCs and other tax benefits associated with these solar projects are transferred to the buyer, if applicable. Clean Energy Ventures continues to operate the solar assets, including related expenses, and retain the revenue generated from SRECs and energy sales, and has the option to renew the lease or repurchase the assets sold at the end of the lease term.

10. EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans

The components of the net periodic cost for pension benefits, including the Company's Pension Equalization Plan, and OPEB costs (principally health care and life insurance) for employees and covered dependents were as follows:
PensionOPEBPensionOPEB
Three Months EndedNine Months EndedThree Months EndedNine Months EndedThree Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)2019201820192018201920182019201820202019202020192020201920202019
Service cost$1,845
$2,035
$5,536
$6,104
$1,101
$1,152
$3,303
$3,455
$2,056
$1,845
$6,167
$5,536
$1,213
$1,101
$3,640
$3,303
Interest cost3,043
2,623
9,129
7,870
2,081
1,591
6,243
4,773
2,647
3,043
7,940
9,129
1,757
2,081
5,270
6,243
Expected return on plan assets(4,763)(4,910)(14,290)(14,729)(1,379)(1,338)(4,137)(4,014)(5,145)(4,763)(15,434)(14,290)(1,628)(1,379)(4,883)(4,137)
Recognized actuarial loss1,442
1,884
4,324
5,653
1,617
1,165
4,850
3,495
2,606
1,442
7,818
4,324
1,861
1,617
5,582
4,850
Prior service cost amortization25
27
76
80
(91)(91)(273)(273)25
25
76
76
(49)(91)(148)(273)
Net periodic benefit cost$1,592
$1,659
$4,775
$4,978
$3,329
$2,479
$9,986
$7,436
$2,189
$1,592
$6,567
$4,775
$3,154
$3,329
$9,461
$9,986

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The Company does not expect to be required to make additional contributions to fund the pension plans during fiscal 20192020 or 20202021 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. In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans. There were no0 discretionary contributions made during the nine months ended June 30, 2020 and 2019.

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 and estimates that it will contribute between $5 million and $10 million over each of the next five years. Additional contributions may be required based on market conditions and changes to assumptions.

The Company's OPEB liability was revalued for changes related to the Affordable Care Act-mandated excise tax applicable to high-cost health plans, commonly known as the Cadillac Tax. The Company applied a practical expedient to remeasure the plan assets and obligations as of December 31, 2019, and 2018.which was the nearest calendar month-end date. The impact of the revaluation of the OPEB liability was recorded as of January 1, 2020.

11. INCOME TAXES

ASC Topic 740, Income Taxes requires the use of an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating its estimated annual effective tax rate, NJR considers forecasted annual pre-tax income and estimated permanent book versus tax differences, as well as investment tax credits associated with solar and wind projects.asset investment. For investment tax credits, the estimate is based on solar projects that are probable of being completed and placed in service during the current fiscal year based on the best information available at each reporting period. For production tax credits, the estimate is based on the forecast of electricity produced during the current fiscal year based on the best information available at each reporting period. Adjustments to the effective tax rate and management's estimates will occur as information and assumptions change.

Changes in tax laws or tax rates are recognized in the financial reporting period that includes the enactment date, the date in which the act is signed into law.

In May 2019, the Company received a favorable ruling from the IRS regarding a change to its tax method of accounting for the capitalization of certain costs associated with self-constructed property placed in service during fiscal years endingprior to September 30, 2012 through September 30, 2015.2016. The self-constructed property to which these costs relate is considered qualified energy property as defined under the Internal Revenue Code. As such, the Company is eligible to claim a 30 percent ITC on the increase in the depreciable cost basis of the property through the filing of an amended tax return in the year of change. As a result of the favorable IRS ruling, in June 2019, the Company recorded a benefit from income taxes of approximately $6$10 million from the additional ITC recognized, net of deferred taxes.

NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. A tax benefit claimed, or expected to be claimed, on a tax return may be recognized if it is more likely than not that the position will be upheld upon examination by the applicable taxing authority. Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest, and penalties are recognized within accrued taxes inother noncurrent liabilities on the Unaudited Condensed Consolidated Balance Sheets.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


As of June 30, 20192020, the Company evaluated certainhad a reserve of $4.9 million for a portion of tax benefits that have been recorded in the financial statements and concluded that a portion of the tax benefits are uncertain at this time. As a result, the Company recorded a reserve thattime, which is included in accrueddeferred income taxes on the Unaudited Condensed Consolidated Balance Sheets. The tax benefits relate to fiscal tax years open to examination by the IRS and may be subject to subsequent adjustment. The reserve for uncertain tax benefits are as follows:
 Nine Months Ended
 June 30,
(Thousands)2019
Balance at October 1,$
Additions based on tax positions related to the current fiscal period

3,415
Balance at period end$3,415


During fiscal 2018,As of June 30, 2019, there were no0 reserves associated with uncertain tax positions.

The Tax Act

On December 22, 2017, the President signed into law the Tax Act. The law made several changes to the Internal Revenue Code of 1986, as amended, the most impactful to the Company of which was a reduction in the federal corporate income tax rate from 35 percent to 21 percent that became effective January 1, 2018. Since the Company's fiscal year end is September 30, it is required by the Internal Revenue Code to calculate a statutory rate based upon the federal tax rates in effect before and after the effective date of the change in the taxable year that includes the effective date. Accordingly, the Company applied a federal statutory tax rate of 24.5 percent during fiscal 2018 and as of October 1, 2018, uses the enacted rate of 21 percent. As a result of the changes associated with the Tax Act during the nine months ended June 30, 2018, the Company recognized a tax benefit of $57.7 million.

During the nine months ended June 30, 2018, the Company credited approximately $16.1 million to income tax (benefit) provision on the Unaudited Condensed Consolidated Statements of Operations, which includes $14.3 million attributable to the remeasurement of deferred income taxes, $890,000 for the amortization of excess deferred income taxes primarily related to timing differences associated with utility plant depreciation and $880,000 related to the revaluation of deferred income taxes not included in base rates.

Effective Tax Rate

The forecasted effective tax rates were (4.6)(1.2) percent and 14.3(4.6) percent, for the nine months ended June 30, 20192020 and 2018,2019, respectively. The decreaseincrease in the effective tax rate, when compared with the prior fiscal year, is due primarily to a decreasecombination of an increase in forecasted pre-tax income combined with the lower federal statutory rate, and an increasea decrease in forecasted tax credits for the fiscal year ending September 30, 2019.2020. Forecasted tax credits, net of deferred income taxes, were $46.3$37.5 million and $22$46.3 million for fiscal 2020 and 2019, and 2018, respectively.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


To the extent there are discrete tax items that are not included in the forecasted effective tax rate, the actual effective tax rate will differ from the estimated annual effective tax rate. During the nine months ended June 30, 20192020 and 2018,2019, discrete items totaled $2.3 million and $5.4 million, respectively, related to a revaluation of certain state deferred tax assets and $76.6 million, which includedliabilities as a result of a change in the items previously discussed above, along withNew Jersey state apportionment factor and excess tax benefits associated with the vesting of share-based awards and return to provision adjustments.awards. NJR’s actual effective tax rate was (8.5)(2.8) percent and (23.7)(8.5) percent during the nine months ended June 30, 20192020 and 2018,2019, respectively.

CARES Act

On March 27, 2020, the President of the United States 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, among other things, includes several business tax provisions which include, but are not limited to modifications of federal net operating loss carrybacks and deductibility, changes to prior year refundable alternative minimum tax liabilities, increase of limitations on business interest deductions from 30 percent to 50 percent of earnings before interest, taxes, depreciation, and amortization, technical corrections of the classification of qualified improvement property making them eligible for bonus depreciation, increase of the limits on charitable contribution deductions from 10 percent to 25 percent of adjusted taxable income, modifications of the treatment of federal loans, loan guarantees, and other investments, suspension of industry specific excise taxes, deferral of the company portion of OASDI, and implementation of a refundable employee retention tax credit.

The CARES Act provides 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 percent of the deferred taxes are required to be deposited by the end of 2021 and the remaining 50 percent are required to be deposited by the end of 2022. Additionally, The CARES Act provides a refundable tax credit, the employee retention tax credit, to certain employers who are ordered by a competent governmental authority to suspend or reduce business operations due to concern about the spread of COVID-19 or suffered a significant decline in the business during a calendar quarter during 2020 compared to the same calendar quarter during the previous year. As of June 30, 2020, the Company deferred $1.3 million related to the employer portion of the OASDI tax. The Company is currently investigating the applicability of the Employee Retention Tax credit.

Other Tax Items

As of June 30, 20192020 and September 30, 2018,2019, the Company had ITC carryforwards of approximately $184.7 million and $154.2 million, respectively, which each have a life of 20 years. When the Company carries back the federal net operating losses noted below, it expects to recapture investment tax credits totaling $24.1 million. These recaptured tax credits are in addition to the $184.7 million noted above and will be carried forward to offset future taxable income. The Company expects to utilize this entire carryforward, which would begin to expire in fiscal 2034.

The Company had federal income tax net operating losses of approximately $135.6$134 million as of June 30, 2020and $136.8 million,September 30, 2019, respectively. Federal net operating losses incurred before the implementation of the Tax Act can generally be carried back two years and forward 20 years and will begin to expire in fiscal 2036, with the remainder expiring by 2038. The Company expects to exercise its ability to carryback federal net operating losses to offset taxable income in prior periods.

For the net operating losses it expects to carryback, the Company estimated the portion considered refundable and recorded receivables of approximately $23$22.8 million as offor both June 30, 20192020 and September 30, 2018,2019, as a component of other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets. Upon filing amended federal income tax returns to carryback its remaining federal net operating losses the Company will recapture tax credits totaling $24.5$24.1 million, the Company will reduce its taxable income in those periods and recapture federal investment tax credits of the same amount that were previously utilized to offset taxable income.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In addition, as of June 30, 2019 and September 30, 2018, the Company had ITC/PTC carryforwards of approximately $140.8 million and $121.1 million, respectively, which each have a life of 20 years. When the Company carries back the federal net operating losses noted above, it expects to recapture investment tax credits totaling $24.5 million. These recaptured tax credits are in addition to the $140.8 million noted above and will be carried forward to offset future taxable income. The Company expects to utilize this entire carryforward, which would begin to expire in fiscal 2033.

As of June 30, 2019 and September 30, 2018, the Company had state income tax net operating losses of approximately $403.7$489.7 million and $578.8$340.2 million for June 30, 2020 and September 30, 2019, respectively. These state net operating losses have varying carry forwardcarry-forward periods dictated by the state in which they were incurred. These state carry forward periods range from seven to 20 years and would begin to expire in fiscal 2021, with the majority expiring after 2035. The Company expects to utilize this entire carryforward, other than as described below.

New Jersey Resources Corporation
Part I

OnNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In February 7, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets. As a result of the sale, it is more likely than not that a portion of certain state net operating loss carryforwards will not be realizable prior to their expiration. The Company had a valuation allowance of $1.8 million and $4 million as offor June 30, 20192020 and September 30, 2018,2019, respectively, related to state net operating loss carryforwards in Montana, Iowa and Kansas. The remaining state income tax net operating losses are expected to be utilized prior to expiration.

In MarchAs a result of changes to filing requirements in the State of New Jersey that require tax returns filed for periods ending on or after July 31, 2019 be filed on a combined basis when part of an affiliated group, the Company recorded a benefit from income taxes of approximately $15.3 million during the nine months ended June 30, 2020, resulting from the re-measurement of deferred income tax attributes. The Company also evaluated its New Jersey state net operating loss carryforwards on a post-apportionment basis and determined it is more likely than not that a portion of these net operating loss carryforwards may not be realizable prior to their expiration. As a result, the Company recorded a valuation allowance associated with New Jersey state net operating loss carryforwards of approximately $13.6 million as of June 30, 2020.

The Consolidated Appropriations Act extended the 30 percent ITC for solar property that is under construction on or before December 31, 2019. The credit will decline to 26 percent for property under construction during 2020 and to 22 percent for property under construction during 2021. For any property that is under construction before 2022, but not placed in service before 2024, the ITC will be reduced to 10 percent. Projects placed in service after December 31, 2019, may also qualify for a 30 percent federal ITC if five percent 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 towards completion of the project, based on the IRS commencedguidance around ITC safe harbor determination. The Company has taken steps to preserve the current ITC rates for solar projects that are completed after the scheduled reduction in rates, in accordance with IRS guidance.

As of June 30, 2020, the IRS has an open examination of the Company's federal income tax return for fiscal 2016.

In May 2019, the State of New Jersey completed a general tax examination for fiscal years 2014 through 2017 related to NJRHS. All periods subsequent to those ended September 30, 20132014, are statutorily open to examination.for both state and federal examinations.

12. 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 and accounts for 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. For more information on the adoption of ASC 842, Leases, see Note 2. Summary of Significant Accounting Policies.

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 its 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. These 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 gas stored in the storage caverns.

Generally, the Company’s solar land leases terms are between 15 and 25 years and include options to extend the terms for multiple additional 5 to 10 year terms each. The Company’s office leases vary in duration, ranging from 1 to 25 years and may or may not include extension or early purchase options. The majority of the Company’s meter leases are for terms of 7 years with
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


purchase options available prior to the end of the 7 year term. Equipment leases include general office equipment that also vary in duration, most are for a term of 5 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 significant to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. There are no material lease transactions with related parties.

The following table presents the Company's lease costs included in the Unaudited Condensed Consolidated Statements of Operations:
  Three Months EndedNine Months Ended
  June 30,June 30,
(Thousands)Income Statement Location20202020
Finance lease cost   
Amortization of right-of-use assetsDepreciation and amortization$1,274
$3,734
Interest on lease liabilitiesInterest expense, net of capitalized interest248
796
Total finance lease cost 1,522
4,530
Operating lease costOperation and maintenance, net of capitalized costs$1,650
$4,761
Short-term lease costOperation and maintenance95
721
Variable lease costOperation and maintenance597
1,707
Total lease cost $3,864
$11,719

The following table presents supplemental cash flow information related to leases:
 Nine Months Ended
 June 30,
(Thousands)2020
Cash paid for amounts included in the measurement of lease liabilities 
Operating cash flows from operating leases$4,133
Operating cash flows from finance leases$952
Financing cash flows from finance leases$5,505


Assets obtained or modified through amendments in exchange for operating lease liabilities during the three and nine months ended June 30, 2020, were $270,000 and $34.2 million, respectively. Assets obtained or modified through amendments in exchange for finance lease liabilities during the nine months ended June 30, 2020, were $49.7 million. There were 0 assets obtained or modified through amendments in exchange for finance lease liabilities during the three months ended June 30, 2020.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table presents the balance and classifications of our right of use assets and lease liabilities included in the Unaudited Condensed Consolidated Balance Sheets:
(Thousands)Balance Sheet LocationJune 30, 2020
Assets  
Noncurrent  
Operating lease assetsOperating lease assets$101,657
Finance lease assetsUtility plant72,357
Total lease assets $174,014
Liabilities  
Current  
Operating lease liabilitiesOperating lease liabilities$4,458
Finance lease liabilitiesCurrent maturities of long-term debt10,645
Noncurrent  
Operating lease liabilitiesOperating lease liabilities96,118
Finance lease liabilitiesLong-term debt66,944
Total lease liabilities $178,165


As of June 30, 2020, the weighted average remaining lease term for the operating and finance leases is 27.3 and 2.37 years, respectively. The weighted average discount rate used in the valuation of the operating and finance lease liabilities and right-of-use assets over the remaining lease term is 3.18 percent and 2.54 percent, respectively.

As of June 30, 2020, the Company has entered into 3 commercial solar land leases, which have not yet commenced, that would entitle the Company to significant rights or create additional obligations. The leases are expected to commence when construction of the assets is completed during fiscal 2020. Total estimated payments over the life of these leases are approximately $6.1 million. There are options to extend the term of these leases for 2 additional five-year periods.

The following table presents the Company's maturities of lease liabilities as of June 30, 2020:
(Thousands)Operating LeasesFinance Leases
Remainder of fiscal 2020$2,137
$3,417
20216,481
56,271
20226,387
6,004
20236,356
4,622
20245,985
5,279
Thereafter126,331
5,720
Total future minimum lease payments153,677
81,313
Less: Interest component(53,101)(3,724)
Total lease liability$100,576
$77,589


The following table reflects the Company's future minimum lease payments due under non-cancelable operating leases for continuing operations as of September 30, 2019, under ASC 840 and is being presented for comparative purposes. These commitments relate principally to commercial solar land leases, equipment and real property leases, including land and office facility leases, gas meters and office equipment.
(Thousands)Operating LeasesCapital Leases
2020$4,411
$11,707
2021$4,698
$6,603
2022$4,609
$7,494
2023$4,579
$3,995
2024$4,199
$4,652
Thereafter$54,405
$4,173

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


13. COMMITMENTS AND CONTINGENT LIABILITIES

Cash Commitments

NJNG has entered into long-term contracts, expiring at various dates through September 2024,October 2036, for the supply, storage and transportation of natural gas. These contracts include annual fixed charges of approximately $131.2$125.7 million at current contract rates and volumes for the remainder of the fiscal year, which are recoverable through BGSS.

For the purpose of securing storage and pipeline capacity, the Energy Services segment enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by Energy Services 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 June 30, 20192020, for natural gas purchases and future demand fees for the next five fiscal year periods are as follows:
(Thousands)20192020202120222023Thereafter20202021202220232024Thereafter
Energy Services:  
Natural gas purchases$226,513
$26,521
$
$
$
$
$161,351
$1,264
$
$
$
$
Storage demand fees28,237
17,298
11,716
8,735
2,280
1,032
23,483
12,975
10,116
4,063
2,173
1,329
Pipeline demand fees73,968
61,582
42,351
26,872
8,042
1,057
66,544
55,599
33,068
22,364
17,163
40,206
Sub-total Energy Services$328,718
$105,401
$54,067
$35,607
$10,322
$2,089
$251,378
$69,838
$43,184
$26,427
$19,336
$41,535
NJNG:  
Natural gas purchases$51,763
$33,269
$33,607
$34,142
$36,155
$8,889
$13,273
$
$
$
$
$
Storage demand fees35,988
27,025
16,383
11,680
3,112
4,441
36,062
34,483
23,424
13,409
9,154
4,077
Pipeline demand fees95,216
107,586
94,441
89,827
70,311
567,727
89,627
107,510
106,414
89,217
79,899
572,433
Sub-total NJNG$182,967
$167,880
$144,431
$135,649
$109,578
$581,057
$138,962
$141,993
$129,838
$102,626
$89,053
$576,510
Total$511,685
$273,281
$198,498
$171,256
$119,900
$583,146
$390,340
$211,831
$173,022
$129,053
$108,389
$618,045


Legal Proceedings

Manufactured Gas Plant Remediation

NJNG is responsible for the remedial cleanup of fivecertain 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 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.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NJNG has had discussions with the NJDEP regarding NJNG’s association with two additional sites located within its service territory, upon which former MGP operations appear to have been located in the late 1800s or early 1900s. NJNG agreed to perform a preliminary assessment and site investigation at these sites to determine if there is soil and groundwater contamination present indicative of MGP operations. Preliminary results at one of the sites indicated the existence of contaminants from gas manufacturing activities. Upon completion of the site investigation phase, a remedial investigation will be conducted to further determine the nature and extent of potential contamination. Subsequent to this effort, and if sufficient information is available, the Company would evaluate remedial alternatives, select an appropriate remedy that complies with NJDEP regulations and guidance, and estimate potential remedial costs. At the second site, NJNG is in the early investigatory stage, which includes conducting a preliminary assessment and site investigation to determine if there were former MGP operations active at the location and prior ownership of the site.

Given the progress made to date, the uncertainties regarding the extent of potential contamination and unknown efforts that may be necessary to remediate each site, the total amount of potential costs to complete all remedial actions cannot be reasonably estimated at this time. The costs associated with a preliminary assessment, the completion of site investigation activities and the remedial investigation phase for the two sites are estimated to be approximately $600,000. Inclusive of this estimate, total costs incurred to date at these sites amount to approximately $1.5 million. The Company will continue to gather information to further refine and enhance its estimate of potential costs as it becomes available.

In addition to the two sites discussed above, NJNG periodically, and at least annually, performs an environmental review of former MGP sites located in Atlantic Highlands, Berkeley, Long Branch, Manchester, and Toms River, and Freehold, New Jersey, collectively, the "former MGP sites", 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 to remediate and monitorat the fiveformer MGP sites for which it is responsible, including potential liabilities for further and continued natural resource damages, that mightmay be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites. As we have not yet completed the remedial investigation of the site, the total amount of potential costs of all remedial actions at the MGP site in Freehold, New Jersey, cannot be reasonably estimated at this time.

The estimated total future expenditures for all former MGP sites will range from approximately $117.7$115.9 million to $204.1$186.2 million. 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, NJNG recorded an MGP remediation liability and a corresponding regulatory asset on the Unaudited Condensed Consolidated Balance Sheets of $130.8 million as of September 30, 2018, based on the most likely amount at year end and $125.6$128.9 million as of June 30, 20192020, which and $131.1 million as of September 30, 2019, based on the most likely amount. The remediation liability at June 30, 2020 includes adjustments for actual expenditures during fiscal 2019.2020. 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.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership and if there were former MGP operations active at the location. The Company is in the process of conducting site investigation activities to identify and evaluate the nature and extent of MGP related contaminants present at the location. The costs associated with preliminary assessment and site investigation activities are considered immaterial and are included as a component of NJNG’s annual SBC application to recover remediation expenses. NJNG will continue to gather information to further refine and enhance its estimate of potential costs for this site as it becomes available.

NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC approved by the BPU. On March 29, 2019, the BPU approved16, 2020, a stipulation was signed in NJNG's annual SBC filing requestingwhich included an increase in the RAC, which increasedwill increase the annual recovery from $7.1$8.5 million to $8.5$9.7 million effective April 1, 2019.and is pending approval. As of June 30, 20192020, $34.3$36.1 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Unaudited Condensed 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, NJR 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. NJR also discloses contingent matters for which there is a reasonable possibility of a loss. Based upon currently available information, NJR believes that the results of litigation that is 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 NJR’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. Certain

14. COMMON STOCK EQUITY

On December 4, 2019, the Company completed an equity offering of 6,545,454 common shares, consisting of 5,333,334 common shares issued directly by the Company and 1,212,120 common shares issuable pursuant to forward sales agreements with investment banks. The issuance of 5,333,334 resulted in proceeds of approximately $212.9 million, net of issuance costs, and was reflected in shareholders' equity and as a financing activity on the statement of cash flows.

Under the forward sale agreements, a total of 1,212,120 common shares were borrowed from third parties and sold to the underwriters. Each forward sale agreement allows the Company, at its election and prior to September 30, 2020, to physically settle the forward sale agreement by issuing common shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement, which was initially $40.0125 per share, or, alternatively, to settle the forward sale agreement in whole or in part through the delivery or receipt of shares or cash. The forward sale price is subject to adjustment daily based on a floating interest rate factor and will decrease in respect of certain fixed amounts specified in the agreement, such as anticipated dividends.

The Company's current intent is to physically settle the forward sale agreements by issuing common shares. As of June 30, 2020, if the Company elected to net settle the forward sale agreement, the Company would receive approximately $7 million under a cash settlement or would receive 227,461 common shares under a net share settlement.

Issuances of shares under the forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements have or will be recorded in the financial statements until settlements take place. Prior to any settlements, the only impact to the financial statements is the inclusion of incremental shares within the calculation of diluted EPS using the treasury stock method until settlement of the Company’s significant litigationforward sale agreements. Under this method, the number of the Company common shares used in calculating diluted EPS is described below.deemed to be increased by the excess, if any, of the number of shares that would be issued upon physical settlement of the forward sale agreements less the number of shares that would be purchased by the Company in the market (based on the average market price during the same reporting period) using the proceeds receivable upon settlement (based on the adjusted forward sale price at the end of that reporting period). Share dilution occurs when the average market price of the Company's common shares is higher than the adjusted forward sale price. See Note 8. Earnings Per Share for the impact of the forward sale agreements on the calculation of diluted earnings per share.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Stafford Township

In February 2015, a natural gas fire and explosion occurred in Stafford Township, New Jersey as a result of a natural gas leak emanating from an underground pipe. There were no fatalities, although several employees of NJNG were injured and several homes were damaged. NJNG notified its insurance carrier and believes that any costs associated with the incident, including attorneys’ fees, property damage and other losses, will be substantially covered by insurance. As of June 30, 2019, all non-subrogated property damage claims and all of the personal injury claims asserted against the Company and co-defendants as well as all cross-claims have been settled subject to documentation. The settlements will not have a material impact on the Company's financial position or results from operation.

13.15. 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 operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated wholesale and retail energy operations; the Midstream segment consists of the Company’s investments in natural gas transportation and storage facilities; the Home Services and Other 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 operations is detailed below:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Operating revenues  
Natural Gas Distribution  
External customers$120,782
$104,538
$622,167
$631,389
$128,532
$120,782
$645,375
$622,167
Clean Energy Ventures  
External customers11,450
15,348
37,707
42,210
13,396
11,450
25,603
37,707
Energy Services  
External customers (1)
290,083
409,417
1,416,837
1,563,063
133,740
290,083
816,003
1,416,837
Intercompany(197)(62)1,656
8,276
Midstream 
External customers11,143

29,949

Intercompany(62)(12)8,276
49,636
720

2,062

Subtotal422,253
529,291
2,084,987
2,286,298
287,334
422,253
1,520,648
2,084,987
Home Services and Other  
External customers12,627
14,132
36,253
31,121
12,163
12,627
36,694
36,253
Intercompany455
627
1,652
1,856
206
455
947
1,652
Eliminations(393)(615)(9,928)(51,492)(729)(393)(4,665)(9,928)
Total$434,942
$543,435
$2,112,964
$2,267,783
$298,974
$434,942
$1,553,624
$2,112,964
Depreciation and amortization  
Natural Gas Distribution$14,689
$13,473
$42,557
$39,609
$18,269
$14,689
$53,186
$42,557
Clean Energy Ventures8,239
6,702
24,253
24,565
10,121
8,239
29,429
24,253
Energy Services (2)
23
21
75
50
28
23
84
75
Midstream1
1
4
4
2,513
1
6,591
4
Subtotal22,952
20,197
66,889
64,228
30,931
22,952
89,290
66,889
Home Services and Other230
193
673
570
265
230
761
673
Eliminations(33)(70)(270)(164)20
(33)(293)(270)
Total$23,149
$20,320
$67,292
$64,634
$31,216
$23,149
$89,758
$67,292
Interest income (3)
  
Natural Gas Distribution$187
$202
$567
$452
$135
$187
$378
$567
Energy Services26
134
40
240
10
26
99
40
Midstream1,088
945
3,089
2,380
463
1,088
3,245
3,089
Subtotal1,301
1,281
3,696
3,072
608
1,301
3,722
3,696
Home Services and Other515
340
1,620
898
157
515
856
1,620
Eliminations(1,320)(1,419)(4,202)(3,518)(618)(1,320)(2,524)(4,202)
Total$496
$202
$1,114
$452
$147
$496
$2,054
$1,114
(1)Includes sales to Canada for the Energy Services segment, which are immaterial.
(2)The amortization of acquired wholesale energy contracts is excluded above and is included in gas purchases - nonutility on the Unaudited Condensed Consolidated Statements of Operations.
(3)Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations.
New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Interest expense, net of capitalized interest  
Natural Gas Distribution$6,301
$6,226
$18,166
$19,285
$7,455
$6,301
$22,760
$18,166
Clean Energy Ventures4,320
4,708
14,405
13,260
5,070
4,320
14,397
14,405
Energy Services766
581
4,277
3,041
517
766
2,680
4,277
Midstream522
471
1,630
1,165
1,843
522
10,286
1,630
Subtotal11,909
11,986
38,478
36,751
14,885
11,909
50,123
38,478
Home Services and Other407
(129)1,410
(18)427
407
1,264
1,410
Eliminations(668)(820)(2,245)(1,993)(168)(668)(970)(2,245)
Total$11,648
$11,037
$37,643
$34,740
$15,144
$11,648
$50,417
$37,643
Income tax (benefit) provision 
Income tax provision (benefit) 
Natural Gas Distribution$(1,391)$(25,314)$16,705
$4,381
$939
$(1,391)$29,276
$16,705
Clean Energy Ventures(1,787)(565)(39,033)(87,275)4,193
(1,787)(38,432)(39,033)
Energy Services(1,193)(4,786)7,063
32,922
(8,909)(1,193)(606)7,063
Midstream729
989
2,910
(8,723)1,646
729
3,453
2,910
Subtotal(3,642)(29,676)(12,355)(58,695)(2,131)(3,642)(6,309)(12,355)
Home Services and Other1,705
1,122
854
11,539
(131)1,705
2,044
854
Eliminations(4)20
(353)(645)72
(4)173
(353)
Total$(1,941)$(28,534)$(11,854)$(47,801)$(2,190)$(1,941)$(4,092)$(11,854)
Equity in earnings of affiliates  
Midstream$4,167
$3,907
$11,966
$12,104
$3,615
$4,167
$11,200
$11,966
Eliminations(672)(694)(1,939)(2,434)(402)(672)(1,009)(1,939)
Total$3,495
$3,213
$10,027
$9,670
$3,213
$3,495
$10,191
$10,027
Net financial (loss) earnings 
Net financial earnings (loss) 
Natural Gas Distribution$(3,795)$2,440
$96,464
$96,991
$11,968
$(3,795)$142,160
$96,464
Clean Energy Ventures(7,138)(829)24,797
80,472
(13,891)(7,138)(2,817)24,797
Energy Services(14,030)(15,079)13,644
78,027
(6,913)(14,030)(9,511)13,644
Midstream3,052
3,489
11,201
22,315
3,615
3,052
10,877
11,201
Subtotal(21,911)(9,979)146,106
277,805
(5,221)(21,911)140,709
146,106
Home Services and Other4,437
1,993
2,932
(8,211)(582)4,437
675
2,932
Eliminations(32)(17)(34)(202)(14)(32)140
(34)
Total$(17,506)$(8,003)$149,004
$269,392
$(5,817)$(17,506)$141,524
$149,004
Capital expenditures  
Natural Gas Distribution$100,473
$70,623
$239,569
$173,410
$88,171
$100,473
$238,010
$239,569
Clean Energy Ventures38,813
29,424
91,333
88,416
41,182
38,813
110,968
91,333
Midstream6,406
975
11,290
3,579
8,575
6,406
16,284
11,290
Subtotal145,692
101,022
342,192
265,405
137,928
145,692
365,262
342,192
Home Services and Other924
745
1,826
1,300
1,962
924
1,977
1,826
Total$146,616
$101,767
$344,018
$266,705
$139,890
$146,616
$367,239
$344,018
Investments in equity investees  
Midstream$1,239
$3,319
$2,696
$14,496
$225
$1,239
$1,491
$2,696
Total$1,239
$3,319
$2,696
$14,496
$225
$1,239
$1,491
$2,696

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company's segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income is as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Net financial (loss) earnings (1)
$(17,506)$(8,003)$149,004
$269,392
Net financial earnings (loss)$(5,817)$(17,506)$141,524
$149,004
Less:  
Unrealized (gain) loss on derivative instruments and related transactions(24,646)2,657
(25,353)25,904
Unrealized loss (gain) on derivative instruments and related transactions23,712
(24,646)(21,827)(25,353)
Tax effect5,885
(577)6,034
(3,920)(5,639)5,885
5,189
6,034
Effects of economic hedging related to natural gas inventory11,317
4,474
12,073
(14,788)4,739
11,317
10,474
12,073
Tax effect(2,689)(1,011)(2,869)5,518
(1,126)(2,689)(2,489)(2,869)
NFE tax adjustment1,029
728
7,700
6,987
(284)1,029
(470)7,700
Net (loss) income (1)
$(8,402)$(14,274)$151,419
$249,691
$(27,219)$(8,402)$150,647
$151,419

(1)Includes income tax benefit related to the Tax Act of $844,000 and $57.7 million, for the three and nine months ended June 30, 2018, respectively.

The Company uses derivative instruments as economic hedges of purchases and sales of physical 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 gas related to physical gas flow is recognized when the gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical gas flows. Timing differences occur in two ways:

unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical 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 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 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. Additionally, 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 gas flows. Included in the tax effects are current and deferred income tax expense corresponding with the NFE. Also included in the tax effects during the three and nine months ended June 30, 2018, are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the quarter. NJR also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.

The Company's assets for the various business segments and business operations are detailed below:
(Thousands)June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
Assets at end of period:  
Natural Gas Distribution$2,867,528
$2,663,054
$3,319,754
$3,064,309
Clean Energy Ventures (1)
703,866
865,018
1,007,240
864,323
Energy Services285,970
396,852
225,830
290,847
Midstream229,099
242,069
813,932
240,955
Subtotal4,086,463
4,166,993
5,366,756
4,460,434
Home Services and Other129,882
114,732
133,773
104,411
Intercompany assets (2)(1)
(92,933)(138,061)(218,445)(191,860)
Total$4,123,412
$4,143,664
$5,282,084
$4,372,985
(1)Includes assets held for sale of $206.9 million for September 30, 2018.
(2)Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


14.16. RELATED PARTY TRANSACTIONS

Effective April 1, 2010, NJNG entered into a 10-yearhas an agreement with Steckman Ridge 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 million 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.

Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-jurisdictional natural gas storage facility, Steckman Ridge. As of June 30, 20192020, Energy Services has entered into transactions with Steckman Ridge for varying terms, all of which expire by October 31, 2020.

Demand fees, net of eliminations, associated with Steckman Ridge were as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Natural Gas Distribution$1,431
$1,451
$4,349
$4,306
$1,491
$1,431
$4,462
$4,349
Energy Services695
705
2,106
2,086
27
695
86
2,106
Total$2,126
$2,156
$6,455
$6,392
$1,518
$2,126
$4,548
$6,455


The following table summarizes demand fees payable to Steckman Ridge as of:
(Thousands)June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
Natural Gas Distribution$775
$775
$775
$775
Energy Services375
375
16
15
Total$1,150
$1,150
$791
$790


NJNG and Energy Services have entered into various asset management agreements, the effects of which are eliminated in consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to Energy Services. As of June 30, 20192020, NJNG and Energy Services had four4 asset management agreements with expiration dates ranging from October 31, 20192020 through October 31, 2021.

NJNG has entered into a 15-year transportation precedent agreement for committed capacity of 180,000 Dths per day and NJRES has entered into a 5-year, 50,000 Dths per day transportation precedent agreement with PennEast, both to commence when PennEast is placed in service.

NJNG has entered into a transportation precedent agreement with Adelphia for committed capacity of 130,000 Dths per day, which expires in October 2025.

Energy Services 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.

15.17. ACQUISITIONS AND DISPOSITIONS

Acquisitions

In October 2017,Adelphia

On January 13, 2020, Adelphia, an indirect wholly ownedwholly-owned subsidiary of NJR, entered into a Purchase and Sale Agreement with Talen pursuant to which Adelphia will acquireacquired all of Talen’s membership interests in IEC, an existing 84-mile pipeline in southeastern Pennsylvania, including related assets and rights of way, for a base purchase price of $166 million. In November 2017, the Company made an initial payment of $10 million towards the base purchase price, which was included in other noncurrent assets on the Consolidated Balance Sheets. The remaining purchase price of $156 million was paid upon the close of the acquisition of the related assets. As additional consideration, Adelphia will pay Talen specified amounts of up to $23 million contingent upon the achievement of certain regulatory approvals and binding natural gas capacity commitments. In November 2017, the Company made an initial payment of $10 million towards the base purchase price, which is included in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets.
New Jersey Resources Corporation
Part I

IEC owns an existing 84-mile pipeline in southeastern Pennsylvania. The transaction is expected to close during fiscalNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


commitments. On December 20, 2019, following receiptFERC issued Adelphia Gateway’s Certificate of necessary permitsPublic Convenience and regulatory actions including those from the FERC and the Pennsylvania Public Utility Commission. Upon the closing,Necessity. Adelphia will acquire IEC and, with it, IEC’s existing pipeline, related assets and rights of way. Adelphia has also agreed to provide firm natural gas transportation service for ten10 years following the closing to two power generators owned by affiliates of Talen that are currently served by IEC.the pipeline.

DispositionsThe Company evaluated the acquisition under the guidance of ASU 2017-01, Clarifying the Definition of a Business and concluded that the acquisition did not meet the definition of a business, as almost all of the fair value relates to the pipeline assets acquired. As a result, the purchase was accounted for as an asset acquisition.

The following table summarizes the consideration transferred and purchase price allocation based upon the relative fair value of the assets acquired and liabilities to be assumed:
(Thousands)Estimated Fair Value
Purchase price$166,000
Net working capital adjustment(449)
Transaction costs9,456
Total costs capitalized$175,007
Identifiable assets acquired 
Property, plant and equipment$174,438
Other1,018
Net working capital(449)
Net assets acquired$175,007


The Company utilized a discounted cash flow valuation technique to measure the fair value of the property, plant, and equipment based upon the present value of their future economic benefits reflecting current market expectations. The assumptions used in the discounted cash flow valuation are not observable in active markets and thus represent non-recurring Level 3 fair value measurements.

Property, plant and equipment consist primarily of pipeline related assets, land, buildings and other structures and software. Depreciation is computed on a straight-line basis over the estimated useful life of the assets, ranging from five to 30 years, based on various classes of depreciable property. Other assets consist primarily of an assembled workforce and base gas.

Asset retirement obligations 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 Company records any asset retirement obligations in the period in which information permitting a reasonable estimate of such obligation becomes available. The Company is unable to predict when, or if, the pipelines would become completely obsolete and require decommissioning. As such, upon acquisition, there were no liabilities recorded for asset retirement obligations, as both the timing and future estimates of decommissioning the pipeline was indeterminable.

Leaf River

On February 7,October 11, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets to aNJR Pipeline Company, an indirect wholly-owned subsidiary of Skyline RenewablesNJR, acquired 100 percent of the issued and outstanding limited liability company interests of Leaf River Energy Center LLC for a total$367.5 million. The purchase price was subject to certain contractual conditions, including customary purchase price adjustments related to the amount of $208.6 million. net working capital and transaction expenses. Leaf River owns and operates a 32.2 million Dth salt dome natural gas storage facility, located in southeastern Mississippi.

The Company evaluated the acquisition under the guidance of ASU 2017-01, Clarifying the Definition of a Business and concluded that the acquisition did not meet the definition of a business, as almost all of the fair value relates to the storage assets acquired. As a result, the purchase was accounted for as an asset acquisition.

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table summarizes the consideration transferred and purchase price allocation based upon the relative fair value of the assets acquired and liabilities to be assumed:
(Thousands)Estimated Fair Value
Purchase price$367,500
Net working capital adjustment4,111
Transaction costs1,664
Total costs capitalized$373,275
Identifiable assets acquired 
Property, plant and equipment$365,715
Base gas3,445
Other assets, net4
Net working capital4,111
Net assets acquired$373,275


The total consideration transferred is comprised of the purchase price to the seller and the transaction generatedcosts incurred during the acquisition. The Company utilized a pre-tax gaindiscounted cash flow valuation technique to measure the fair value of $645,000, which was recognizedthe property, plant, and equipment based upon the present value of their future economic benefits reflecting current market expectations. Base gas is valued based upon the estimated replacement costs associated with the respective assets.

Base gas is needed to maintain the necessary pressure to allow efficient operation of the storage facility. The base gas is determined to be recoverable and is considered a component of the facility and presented as a component in property, plant and equipment. This gas is not depreciated, as it is expected to be recovered and sold.

Property, plant and equipment consist primarily of O&M expensesurface equipment and pipelines necessary to operate the facility. Depreciation is computed on a straight-line basis over the Unaudited Condensed Consolidated Statementsestimated useful life of Operations.the assets, ranging from five to 50 years, based on various classes of depreciable property.

Asset retirement obligations 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 Company records any asset retirement obligations in the period in which information permitting a reasonable estimate of such obligation becomes available. The Company is unable to predict when, or if, the storage facilities and related pipelines would become completely obsolete and require decommissioning. As such, upon acquisition, there were no liabilities recorded for asset retirement obligations, as both the timing and future estimates of decommissioning the storage facilities and related pipelines were indeterminable.

The assumptions used in the discounted cash flow valuation are not observable in active markets and thus represent non-recurring Level 3 fair value measurements.



New Jersey Resources Corporation
Part II

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS                                                                                                         ��                                                                                                                                                                                   

Critical Accounting Policies

A summary of our critical accounting policies is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 2018.2019. Our critical accounting policies have not changed from those reported in the 20182019 Annual Report on Form 10-K.

Recently Issued Accounting Standards

Refer to Note 2. Summary of Significant Accounting Policies for discussion of recently issued accounting standards.

Management's Overview

Consolidated

NJR is an energy services holding company providing retail natural gas service in New Jersey and wholesale natural gas and related energy services to customers in the United States and Canada. In addition, we invest in clean energy projects, midstream assets and provide various repair, sales and installations services. A more detailed description of our organizational structure can be found in Item 1. Business of our 20182019 Annual Report on Form 10-K.

Reporting Segments

We have four primary reporting segments as presented in the chart below:

segmentorgchartfy2020a03.jpg

In addition to our four reporting segments above, we have non-utility operations that either provide corporate support services or do not meet the criteria to be treated as a separate reporting segment. These operations, which comprise Home Services and Other, include: appliance repair services, sales and installations at NJRHS; and commercial real estate holdings at CR&R.

segmentorgchart2019a03.jpg
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

Impacts of the COVID-19 Pandemic

We are closely monitoring developments related to the COVID-19 pandemic and are taking steps intended to limit potential exposure for our employees and those we serve. We have also taken proactive steps to ensure business continuity in the safe operation of our business. Both NJR and NJNG continue to have sufficient liquidity to meet their current obligations and business operations remain fundamentally unchanged at this time. This is, however, a rapidly evolving situation, and we cannot predict the extent or duration of the outbreak, the effects of the pandemic on the global, national or local economy, or its effects on our financial condition, results of operations and cash flows. We cannot predict the nature and extent of impacts to future operations. We will continue to monitor developments affecting our employees, customers, and operations and take additional steps to address the COVID-19 pandemic and its impacts, as necessary.

Operating Results

Net (loss) income (loss) by reporting segment and operations are as follows:
Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
June 30, June 30,June 30, June 30,
(Thousands)2019 2018 2019 20182020 2019 2020 2019
Net (loss) income           
Net income (loss)           
Natural Gas Distribution$(3,795)45 % $2,440
(17)% $96,464
64 % $96,991
39 %$11,968
(44)% $(3,795)45 % $142,160
95 % $96,464
64 %
Clean Energy Ventures(8,167)97
 (1,557)11
 17,097
11
 73,485
29
(13,607)50
 (8,167)97
 (2,347)(2) 17,097
11
Energy Services(3,873)46
 (20,767)145
 25,041
17
 66,163
27
(28,845)106
 (3,873)46
 (1,255)(1) 25,041
17
Midstream3,052
(36) 3,489
(24) 11,201
7
 22,315
9
3,615
(13) 3,052
(36) 10,877
7
 11,201
7
Home Services and Other4,365
(52) 2,128
(15) 2,672
2
 (7,982)(3)(582)2
 4,365
(52) 675
1
 2,672
2
Eliminations (1)
16

 (7)
 (1,056)(1) (1,281)(1)232
(1) 16

 537

 (1,056)(1)
Total$(8,402)100 % $(14,274)100 % $151,419
100 % $249,691
100 %$(27,219)100 % $(8,402)100 % $150,647
100 % $151,419
100 %
(1)
Consists of transactions between subsidiaries that are eliminated in consolidation.

The decrease in net loss during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, was driven primarily by lower O&M at Energy Services, partially offset by decreased earnings at our Natural Gas Distribution segment and Clean Energy Ventures. The decrease in net income during the three and nine months ended June 30, 2019,2020, compared with the three and nine months ended June 30, 2018,2019, was driven primarily by decreased earnings at Energy Services resulting from fewer market opportunities compared to the prior period and an income tax benefit of $57.7 million associated with the revaluation of deferred income taxesdecreased earnings at Clean Energy Ventures resulting from the Tax Act duringtiming of SREC transfers and ITC recognition, partially offset by increased earnings at our Natural Gas Distribution segment due to higher base rates, resulting from the nine months ended June 30, 2018, that did not recur during the nine months ended June 30, 2019.base rate case in November 2019. The primary drivers of the changes noted above are described in more detail in the individual segment discussions.

Assets by reporting segment and operations are as follows:
(Thousands)June 30,
2019
 September 30,
2018
June 30,
2020
 September 30,
2019
Assets          
Natural Gas Distribution$2,867,528
70 % $2,663,054
64 %$3,319,754
63 % $3,064,309
70 %
Clean Energy Ventures (1)
703,866
17
 865,018
21
1,007,240
19
 864,323
20
Energy Services285,970
7
 396,852
9
225,830
4
 290,847
7
Midstream229,099
5
 242,069
6
813,932
15
 240,955
5
Home Services and Other129,882
3
 114,732
3
133,773
3
 104,411
2
Intercompany assets (2)(1)
(92,933)(2) (138,061)(3)(218,445)(4) (191,860)(4)
Total$4,123,412
100 % $4,143,664
100 %$5,282,084
100 % $4,372,985
100 %
(1)
Includes assets held for sale of $206.9 million at September 30, 2018.
(2)Consists of transactions between subsidiaries that are eliminated in consolidation.

The decreaseincrease in assets was due primarily to the saleacquisition of Leaf River and Adelphia at our remaining wind assets at Clean Energy Ventures, decreased gasMidstream segment, increases in storage at Energy Services and our Natural Gas Distribution segment and the sale of equity securities at Midstream, partially offset by increased utility plant accounts receivable and unbilled revenuesolar asset investment at our Natural Gas Distribution segment and increased solar assets at Clean Energy Ventures.Ventures segment, respectively, the recognition of a right-of-use asset upon adoption of ASC 842, Leases on October 1, 2019, partially offset by decreased gas in storage at our Natural Gas Distribution segment and accounts receivable and broker margin requirements at Energy Services.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Non-GAAP Financial Measures

Our management uses NFE, a non-GAAP financial measure, when evaluating our operating results. Energy Services economically hedges its natural gas inventory with financial derivative instruments. 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 gas and, therefore, eliminates the impact of volatility to GAAP earnings associated with the derivative instruments. There is a related tax effect on current and deferred income tax expense corresponding with this non-GAAP measure. Also included in the prior year tax effect are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect. To the extent we utilize forwards, futures, or other derivatives to hedge forecasted SREC production, unrealized gains and losses are also eliminated for NFE purposes.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

GAAP requires us, during the interim periods, to estimate our annual effective tax rate and use this rate to calculate the year-to-date tax provision. We also determine an annual estimated effective tax rate for NFE purposes and calculate a quarterly tax adjustment based on the differences between our forecasted net income and our forecasted NFE for the fiscal year. Since the annual estimated effective tax rate is based on certain forecasted assumptions, including estimates surrounding completion of Clean Energy Ventures projects, the rate and resulting NFE are subject to change. No adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at year end.

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 or a replacement of, the comparable GAAP measure and should be read in conjunction with those GAAP results. Below is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to NFE:
Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
June 30, June 30,June 30, June 30,
(Thousands, except per share data)20192018 2019201820202019 20202019
Net (loss) income$(8,402)$(14,274) $151,419
$249,691
$(27,219)$(8,402) $150,647
$151,419
Add:      
Unrealized (gain) loss on derivative instruments and related transactions(24,646)2,657
 (25,353)25,904
Unrealized loss (gain) on derivative instruments and related transactions23,712
(24,646) (21,827)(25,353)
Tax effect5,885
(577) 6,034
(3,920)(5,639)5,885
 5,189
6,034
Effects of economic hedging related to natural gas inventory (1)
11,317
4,474
 12,073
(14,788)4,739
11,317
 10,474
12,073
Tax effect(2,689)(1,011) (2,869)5,518
(1,126)(2,689) (2,489)(2,869)
NFE tax adjustment1,029
728
 7,700
6,987
(284)1,029
 (470)7,700
Net financial (loss) earnings$(17,506)$(8,003) $149,004
$269,392
Net financial earnings (loss)$(5,817)$(17,506) $141,524
$149,004
Basic (loss) earnings per share$(0.09)$(0.16) $1.70
$2.85
$(0.28)$(0.09) $1.60
$1.70
Add:      
Unrealized (gain) loss on derivative instruments and related transactions(0.28)0.03
 (0.28)0.30
Unrealized loss (gain) on derivative instruments and related transactions0.24
(0.28) (0.23)(0.28)
Tax effect0.06
(0.01) 0.06
(0.04)(0.06)0.06
 0.05
0.06
Effects of economic hedging related to natural gas inventory (1)
0.13
0.05
 0.13
(0.17)0.05
0.13
 0.11
0.13
Tax effect(0.03)(0.01) (0.03)0.06
(0.01)(0.03) (0.03)(0.03)
NFE tax adjustment0.01
0.01
 0.09
0.08

0.01
 
0.09
Basic NFE per share$(0.20)$(0.09) $1.67
$3.08
$(0.06)$(0.20) $1.50
$1.67
(1)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.

NFE by reporting segment and other operations, discussed in more detail within the operating results sections of each segment, is summarized as follows:
 Three Months Ended Nine Months Ended
 June 30, June 30,
(Thousands)2019 2018 2019 2018
Net financial (loss) earnings           
Natural Gas Distribution$(3,795)21 % $2,440
(30)% $96,464
65% $96,991
36 %
Clean Energy Ventures(7,138)41
 (829)10
 24,797
17
 80,472
30
Energy Services(14,030)80
 (15,079)188
 13,644
9
 78,027
29
Midstream3,052
(17) 3,489
(43) 11,201
7
 22,315
8
Home Services and Other4,437
(25) 1,993
(25) 2,932
2
 (8,211)(3)
Eliminations (1)
(32)
 (17)
 (34)
 (202)
Total$(17,506)100 % $(8,003)100 % $149,004
100% $269,392
100 %
(1)
Consists of transactions between subsidiaries that are eliminated in consolidation.

The decrease in NFE during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, was due primarily to decreased earnings at our Natural Gas Distribution segment and Clean Energy Ventures. The decrease in NFE during the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018, was due primarily to the income tax benefit of $57.7 million associated with the revaluation of deferred income taxes resulting from the Tax Act during the nine months ended June 30, 2018, that did not recur during the nine months ended June 30, 2019, and lower financial margin generated at Energy Services resulting from narrower pricing spreads and less price volatility in the physical natural gas market.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

NFE by reporting segment and other operations, discussed in more detail within the operating results sections of each segment, is summarized as follows:
 Three Months Ended Nine Months Ended
 June 30, June 30,
(Thousands)2020 2019 2020 2019
Net financial (loss) earnings           
Natural Gas Distribution$11,968
(206)% $(3,795)21 % $142,160
100 % $96,464
65%
Clean Energy Ventures(13,891)239
 (7,138)41
 (2,817)(2) 24,797
17
Energy Services(6,913)119
 (14,030)80
 (9,511)(7) 13,644
9
Midstream3,615
(62) 3,052
(17) 10,877
8
 11,201
7
Home Services and Other(582)10
 4,437
(25) 675
1
 2,932
2
Eliminations (1)
(14)
 (32)
 140

 (34)
Total$(5,817)100 % $(17,506)100 % $141,524
100 % $149,004
100%
(1)
Consists of transactions between subsidiaries that are eliminated in consolidation.

The decrease in net financial loss during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, was due primarily to increased base rates at our Natural Gas Distribution segment, partially offset by decreased earnings at Clean Energy Ventures resulting from the timing of SREC transfers and ITC recognition. The decrease in NFE during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019, was due primarily to lower financial margin generated at Energy Services resulting from warmer weather, which lead to decreased demand, lower natural gas prices and ultimately decreased volatility in the wholesale natural gas markets, decreased earnings at Clean Energy Ventures, as previously discussed, partially offset by increased base rates at our Natural Gas Distribution segment.

Natural Gas Distribution Segment

Overview

Our Natural Gas Distribution segment is comprised of NJNG, a natural gas utility that provides regulated retail natural gas service in central and northern New Jersey to approximately 546,500 residential and commercial555,000 customers in its service territory and also participates in the off-system sales and capacity release markets. The business is subject to various risks, which can negatively impactincluding those risks associated with COVID-19 and may include but is not limited to impacts to customer growth and customer usage, customer collections, the timing and costs of capital expenditures and construction of infrastructure projects, operating and financing costs, fluctuations in commodity prices and customer conservation efforts. These risks include, but are not limitedIn addition, NJNG may be subject to adverse economic conditions, customer usage, certain regulatory actions, environmental remediation and severe weather conditions. It is often difficult to predict the impact of events or trends associated with these risks.

In addition, NJNGs business is seasonal by nature, as weather conditions directly influence the volume of natural gas delivered to customers on an annual basis. Specifically, customer demand substantially increases during the winter months when natural gas is used for heating purposes. As a result, NJNG receives most of its natural gas distribution revenues during the first and second fiscal quarters and is subject to variations in earnings and working capital during the year.

As a regulated company, NJNG is required to recognize the impact of regulatory decisions on its financial statements. See Note 4. Regulation in the accompanying Unaudited Condensed Consolidated Financial Statements for a more detailed discussion on regulatory actions, including filings related to programs and associated expenditures, as well as rate requests related to recovery of capital investments and operating costs.

NJNGs operations are managed with the goal of providing safe and reliable service, growing its customer base, diversifying its utility gross margin, promoting clean energy programs and mitigating the risks discussed above.

Base Rate Case

On November 13, 2019, the BPU issued an order adopting a stipulation of settlement approving a $62.2 million increase to base rates, effective on November 15, 2019. The increase includes an overall rate of return on rate base of 6.95 percent, return on common equity of 9.6 percent, a common equity ratio of 54 percent and a depreciation rate of 2.78 percent.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Infrastructure projects

NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant associated with customer growth and its associated pipeline integrity management and infrastructure programs.

Below is a summary of NJNG’s capital expenditures, including accruals, for the nine months ended June 30, 20192020, and estimates of expected investments for fiscal 20192020 and 2020:2021:

legend2019a02.jpg
chart-72611b6f3a175d4eace.jpgchart-9940490905ff56d1adb.jpg
Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory oversight, environmental regulations, unforeseen events and the ability to access capital.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Infrastructure Investment Program

On February 28, 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year Infrastructure Investment Program. The IIP consists of two components,components: transmission and distribution investments and information technology replacement and enhancements. The total expected investment for the IIP is approximately $507 million. AllIf approved, the investments willare expected to be recovered through annual filings to adjust base rates.

SAFE II and NJ RISE

NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability and integrity of NJNG's gas distribution system.

The BPU approved the 5-year SAFE II program and the associated rate mechanism, to replace the remaining unprotected steel mains and services from NJNG’s natural gas distribution system at an estimated cost of approximately $200 million, excluding AFUDC. TheWith the approval of SAFE II, $157.5 million was approved for accelerated cost recovery methodology for the $157.5 million associated with the extension of SAFE II was approved in NJNG’s base rate case.methodology. The remaining $42.5 million in capital expenditures willmust be requested for recovery in future base rate cases.cases, of which $23.4 million was approved in NJNG’s most recent base rate case.

The BPU approved NJNG's NJ RISE capital infrastructure program, which consists of six capital investment projects estimated to cost $102.5 million, excluding AFUDC, for gas distribution storm hardening and mitigation projects, along with associated depreciation expense. These system enhancements are intended to minimize service impacts during extreme weather events to customers in the most storm-prone areas of NJNG’s service territory. Recovery of NJ RISE investments is included in NJNG’s base rates.

In September 2018,2019, the BPU approved NJNG’s annual petition requesting a base rate increase of $6.8$7.8 million, for the recovery of SAFE II and NJ RISE capital investment costs related to the twelve months ended June 30, 2018, with a weighted cost of capital of 6.9 percent including a return on equity of 9.75 percent, effective October 1, 2018.2019.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

On March 29, 2019,30, 2020, NJNG filed a petition with the BPU requesting a base rate increase of approximately $8.7$7.4 million for the recovery ofassociated with NJ RISE and SAFE II capital investment costs of approximately $75$57.9 million made for the twelve months ended June 30, 2020. On July 24, 2020, the Company updated this filing for actual information through June 30, 2019. On July 17, 2019, this filing was updated to reflect2020 and the actual results through June 30, 2019, which resulted in a revised base rate increase requested is $7.1 million based on $55.1 million of $7.8 million, with changesactual capital investments. Changes to rates are anticipated to be effective October 1, 2019.2020.

Southern Reliability Link

The SRL is an approximately 30-mile, 30-inch transmission main designed to support improved system reliability and integrity in the southern portion of NJNG’s service territory upon which constructionterritory. Construction began on the project in December 2018. All approvals required for the completion of the project have been received. The cost to construct SRL2018 and is estimated to becost between $200$250 million and $230$270 million upon completion. Costs associated with SRL will be requested for recovery in a future base rate case.

Customer growthGrowth

In conducting NJNG's business, management focuses on factors it believes may have significant influence on its future financial results. NJNG's policy is to work with all stakeholders, including customers, regulators and policymakers, to achieve favorable results. These factors include the rate of NJNG's customer growth in its service territory, which can be influenced by political and regulatory policies, the delivered cost of natural gas compared with competing fuels, interest rates and general economic and business conditions.

NJNG's total customers include the following:
 June 30,
2019
June 30,
2018
Firm customers  
Residential484,720
472,382
Commercial, industrial & other29,223
28,321
Residential transport23,160
27,197
Commercial transport9,334
9,732
Total firm customers546,437
537,632
Other56
60
Total customers546,493
537,692
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
 June 30,
2020
June 30,
2019
Firm customers  
Residential493,322
484,720
Commercial, industrial & other29,810
29,223
Residential transport22,840
23,160
Commercial transport9,240
9,334
Total firm customers555,212
546,437
Other51
56
Total customers555,263
546,493

During the nine months ended June 30, 20192020 and 2018,2019, respectively, NJNG added 6,8005,879 and 6,9366,800 new customers and converted 190214 and 539190 existing customers to natural gas heat and other services. NJNG expects these new customer additions, and those customers who added additional natural gas services to their premises to contribute approximately $3.9$4 million annually to utility gross margin.

NJNG expectscontinues to expect to add approximately 28,000 to 30,000 new customers during the three-year period of fiscal 20192020 to 2021.2022. Based on information from municipalities and developers, as well as external industry analysts and management's experience, NJNG estimates that approximately 65 percent of the growth will come from new construction markets and 35 percent from customer conversions to natural gas from other fuel sources. This new customer and conversion growth would increase utility gross margin under NJNG's base rates by approximately $5.3$5.5 million annually, as calculated under NJNG's CIP tariff. See the Natural Gas Distribution Segment Operating Results section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations that follows for a definition and further discussion of utility gross margin.

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 energy-efficiency upgrades. Depending on the specific incentive or approval, NJNG recovers costs associated with the programs over a two to 10-year period through a tariff rider mechanism.

On December 18, 2018,October 25, 2019, the BPU approved a decrease in NJNG'sNJNG’s annual filing to increase its EE recovery rate, reflecting actual costs incurred through September 30, 2018, which will resultresulted in an annual decreaserecovery of $8.8approximately $11.3 million, effective JanuaryNovember 1, 2019. On May 31, 2019,29, 2020, NJNG filed a petition with the BPU to increasedecrease its EE recovery rate, which will result in an annual increasedecrease of $3.5 million,approximately $70,000, anticipated to be effective October 1, 2019.2020.

SinceFrom inception $168.5through June 30, 2020, $192.4 million in grants, rebates and loans has been provided to customers, with a total annual recovery of approximately $16.1 million.customers. The
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

recovery includes a weighted average cost of capital that ranges from 6.696.9 percent to 7.76 percent, with a return on equity of 9.759.6 percent to 10.39.75 percent.

Conservation Incentive Program/BGSS

The CIP facilitates normalizing NJNG’s utility gross margin for variances not only due to weather but also for other factors affecting customer usage, such as conservation and energy efficiency. Recovery of utility gross margin for the non-weather variance through the CIP is limited to the amount of certain gas supply cost savings achieved and is subject to a variable margin revenue test. Additionally, recovery of the CIP utility gross margin is subject to an annual earnings test. An annual review of the CIP must be filed by June 1, coincident with NJNG’s annual BGSS filing, during which NJNG can request rate changes to the CIP. In May 2014, the BPU approved the continuation of the CIP program with no expiration date.

NJNG's total utility firm gross margin includes the following adjustments related to the CIP mechanism:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Weather (1)
$4,530
$(1,438)$2,699
$439
$(5,261)$4,530
$17,883
$2,699
Usage(3,504)(1,469)(1,161)(2,940)3,061
(3,504)1,783
(1,161)
Total$1,026
$(2,907)$1,538
$(2,501)$(2,200)$1,026
$19,666
$1,538
(1)
Compared with the CIP 20-year average, weather was 21.9 percent colder-than-normal and 25.5 percent warmer-than-normal and 6 percent colder-than-normal during the three months ended June 30, 20192020 and 2018,2019, respectively, and 0.67.6 percent and 0.10.6 percent warmer-than-normal during the nine months ended June 30, 20192020 and 2018,2019, respectively.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Recovery of natural gas costs

NJNG’s cost of natural gas is passed through to our customers, without markup, by applying NJNG’s authorized BGSS rate to actual therms delivered. There is no utility gross margin associated with BGSS costs; therefore, changes in such costs do not impact NJNG’s earnings. NJNG monitors its actual gas costs in comparison to its BGSS rates to manage its cash flows associated with its allowed recovery of natural gas costs, which is facilitated through BPU-approved deferred accounting and the BGSS pricing mechanism. Accordingly, NJNG occasionally adjusts its periodic BGSS rates or can issue credits or refunds, as appropriate, for its residential and small commercial customers when the commodity cost varies from the existing BGSS rate. BGSS rates for its large commercial customers are adjusted monthly based on NYMEX prices.

On April 18, 2019,March 27, 2020, the BPU approved NJNG’s annual petitiona decrease to maintain itsNJNG’s BGSS rate for residential and small commercial customers and an increase to its balancing charge rate, resulting in a $10.3$2 million increasedecrease to the annual revenues credited to BGSS, as well as changes to the CIP rates, which will resultresulting in a $30.9$10.6 million annual recovery decrease,increase, effective October 1, 2018.2019.

On May 31, 2019,29, 2020, NJNG filed its annual petition with the BPU to decrease its BGSS rate for residential and small commercial customers. The rate changes to the BGSS rate, the balancing charge and the CIP rates will result in a $6.8$2 million overall net decrease to the annual revenues creditedrecovery, anticipated to BGSS, a $15.6 million annual increase related to its balancing charge, as well as a increase in the CIP rate, which will result in a $12.8 million annual recovery increase,be effective October 1, 2019.2020. The balancing charge rate includes the cost of balancing natural gas deliveries with customer usage for sales and transportation customers and balancing charge revenues are credited to BGSS.

On December 28, 2018, NJNG notified the BPU that it will implement a BGSS increase of five percent to a typical customer’s bill effective February 1, 2019, which will result in an increase in revenues credited to BGSS of $10.9 million through September 30, 2019.

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. These programs are designed to encourage better utilization and hedging of NJNG’s natural gas supply, transportation and storage assets. Depending on the program, NJNG shares 80 or 85 percent of utility gross margin generated by these programs with firm customers. Utility gross margin from incentive programs was $2.5$2.4 million and $3$2.5 million during the three months ended June 30, 20192020 and 2018,2019, respectively, and $5.9$6.7 million and $9.8$5.9 million during the nine months ended June 30, 20192020 and 2018,2019, respectively.

Hedging

In order to provide relative price stability to its natural gas supply portfolio, NJNG employs a hedging strategy with the goal of having at least 75 percent of the Company's projected winter periodic BGSS gas sales volumes hedged by each November 1 and at least 25 percent of the projected periodic BGSS gas sales hedged for the following April through March period. This is accomplished with the use of various financial instruments including futures, swaps and options used in conjunction with commodity and/or weather-related hedging activity.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Commodity prices

Our Natural Gas Distribution segment is affected by the price of natural gas, which can have a significant impact on our cash flows, short-term financing costs, the price of natural gas charged to our customers through the BGSS clause, our ability to collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other fuelenergy sources.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Natural gas commodity prices may experience high volatility asare shown in the graph below, which illustrates the daily natural gas prices(1) in the Northeast market region, also known as TetcoTETCO M-3.
chart-308a7efdf0e75814ba2.jpgchart-57c1c44015fb5a24afb.jpg
(1) Data source from Platts, a division of McGraw Hill Financial.S&P Global Platts.

The maximum price per MMBtu was $9.17$5.59 and $94.93$9.17 and the minimum price was $1.25$0.68 and $0.53$1.25 for the nine months ended June 30, 20192020 and 2018,2019, respectively. A more detailed discussion of the impacts of the price of natural gas on operating revenues, gas purchases and cash flows can be found in the Results of Operations and Cash Flow sections of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Societal Benefits Charge

USF

NJNG’s qualifying customers are eligible for the USF program, which is administered by the New Jersey Department of Community Affairs, to help make energy bills more affordable. In September 2018, the BPU approved NJNG’s annual USF compliance filing to increase the statewide USF rate, which will result in a $1 million annual increase, effective October 1, 2018. On June 24, 2019, NJNG filed its annual USF compliance filing proposing an increase to the statewide USF rate, which will resultresulted in the annual recovery increasing by $1.2 million, effective October 1, 2019. On June 25, 2020, NJNG filed its annual USF compliance filing proposing a decrease to the statewide USF rate, which will result in annual decreases of approximately $400,000, to be effective October 1, 2020.

Environmental Remediation

NJNG is responsible for the environmental remediationremedial cleanup of fivecertain former MGP sites, dating back to gas operations in the late 1800s and early 1900s, which contain contaminated residues from former gas manufacturing operations that ceased operating at these sites by the mid-1950s and, in some cases, had been discontinued many years earlier.operations. Actual MGP remediation costs may vary from management'smanagement’s estimates due to the developing nature of remediation requirements, regulatory decisions by the NJDEP and related litigation. NJNG reviews these costs at the end of each fiscal year and adjusts its liability and corresponding regulatory asset as necessary to reflect its expected future remediation obligation. Accordingly, NJNG recognized a regulatory asset and an obligation of $125.6$128.9 million as of June 30, 2019,2020, a decrease of $5.2$2.2 million, compared with September 30, 2018. NJNG is currently authorized to recover remediation costs of approximately $7.1 million annually, which is based on expenditures through June 30, 2017.2019. On March 29, 2019, the BPU approved NJNG’s16, 2020, a stipulation was signed in NJNG's annual SBC application requestingincluding recovery of remediation expenses, incurred through June 30, 2018, an increase in the RAC rate of $1.4approximately $1.2 million annually and an increase inannual decrease to the NJCEP factor of $1.9 million, effective April 1, 2019.

$600,000. The stipulation is pending BPU approval.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

In June 2019, NJNG has had discussions with the NJDEP regarding NJNG’s association with two additional sites located within its service territory. Preliminary results at one of the sites has indicated the existence of contaminants from gas manufacturing activities. At the second site, NJNG is in the early investigatory stage, which includes conductinginitiated a preliminary assessment andof a site investigationin Aberdeen, New Jersey to determine prior ownership and if there were former MGP operations active at the locationlocation. The Company is in the process of conducting site investigation activities to identify and prior ownershipevaluate the nature and extent of MGP related contaminants present at the site.location. The costs associated with a preliminary assessment the completion ofand site investigation activities are considered immaterial and the remedial investigation phase at theses two sites are estimatedincluded as a component of NJNG’s annual SBC application to be approximately $600,000. Inclusive of this estimate, total costs incurred to date at these sites amount to approximately $1.5 million. The Companyrecover remediation expenses. We will continue to gather information to further refine and enhance its estimate of potential costs for this site as it becomes available. See Note 12.13. Commitments and Contingent Liabilities for a more detailed description.

Other regulatory filings and a more detailed discussion of the filings in this section can be found in Note 4. Regulation in the accompanying Unaudited Condensed Consolidated Financial Statements.

Operating Results

NJNG's operating results are as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Operating revenues$120,782
$104,538
$622,167
$631,389
$128,532
$120,782
$645,375
$622,167
Operating expenses  
Gas purchases (1)
57,187
55,404
294,536
282,147
48,116
57,187
258,194
294,536
Operation and maintenance(2)43,912
41,842
120,302
115,352
39,344
45,138
115,344
124,471
Regulatory rider expense4,136
5,542
32,159
36,915
5,464
4,136
32,536
32,159
Depreciation and amortization14,689
13,473
42,557
39,609
18,269
14,689
53,186
42,557
Energy and other taxes1,226
6,283
4,169
39,296
Total operating expenses121,150
122,544
493,723
513,319
111,193
121,150
459,260
493,723
Operating (loss) income(368)(18,006)128,444
118,070
Operating income (expense)17,339
(368)186,115
128,444
Other income, net1,483
1,358
2,891
2,587
3,023
1,483
8,081
2,891
Interest expense, net of capitalized interest6,301
6,226
18,166
19,285
7,455
6,301
22,760
18,166
Income tax (benefit) provision(1,391)(25,314)16,705
4,381
Net (loss) income$(3,795)$2,440
$96,464
$96,991
Income tax provision (benefit)939
(1,391)29,276
16,705
Net income (loss)$11,968
$(3,795)$142,160
$96,464
(1)
Includes related party transactions of approximately $2.5 million and $2.3 million for both the three months ended June 30, 20192020 and 2018,2019, respectively, and $13.9$9.2 million and $54.9$13.9 million for the nine months ended June 30, 20192020 and 2018,2019, respectively, the majority of which is eliminated in consolidation.
(2)Includes energy and other taxes due to change in presentation in the Unaudited Condensed Consolidated Statements of Operations.

Operating Revenues and Gas Purchases

During the three months ended June 30, 20192020, compared with the three months ended June 30, 20182019, operating revenues increased by 15.56.4 percent and gas purchases increased 3.2decreased 15.9 percent. During the nine months ended June 30, 20192020, compared with the nine months ended June 30, 20182019, operating revenues decreasedincreased by 1.53.7 percent and gas purchases increased 4.4decreased 12.3 percent.

The factors contributing to the increases and decreases in operating revenues and gas purchases are as follows:
 Three Months Ended Nine Months Ended
 June 30, June 30,
 2020 v. 2019 2020 v. 2019
(Thousands)
Operating
revenues
Gas
purchases
 
Operating
revenues
Gas
purchases
Base rate impact14,314

 48,580

CIP adjustments(3,226)
 18,128

SAFE II/NJ RISE1,250

 7,040

Firm sales$12,722
$7,984
 $(31,921)$(14,501)
BGSS incentives(15,822)(15,680) (20,133)(20,950)
Average BGSS rates(1,367)(1,367) (873)(873)
Other (1)
(121)(8) 2,387
(18)
Total increase (decrease)$7,750
$(9,071) $23,208
$(36,342)
(1)
Other includes changes in rider rates, including those related to EE, NJCEP and other programs.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

The factors contributing to the increases (decreases) in operating revenues and gas purchases are as follows:
 Three Months Ended Nine Months Ended
 June 30, June 30,
 2019 v. 2018 2019 v. 2018
(Thousands)
Operating
revenues
Gas
purchases
 
Operating
revenues
Gas
purchases
ASC 606 adoption - sales tax election(5,493)
 $(35,770)$
BGSS incentives953
1,383
 (18,949)(15,081)
Tax Act impact to base rates(19)
 (14,932)
Tax Act refund (1)
20,678

 29,455

Average BGSS rates4,615
4,615
 22,504
22,504
Firm sales(8,641)(4,198) 3,745
5,243
SAFE II/NJ RISE985

 6,037

CIP adjustments4,007

 4,113

Other (2)
(841)(17) (5,425)(277)
Total increase (decrease)$16,244
$1,783
 $(9,222)$12,389
(1)
Excludes sales tax of $582,000 and $4.6 million during the three and nine months ended June 30, 2019, compared with the three and nine months ended June 30, 2018, respectively, which is included in the ASC 606 adoption - sales tax election line.
(2)Other includes changes in rider rates, including those related to EE, NJCEP and other programs.

Non-GAAP Financial Measures

Management uses utility gross margin, a non-GAAP financial measure, when evaluating the operating results of NJNG. NJNG's utility gross margin is defined as natural gas revenues less natural gas purchases, sales tax, and regulatory rider expenses, and may not be comparable to the definition of gross margin used by others in the natural gas distribution business and other industries. Management believes that utility gross margin provides a meaningful basis for evaluating utility operations since natural gas costs, sales tax and regulatory rider expenses are included in operating revenue and passed through to customers and, therefore, have no effect on utility gross margin. 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.

Utility Gross Margin

A reconciliation of operating revenues, the closest GAAP financial measure to NJNG's utility gross margin, is as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2019201820192018
Operating revenues$120,782
$104,538
$622,167
$631,389
Less:    
Gas purchases57,187
55,404
294,536
282,147
Energy taxes (1)

5,493

35,770
Regulatory rider expense4,136
5,542
32,159
36,915
Utility gross margin$59,459
$38,099
$295,472
$276,557
(1)
Energy taxes does not include sales tax during the three and nine months ended June 30, 2019, due to the adoption of ASC 606, Revenue from Contracts with Customers. Energy taxes includes only sales tax on operating revenues during the three and nine months ended June 30, 2018, excluding tax-exempt sales.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                            ��                                                                                                
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2020201920202019
Operating revenues$128,532
$120,782
$645,375
$622,167
Less:    
Gas purchases48,116
57,187
258,194
294,536
Regulatory rider expense5,464
4,136
32,536
32,159
Utility gross margin$74,952
$59,459
$354,645
$295,472

Utility gross margin consists of three components:

utility firm gross margin generated from only the delivery component of either a sales tariff or a transportation tariff from residential and commercial customers who receive natural gas service from NJNG;

BGSS incentive programs, where revenues generated or savings achieved from BPU-approved off-system sales, capacity release or storage incentive programs are shared between customers and NJNG; and

utility gross margin generated from off-tariff customers, as well as interruptible customers.

The following provides more information on the components of utility gross margin and associated throughput (Bcf) of natural gas delivered to customers:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
2019 20182019 20182020 20192020 2019
($ in thousands)MarginBcf MarginBcfMarginBcf MarginBcfMarginBcf MarginBcfMarginBcf MarginBcf
Utility gross margin/throughput                    
Residential$35,914
5.9
 $20,155
6.6
$199,698
43.0
 $179,445
42.7
$47,002
7.7
 $35,914
5.9
$244,625
41.2
 $199,698
43.0
Commercial, industrial and other9,198
1.2
 6,610
1.4
43,217
9.0
 39,758
8.2
11,668
1.2
 9,198
1.2
49,739
7.6
 43,217
9.0
Firm transportation10,259
2.5
 6,857
2.7
42,526
12.1
 43,294
13.9
12,655
2.3
 10,259
2.5
49,783
11.7
 42,526
12.1
Total utility firm gross margin/throughput55,371
9.6
 33,622
10.7
285,441
64.1
 262,497
64.8
71,325
11.2
 55,371
9.6
344,147
60.5
 285,441
64.1
BGSS incentive programs2,544
33.2
 2,974
34.1
5,901
89.0
 9,769
109.5
2,402
28.2
 2,544
33.2
6,718
84.3
 5,901
89.0
Interruptible/off-tariff agreements1,544
12.0
 1,503
11.3
4,130
24.8
 4,291
29.7
1,225
5.2
 1,544
12.0
3,780
18.9
 4,130
24.8
Total utility gross margin/throughput$59,459
54.8
 $38,099
56.1
$295,472
177.9
 $276,557
204.0
$74,952
44.6
 $59,459
54.8
$354,645
163.7
 $295,472
177.9

Utility Firm Gross Margin

Utility firm gross margin increased $21.7$16 million and $22.9$58.7 million during the three and nine months ended June 30, 2019,2020, respectively, compared with the three and nine months ended June 30, 2018,2019, due primarily to creditsthe increase in base rates, along with increased returns on infrastructure programs related to the Tax Act during the nine months ended June 30, 2018, that did not recur during the nine months ended June 30, 2019, as well as an increase in rates related to the NJ RISE/SAFE II programs.

BGSS Incentive Programs

The factors contributing to the change in utility gross margin generated by BGSS incentive programs are as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2019 v. 20182019 v. 2018
Storage $(189)  $(1,694) 
Capacity release (198)  (1,513) 
Off-system sales (43)  (661) 
Total decrease $(430)  $(3,868) 

The decrease during the three and nine months ended June 30, 2019, compared with the three and nine months ended June 30, 2018, was due primarily to fewer market opportunities for the storage incentive program, a decrease in capacity release volume, as well as lower margins in off-system sales due primarily to lower spreads in the average price of gas bought and sold.

NJ RISE.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

Operation and Maintenance ExpenseBGSS Incentive Programs

The factors contributing to the increasechange in O&M expenseutility gross margin generated by BGSS incentive programs are as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2019 v. 20182019 v. 2018
Shared corporate costs $4,536
  $7,252
 
Compensation and benefits (1)
 (3,583)  (2,486) 
Donations 49
  (704) 
Other 1,068
  888
 
Total increase $2,070
  $4,950
 
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2020 v. 20192020 v. 2019
Storage $(2)  $1,058
 
Off-system sales 111
  458
 
Capacity release (251)  (699) 
Total (decrease) increase $(142)  $817
 
(1)Includes lower benefit cost due to a recalculation of paid time off for certain union employees as part of recent collective bargaining agreement, partially offset by higher compensation costs due to increased headcount.

DepreciationThe decrease in BGSS incentive programs during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, was due primarily to a decrease in capacity release volume, partially offset by an increased margin from off-system sales. The increase in BGSS incentive programs during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019, was due primarily to an increase in the storage incentive program related to timing of storage injections and improved margins from off-system sales, partially offset by a decrease in capacity release volume.

Operation and Maintenance Expense

DepreciationO&M expense increased $1.2decreased $5.8 million and $2.9$9.1 million during the three and nine months ended months ended June 30, 2019, respectively,2020, compared with the three and nine months ended months ended June 30, 2018,2019, respectively, due primarily to lower consulting expenses, decreased shared corporate costs and decreased compensation costs.
Depreciation Expense

Depreciation expense increased $3.6 million and $10.6 million during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, respectively, as a result of additional utility plant being placed into service.service, as well as an increase in the overall depreciation rate from 2.4 percent to 2.78 percent resulting from the settlement of the base rate case.

Interest Expense

Interest expense increased $1.2 million and $4.6 million during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, respectively, due primarily to increased outstanding long-term debt.

Other Income

Other income increased $1.5 million and $5.2 million during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, respectively, due primarily to increased AFUDC earned on infrastructure projects.

Income Tax (Benefit) Provision

Income tax benefit decreased $23.9 million during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to the remeasurement of deferred income taxes and the amortization of overcollected taxes included in base rates related to timing differences associated with utility plant deprecation resulting from the Tax Act. Income tax provision increased $12.3$2.3 million and $12.6 million during the three and nine months ended June 30, 2019,2020, compared with the three and nine months ended June 30, 2018,2019, respectively, due primarily to the amortization of overcollected taxes as previously discussed, partially offset by a lower income tax rate.increased operating income.

Net Income

Net income decreased $6.2increased $15.8 million and $45.7 million during three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to increased O&M and depreciation expense along with decreased BGSS incentives, as previously discussed. Net income remained relatively flat during nine months ended June 30, 2019,2020, compared with the three and nine months ended June 30, 2018.2019, respectively, due primarily to the increase in operating revenues related to increased base rates and increased other income related to AFUDC earned on infrastructure projects, partially offset by the increases in depreciation, income tax expense and interest expense, as previously discussed.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Clean Energy Ventures Segment

Overview

Our Clean Energy Ventures segment actively pursues opportunities in the renewable energy markets. Clean Energy Ventures enters into various agreements to install solar net-metered systems for residential and commercial customers, as well as large commercial grid-connected projects. In addition, Clean Energy Ventures enters into various long-term agreements, including PPAs, to supply energy from commercial solar projects.

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 logistics associated with the start-up of residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any delays related to electric grid interconnection, economic trends, unforeseen events and the ability to access capital or allocation of capital to other investments or business opportunities. Clean Energy Ventures is also subject to risks associated with COVID-19, which may include impacts to residential solar customer growth and customer collections, our ability to identify and develop commercial solar asset investments, impacts to our supply chain and our ability to source materials for construction.

The primary contributors toward the value of qualifying clean energy projects are tax incentives and SRECs. Changes in the federal statutes related to the ITC or in the marketplace and/or relevant state legislation and regulatory policies affecting the market for solar renewable energy credits, could significantly affect future results.

Solar

Solar projects placed in service and related expenditures are as follows:
 Three Months Ended
 June 30,
($ in Thousands)20202019
Placed in serviceProjectsMWCostsProjectsMWCosts
Grid-connected3
32.0
$53,771
 1
10.0
$21,785
 
Net-metered:        
Commercial

50
 


 
Residential90
1.2
3,291
 190
1.9
6,178
 
Total placed in service93
33.2
$57,112
 191
11.9
$27,963
 
(1)Includes an operational 12.5 MW commercial solar project acquired in June 2020.

 Nine Months Ended
 June 30,
($ in Thousands)20202019
Placed in serviceProjectsMWCostsProjectsMWCosts
Grid-connected6
54.9
$105,863
 2
20.0
$42,340
 
Net-metered:        
Commercial

50
 1
9.2
27,562
 
Residential371
4.2
12,376
 545
5.5
17,086
 
Total placed in service377
59.1
$118,289
 548
34.7
$86,988
 
(1)Includes an operational 12.5 MW commercial solar project acquired in June 2020.

Since inception, Clean Energy Ventures has constructed a total of 350.5 MW of solar capacity and has an additional 7.1 MW under construction or planned for fiscal 2020. Projects that were placed in service through December 31, 2019, qualify for a 30-percent federal ITC. The credit declines to 26 percent for property under construction during 2020, 22 percent for property under construction during 2021 and 10 percent for any property that is under construction before 2022. Projects placed in service after December 31, 2019, may also qualify for a 30 percent federal ITC if five percent 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 towards completion of the project, based on the IRS guidance around the ITC safe harbor determination. We have taken steps to preserve the ITC at the higher rate for certain solar projects that are completed after the scheduled reduction in rates, in accordance with IRS guidance.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

Solar

Solar projects placed in service and related expenditures are as follows:
 Three Months Ended
 June 30,
($ in Thousands)20192018
Placed in serviceProjectsMWCostsProjectsMWCosts
Grid-connected1
10.0
$21,785
 2
23.0
$48,019
 
Net-metered:        
Commercial


 

9
 
Residential190
1.9
6,178
 221
2.1
6,493
 
Total placed in service191
11.9
$27,963
 223
25.1
$54,521
 

 Nine Months Ended
 June 30,
($ in Thousands)20192018
Placed in serviceProjectsMWCostsProjectsMWCosts
Grid-connected2
20.0
$42,340
 2
23.0
$48,022
 
Net-metered:        
Commercial1
9.2
27,562
 

74
 
Residential545
5.5
17,086
 612
5.7
17,787
 
Total placed in service548
34.7
$86,988
 614
28.7
$65,883
 

Since inception, Clean Energy Ventures has constructed a total of 266 MW of solar capacity and has an additional 21.3 MW under construction. Projects that are placed in service through December 31, 2019, qualify for a 30-percent federal ITC. The credit will decline to 26 percent for property under construction during 2020 and to 22 percent for property under construction during 2021. The ITC will be reduced to 10 percent for any property that is under construction before 2022, but not placed in service before 2024.

Clean Energy Ventures may enter into transactions to sell certain of its commercial solar assets concurrent with agreements to lease the assets back over a period of sixfive to 15 years. The Company will continue to operate the solar assets and are responsible for related expenses and entitled to retain the revenue generated from SRECs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the buyer;buyer if applicable; however, the lease payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Accordingly, for solar projects financed under sale leasebacks for which the assets were sold during the first 5 years of in service life, Clean Energy Ventures recognizes the equivalent value of the ITC in other income on the Unaudited Condensed Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease. In June 2020, Clean Energy Ventures received proceeds of $42.9 million in connection with the sale-leaseback of commercial solar assets. Clean Energy Ventures did not enter into any sale-leaseback transactions for its commercial solar assets during the nine months ended June 30, 2019 and 2018, and currently does not expect that it will enter into any such transactions through the end of the fiscal year.2019.

As part of its solar investment portfolio, Clean Energy Ventures operates a residential solar program, The Sunlight Advantage®, that provides qualifying homeowners the opportunity to have a solar system installed at their home with no installation or maintenance expenses. Clean Energy Ventures owns, operates and maintains the system over the life of the contract in exchange for monthly payments.

Once a solar installation has received the proper certifications and commences operations, each MWh of electricity produced creates an SREC that represents the renewable energy attribute of the solar-electricity generated that can be sold to third parties, predominantly load-serving entities that are required to comply with the solar requirements under New Jersey's renewable portfolio standard.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

SREC activity consisted of the following:
Nine Months EndedNine Months Ended
June 30,June 30,
2019201820202019
Inventory balance as of October 1,105,192
48,357
53,395
105,192
SRECs generated197,041
153,215
253,649
197,041
SRECs delivered(104,670)(88,562)(62,680)(104,670)
Inventory balance as of June 30,197,563
113,010
244,364
197,563

During the nine months ended June 30, 2019, SRECs generated increased inventory by 28.6 percent, compared with the nine months ended June 30, 2018, and theThe average SREC sales price was $190$189 and $226$190 during the nine months ended June 30, 2019,2020 and 2018,2019, respectively.

Clean Energy Ventures hedges its expected SREC production through the use of forward sales contracts. The following table reflects the hedged percentage of our projected inventory related to its in-service commercial and residential assets:
Energy Year (1)
Percent of SRECs HedgedPercent of SRECs Hedged
201997%
2020100%99%
202198%94%
202243%92%
202355%
(1)Energy years are compliance periods for New Jersey's renewable portfolio standard that run from June 1 to May 31.

There are no direct costs associated with the production of SRECs by our solar assets. All related costs are included as a component of O&M expenses on the Unaudited Condensed Consolidated Statements of Operations, including such expenses as facility maintenance and various fees.

Onshore Wind

Clean Energy Ventures invested in small to mid-size onshore wind projects that fit its investment profile. The wind projects were eligible for PTCs for a 10-year period following commencement of operations and have PPAs of various terms in place, which typically govern the sale of energy, capacity and/or renewable energy credits. Once a wind installation commenced operations, each MWh of electricity produced created a REC that represented the renewable energy attribute of the wind-electricity generated that can be sold to third parties. There are no direct costs associated with the production of RECs by our wind assets and all related costs were included as a component of O&M expenses on the Unaudited Condensed Consolidated Statements of Operations.

In June 2018, Clean Energy Ventures completed the sale of its membership interest in its 9.7 MW wind farm in Two Dot, Montana to NorthWestern Energy for a total purchase price of $18.5 million. The transaction generated a pre-tax gain of approximately $951,000, which was recognized as a reduction to O&M on the Unaudited Condensed Consolidated Statements of Operations.

On February 7, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets to a subsidiary of Skyline Renewables LLC for total proceeds of $208.6 million. The transaction generated a pre-tax gain of $645,000, which was recognized as a component of O&M expense on the Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

Operating Results

Clean Energy Ventures’ financial results are summarized as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Operating revenues$11,450
$15,348
$37,707
$42,210
$13,396
$11,450
$25,603
$37,707
Operating expenses  
Operation and maintenance(1)9,287
5,880
20,527
17,184
7,542
9,488
22,355
21,479
Depreciation and amortization8,239
6,702
24,253
24,565
10,121
8,239
29,429
24,253
Other taxes201
216
952
885
Total operating expenses17,727
12,798
45,732
42,634
17,663
17,727
51,784
45,732
Operating (loss) income(6,277)2,550
(8,025)(424)
Other income (expense), net643
36
494
(106)
Operating loss(4,267)(6,277)(26,181)(8,025)
Other (expense) income, net(77)643
(201)494
Interest expense, net4,320
4,708
14,405
13,260
5,070
4,320
14,397
14,405
Income tax benefit(1,787)(565)(39,033)(87,275)
Income tax provision (benefit)4,193
(1,787)(38,432)(39,033)
Net (loss) income$(8,167)$(1,557)$17,097
$73,485
$(13,607)$(8,167)$(2,347)$17,097
(1)Includes energy and other taxes due to change in presentation in the Unaudited Condensed Consolidated Statements of Operations.

Operating Revenues

Operating revenues decreased $3.9 million and $4.5increased $1.9 million during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, due primarily to increased SREC sales, residential solar revenue and electricity sales. Operating revenues decreased $12.1 million during the nine months ended June 30, 2019, respectively,2020, compared with the three and nine months ended June 30, 2018, 2019, due primarily to the timing of SREC sales and decreased wind electricity sales as a result of the sale of the remaining wind assets onin February 7, 2019, partially offset by increased electricity sales fromresidential solar assets.revenue.

Operation and Maintenance Expense

O&M expense increased $3.4decreased $1.9 million during the three months ended June 30, 2019,2020, compared with the three months ended June 30, 2018,2019, due primarily to an increase indecreased shared corporate costs.costs related to technology improvement projects, partially offset by increased project maintenance expenses related to additional projects placed in service. O&M expense increased $3.3 million$876,000 during the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018, 2019, due primarily to an increaseincreased project maintenance expenses, partially offset by a decrease in shared corporate costs, partially offset byas well as a pre-tax gain of $645,000, associated with the sale of the remaining wind assets.assets in February 2019, that did not recur.

Depreciation Expense

Depreciation expense increased $1.5$1.9 million and $312,000$5.2 million during the three and nine months ended June 30, 2019, respectively,2020, compared with the three and nine months ended June 30, 2018, 2019, respectively, due primarily to increases inincreased solar capital additions placed in service, partially offset by depreciation on wind assets no longer being recorded.service.

Income Tax Provision (Benefit) Provision

Income tax benefitprovision increased $1.2$6 million during the three months ended June 30, 2019,2020, compared with the three months ended June 30, 2018, 2019, due primarily to an increasea decrease in forecasted ITCs recognized.expected to be recognized in fiscal 2020. Income tax benefit decreased $48.2$601,000 during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019, due primarily to a decrease in forecasted ITCs.

Net Income

Net income decreased $5.4 million during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, due primarily to increased income tax expense, as previously discussed. Net income decreased $19.4 million during the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018, due primarily to an income tax2019 benefit, of $63.8 million associated with the revaluation of deferred income taxes resulting from the Tax Act during the nine months ended June 30, 2018, that did not recur during the nine months ended June 30, 2019, partially offset by an increase in ITCs recognized.

Net Income

Net income decreased $6.6 million during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to decreased operating revenue as a result of the sale of the remaining wind assets and increased O&M expenses, partially offset by increased income tax benefit, as previously discussed. Net income decreased $56.4 million during the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018, due primarily to the decreased income tax benefitoperating revenue and operating revenue,increased depreciation expense, as previously discussed.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Non-GAAP Financial Measures

Management of the Company uses NFE, a non-GAAP financial measure, when evaluating the operating results of Clean Energy Ventures. GAAP requires us, during the interim periods, to estimate our annual effective tax rate and use this rate to calculate the year-to-date tax provision. We also determine an annual estimated effective tax rate for NFE purposes and calculate a quarterly
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

tax adjustment based on the differences between our forecasted net income and our forecasted NFE for the fiscal year. This adjustment is applied to Clean Energy Ventures, as such adjustment is primarily related to tax credits generated by Clean Energy Ventures. No adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at year end. Accordingly, for NFE purposes, the annual estimated effective tax rate is (3) percent for fiscal 2020 and (13.7) percent for fiscal 2019 and 12.5 percent for fiscal 2018.2019.

Since the annual estimated effective tax rate is based on certain forecasted assumptions, including estimates surrounding completion of projects, the rate and resulting NFE are subject to change. The details of such tax adjustments can be found in the table below. 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. A reconciliation of Clean Energy Ventures' net income, the most directly comparable GAAP financial measure to NFE is as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Net (loss) income$(8,167)$(1,557)$17,097
$73,485
$(13,607)$(8,167)$(2,347)$17,097
Add:  
Net income to NFE tax adjustment1,029
728
7,700
6,987
(284)1,029
(470)7,700
Net financial (loss) earnings$(7,138)$(829)$24,797
$80,472
$(13,891)$(7,138)$(2,817)$24,797

Energy Services Segment

Overview

Energy Services markets and sells natural gas to wholesale customers and manages natural gas storage and transportation assets throughout major market areas across North America. Energy Services maintains a strategic portfolio of natural gas storage and transportation contracts that it utilizes in conjunction with its market expertise to provide service and value to its customers. Availability of these storage and transportation contracts allows Energy Services to generate market opportunities by capturing price differentials over specific time horizons and between geographic market locations.

Energy Services also provides management of storage and transportation assets for natural gas producers and regulated utilities. These management transactions typically involve the release of producer/utility owned storage and/or transportation capacity in combination with either an obligation to purchase and/or deliver physical natural gas. In addition to the contractual purchase and/or sale of physical natural gas, Energy Services generates or pays fee-based margin in exchange for its active management and may provide the producer and/or utility with additional margin based on actual results.

In conjunction with the active management of these contracts, Energy Services generates financial margin by identifying market opportunities and simultaneously entering into natural gas purchase/sale, storage or transportation contracts and financial derivative contracts. In cases where storage is utilized to fulfill these contracts, these forecast sales and/or purchases are economically hedged through the use of financial derivative contracts. The financial derivative contracts consist primarily of exchange-traded futures, options and swap contracts, and are frequently used to lock in anticipated transactional cash flows and to help manage volatility in natural gas market prices. Generally, when its storage and transportation contracts are exposed to periods of increased market volatility, Energy Services is able to implement strategies that allow them to capture margin by improving the respective time or geographic spreads on a forward basis.

Energy Services accounts for its physical commodity contracts and its financial derivative instruments at fair value on the Unaudited Condensed Consolidated Balance Sheets. Changes in the fair value of physical commodity contracts and financial derivative instruments are included in earnings as a component of operating revenue or gas purchases on the Unaudited Condensed Consolidated Statements of Operations. Volatility in reported net income at Energy Services can occur over periods of time due to changes in the fair value of derivatives, as well as timing differences related to certain transactions. Unrealized gains and losses
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

can fluctuate as a result of changes in the price of natural gas, SRECs and foreign currency from the original transaction price. Volatility in earnings can also occur as a result of timing differences between the settlement of financial derivatives and the sale of the underlying physical commodity. For example, when a financial instrument settles and the physical natural gas is injected into inventory, the realized gains and losses associated with the financial instrument are recognized in earnings. However, the gains and losses associated with the physical natural gas are not recognized in earnings until the natural gas inventory is withdrawn from storage and sold, at which time Energy Services realizes the entire margin on the transaction.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Operating Results

Energy Services’ financial results are summarized as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Operating revenues (1)
$290,021
$409,405
$1,425,113
$1,612,699
$133,543
$290,021
$817,659
$1,425,113
Operating expenses  
Gas purchases (including demand charges (2)(3))
290,881
423,861
1,373,784
1,492,418
167,061
290,881
803,697
1,373,784
Operation and maintenance(4)3,194
10,328
13,834
15,840
3,753
3,462
13,313
14,969
Depreciation and amortization23
21
75
50
28
23
84
75
Other taxes268
317
1,135
2,553
Total operating expenses294,366
434,527
1,388,828
1,510,861
170,842
294,366
817,094
1,388,828
Operating (loss) income(4,345)(25,122)36,285
101,838
(37,299)(4,345)565
36,285
Other income, net45
150
96
288
62
45
254
96
Interest expense, net766
581
4,277
3,041
517
766
2,680
4,277
Income tax (benefit) provision(1,193)(4,786)7,063
32,922
(8,909)(1,193)(606)7,063
Net (loss) income$(3,873)$(20,767)$25,041
$66,163
$(28,845)$(3,873)$(1,255)$25,041
(1)
Includes related party transactions of approximately $62,000$(197,000) and $(12,000)$(62,000) for the three months ended June 30, 20192020 and 2018,2019, respectively, and $1.7 million and $8.3 million and $49.6 million for the nine months ended June 30, 20192020 and 2018,2019, respectively, which are eliminated in consolidation.
(2)Costs associated with pipeline and storage capacity that are expensed over the term of the related contracts, which generally varies from less than one year to ten years.
(3)
Includes related party transactions of approximately $46,000 and $1.1 million for both the three months ended June 30, 20192020 and 2018,2019, respectively, and $137,000 and $3.4 million for the nine months ended June 30, 2020 and 2019, and 2018,respectively, a portion of which is eliminated in consolidation.
(4)Includes energy and other taxes due to change in presentation in the Unaudited Condensed Consolidated Statements of Operations.

Energy Services' portfolio of financial derivative instruments are composed of:
Nine Months EndedNine Months Ended
June 30,June 30,
(in Bcf)2019201820202019
Net short futures contracts33.1
51.5
40.7
33.1

Operating Revenues and Gas Purchases

Operating revenues decreased $156.5 million and gas purchases decreased $123.8 million during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, $119.4 millionrespectively, due primarily to warmer weather compared to the prior period, which lead to decreased demand and lower natural gas prices, increased gas in storage and ultimately decreased volatility in the wholesale natural gas markets, along with unrealized losses as a result of timing differences in the settlement of certain economic hedges. Operating revenues decreased and $187.6$607.5 million and gas purchases decreased $133 million and $118.6$570.1 million during the three and nine months ended June 30, 2019, 2020, compared with the three and nine months ended June 30, 2018, respectively,2019, due primarily to decreased volumes and less pricenatural gas market volatility in the physical gas market.discussed above.

Future results at Energy Services are contingent upon natural gas market price volatility driven by variations in both the supply and demand balances caused by weather and other factors. As a result, variations in weather patterns in the key market areas served may affect earnings during the fiscal year. Changes in market fundamentals such as an increase in supply and decrease in demand due to milderwarmer temperatures, and reduced volatility can negatively impact Energy Services' earnings. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Natural Gas Distribution Segment for TetcoTETCO M-3 Daily Prices, which illustrates the daily natural gas prices in the Northeast market region.

Operation and Maintenance Expense

O&M expense increased $291,000 during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, due primarily to increased compensation, partially offset by lower shared corporate costs. O&M expense decreased $1.7 million during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019, due primarily to decreased compensation costs.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

Operation and Maintenance Expense

O&M expense decreased $7.1 million during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to decreased incentive compensation and shared corporate costs. O&M expense decreased $2 million during the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018, due primarily to decreased incentive compensation, partially offset by a pre-tax gain of $3.7 million associated with the sale of NJR Retail Services Company in February 2018, that did not recur.

Income Tax Provision

Income tax benefit decreased $3.6increased $7.7 million during both the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to a decrease in operating loss. Income tax provision decreased $25.9 million during theand nine months ended June 30, 2019,2020, compared with the three and nine months ended June 30, 2018, 2019, due primarily to decreased operating income, along with income tax expense of $9.2 million during the nine months ended June 30, 2018, associated with the revaluation of deferred income taxes that did not recur during the nine months ended June 30, 2019.income.

Net Income

Net income increased $16.9decreased $25 million and $26.3 million during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, primarily due to decreased O&M, as well as decreased operating loss. Net income decreased $41.1 million during theand nine months ended June 30, 2019,2020, compared with the three and nine months ended June 30, 2018, 2019, respectively, due primarily to decreasedlower operating income, partially offset by the related decreaseincrease in the benefit from income tax provision.taxes, as previously discussed.

Non-GAAP Financial Measures

Management uses financial margin and NFE, non-GAAP financial measures, when evaluating the operating results of Energy Services. Financial margin and NFE are based on removing timing differences associated with certain derivative instruments, as discussed above. There is a related tax effect on current and deferred income tax expense corresponding with NFE. Also included in the tax effect are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the nine months ended June 30, 2018.

Management views these measures as representative of the overall expected economic result and uses these measures to compare Energy Services' results against established benchmarks and earnings targets as these measures eliminate the impact of volatility on GAAP earnings as a result of timing differences associated with the settlement of derivative instruments. To the extent that there are unanticipated impacts from changes in the market value related to the effectiveness of economic hedges, Energy Services' actual non-GAAP results can differ from the results anticipated at the outset of the transaction. 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.

When Energy Services reconciles the most directly comparable GAAP measure to both financial margin and NFE, the current period unrealized gains and losses on derivatives are excluded as a reconciling item. Financial margin and NFE also exclude the effects of economic hedging of the value of our natural gas in storage and, therefore, only include realized gains and losses related to natural gas withdrawn from storage, effectively matching the full earnings effects of the derivatives with realized margins on the related physical gas flows.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Financial Margin

The following table is a computation of Energy Services' financial margin:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Operating revenues (1)
$290,021
$409,405
$1,425,113
$1,612,699
$133,543
$290,021
$817,659
$1,425,113
Less: Gas purchases290,881
423,861
1,373,784
1,492,418
167,061
290,881
803,697
1,373,784
Add:  
Unrealized (gain) loss on derivative instruments and related transactions(24,684)2,874
(27,056)24,498
Unrealized loss (gain) on derivative instruments and related transactions24,034
(24,684)(21,306)(27,056)
Effects of economic hedging related to natural gas inventory (2)
11,317
4,474
12,073
(14,788)4,739
11,317
10,474
12,073
Financial margin$(14,227)$(7,108)$36,346
$129,991
$(4,745)$(14,227)$3,130
$36,346
(1)
Includes unrealized losses related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $(62,000)$(322,000) and $(12,000)$(62,000) for the three months ended June 30, 20192020 and 20182019, respectively, and $1.3 million$(521,000) and $1.7$1.3 million for the nine months ended June 30, 20192020 and 20182019, respectively.
(2)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.

A reconciliation of operating income, the closest GAAP financial measure, to Energy Services' financial margin is as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2019201820192018
Operating (loss) income$(4,345)$(25,122)$36,285
$101,838
Add:    
Operation and maintenance3,194
10,328
13,834
15,840
Depreciation and amortization23
21
75
50
Other taxes268
317
1,135
2,553
Subtotal(860)(14,456)51,329
120,281
Add:    
Unrealized (gain) loss on derivative instruments and related transactions(24,684)2,874
(27,056)24,498
Effects of economic hedging related to natural gas inventory11,317
4,474
12,073
(14,788)
Financial margin$(14,227)$(7,108)$36,346
$129,991

Financial margin decreased $7.1 million and $93.6 million during the three and nine months ended June 30, 2019, compared with the three and nine months ended June 30, 2018, respectively, due primarily to narrower pricing spreads, decreased volumes and less price volatility in the physical natural gas market.

Net Financial Earnings

A reconciliation of Energy Services' net income, the most directly comparable GAAP financial measure, to NFE is as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2019201820192018
Net (loss) income$(3,873)$(20,767)$25,041
$66,163
Add:    
Unrealized (gain) loss on derivative instruments and related transactions(24,684)2,874
(27,056)24,498
Tax effect (1)
5,899
(649)6,455
(3,364)
Effects of economic hedging related to natural gas inventory11,317
4,474
12,073
(14,788)
Tax effect(2,689)(1,011)(2,869)5,518
Net financial (loss) earnings$(14,030)$(15,079)$13,644
$78,027
(1)
Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $14,000 and $2,000 for the three months ended June 30, 2019 and 2018, respectively, and $(320,000) and $(652,000) for the nine months ended June 30, 2019 and 2018, respectively.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

NFEA reconciliation of operating income, the closest GAAP financial measure, to Energy Services' financial margin is as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2020201920202019
Operating (loss) income$(37,299)$(4,345)$565
$36,285
Add:    
Operation and maintenance3,753
3,462
13,313
14,969
Depreciation and amortization28
23
84
75
Subtotal(33,518)(860)13,962
51,329
Add:    
Unrealized loss (gain) on derivative instruments and related transactions24,034
(24,684)(21,306)(27,056)
Effects of economic hedging related to natural gas inventory4,739
11,317
10,474
12,073
Financial margin$(4,745)$(14,227)$3,130
$36,346

Financial margin increased $1$9.5 million during the three months ended June 30, 2019,2020, compared with the three months ended June 30, 2018,2019, due primarily to decreases in the variable component of transportation and storage demand fees. Financial margin decreased O&M, partially offset by lower financial margin. NFE decreased $64.4$33.2 million during the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018, 2019, due primarily to warmer weather compared to the prior period, which lead to decreased demand and lower natural gas prices, increased gas in storage and ultimately decreased volatility in the wholesale natural gas markets.

Net Financial Earnings

A reconciliation of Energy Services' net income, the most directly comparable GAAP financial measure, to NFE is as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2020201920202019
Net (loss) income$(28,845)$(3,873)$(1,255)$25,041
Add:    
Unrealized loss (gain) on derivative instruments and related transactions24,034
(24,684)(21,306)(27,056)
Tax effect (1)
(5,715)5,899
5,065
6,455
Effects of economic hedging related to natural gas inventory4,739
11,317
10,474
12,073
Tax effect(1,126)(2,689)(2,489)(2,869)
Net financial (loss) earnings$(6,913)$(14,030)$(9,511)$13,644
(1)
Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $76,000 and $14,000 for the three months ended June 30, 2020 and 2019, respectively, and $124,000 and $(320,000) for the nine months ended June 30, 2020 and 2019, respectively.

NFE increased $7.1 million during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, due primarily to a decrease in financial loss, as previously discussed. NFE decreased $23.2 million during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019, due primarily to lower financial margin, and decreased income tax provision, as previously discussed.

Future results are subject to Energy Services' ability to expand its wholesale sales and service activities and are contingent upon many other factors, including an adequate number of appropriate and credit qualified counterparties in an active and liquid natural marketplace, volatility in the natural gas market due to weather or other fundamental market factors impacting supply and/or demand, transportation, storage and/or other market arbitrage opportunities, sufficient liquidity in the overall energy trading market, and continued access to liquidity in the capital markets.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Midstream Segment

Overview

Our Midstream segment invests in natural gas assets, such as natural gas transportation and storage facilities. We believe that acquiring, owning and developing these midstream assets, which operate under a tariff structure that has either regulated or market-based rates, can provide us a growth opportunity. To that end, we haveOur Midstream segment is subject to various risks, including the construction, development and operation of our transportation and storage assets, obtaining necessary governmental, environmental and regulatory approvals, our ability to obtain necessary property rights and our ability to obtain financing at reasonable costs for the constructions and maintenance of our assets. In addition, our Midstream assets may be subject to risk associated with the COVID-19 pandemic, such as disruption to supply chain and availability of critical equipment and supplies, disruptions to the availability of our specialized workforce and contractors and changes to demand for natural gas, transportation and other downstream activities.

Our Midstream segment is comprised of a 50 percent ownership interest in Steckman Ridge, a storage facility that operates under market-based rates and a 20 percent ownership interest in PennEast, a natural gas pipeline. NJR Pipeline Company acquired 100 percent of Leaf River for $367.5 million, on October 11, 2019. Leaf River owns and operates a 32.2 million Dth salt dome natural gas storage facility that operates under market-based rates. In addition, on January 13, 2020, Adelphia, acquired all of Talen’s membership interests in IEC, an existing 84-mile pipeline in southeastern Pennsylvania, including related assets and rights of way, for a base purchase price of $166 million. Adelphia operates under cost of service rates but can enter into negotiated rates with counterparties. The northern portion of the pipeline was operational upon acquisition and it currently serves two natural gas generation facilities. The conversion of the southern portion of the pipeline to natural gas is expected to begin upon receipt of the Notice to Proceed from FERC.

Through our subsidiary NJR Pipeline Company, we are a 20 percent investor in PennEast, a partnership whose purpose is to construct and operate a 120-mile natural gas pipeline that will extend from northeast Pennsylvania to western New Jersey. PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018. As

On September 10, 2019, the United States Court of June 30,Appeals for the Third Circuit issued an order overturning the United States District Court for the District of New Jersey’s order granting PennEast condemnation and immediate access in accordance with the Natural Gas Act to certain properties in which the State of New Jersey holds an interest. A Petition for Rehearing was denied by the Third Circuit on November 5, 2019.

On October 8, 2019, the NJDEP issued a letter indicating that it deemed PennEast’s freshwater wetlands permit application to be administratively incomplete and closed the matter without prejudice. On October 11, 2019, PennEast completed all the necessary land surveys and is preparingsubmitted a letter to resubmit the NJDEP objecting to its position that the application during Augustis administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.

On October 4, 2019, PennEast filed a petition for Declaratory Order with FERC requesting an interpretation of the eminent domain authority of a FERC certificate holder under the Natural Gas Act. The Declaratory Order was granted on January 30, 2020.

On January 30, 2020, PennEast filed an amendment with FERC to construct the PennEast pipeline in two phases. Phase one consists of construction of a 68-mile pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction of PennEast is expected to begin following approval by FERC of the phased approach and receipt of all necessaryany remaining governmental and regulatory permitspermits.

On February 18, 2020, PennEast filed a writ of certiorari with the Supreme Court of the United States to review the September 10, 2019 Third Circuit decision. On June 29, 2020, the Supreme Court requested that the Solicitor General of the United States file a brief that expresses the views on the question of the use of eminent domain to acquire state owned lands for pipeline construction. 

We evaluated our investment in PennEast for an other-than-temporary impairment and any remaining land use rights. Construction could be delayed due to factorsdetermined an impairment charge was not necessary. It is reasonably possible that are beyondfuture unfavorable developments, such as a reduced likelihood of success from development options and legal outcomes, estimated increases in construction costs, increases in the ability of PennEast to control, including unforeseen construction delays, the receipt of governmental and regulatory approvals, and intervention, challenges, and litigation by others to governmental and regulatory proceedings. The timing and outcome of such actions and proceedings cannot be predicted with any certainty at this time. Delays in receipt of regulatory approvals and other unforeseendiscount rate, or further significant delays, could result in increased costs thatan impairment of our equity method investment. Also, the use of alternate judgments and assumptions could negatively impact PennEast operations if not resolvedresult in a timely manner. different calculation of fair value, which could ultimately result in the recognition of an impairment charge in the Unaudited Condensed Consolidated Financial Statements.

As of June 30, 2019,2020, our net investments in Steckman Ridge and PennEast were $115.4$112.9 million and $82.2$92.9 million, respectively.

Operating Results

The financial results of our Midstream segment are summarized as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2019201820192018
Equity in earnings of affiliates$4,167
$3,907
$11,966
$12,104
Operation and maintenance$949
$515
$2,652
$1,476
Other income, net$1,088
$1,558
$6,434
$4,135
Interest expense, net$522
$471
$1,630
$1,165
Income tax provision (benefit)$729
$989
$2,910
$(8,723)
Net income$3,052
$3,489
$11,201
$22,315

Equity in earnings of affiliates increased $260,000 during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to an increase in AFUDC earned at PennEast. Equity in earnings of affiliates decreased $138,000 during the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018, due primarily to decreases in storage revenue and increases in debt service costs at Steckman Ridge, partially offset by an increase in AFUDC earned at PennEast.

O&M expense increased $434,000 and $1.2 million during the three and nine months ended June 30, 2019, respectively, compared with the three and nine months ended months ended June 30, 2018, due primarily to increased shared corporate costs and consulting expenses.

Other income decreased $470,000 during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to decreased dividend income associated with the sale of Dominion shares in March 2019. Other income increased $2.3 million during the nine months ended June 30, 2019, respectively, compared with the nine months ended June 30, 2018, due primarily to the realized and unrealized gains of $1.6 million associated with the sale of Dominion shares, partially offset by a decrease in dividend income.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

Operating Results

The financial results of our Midstream segment are summarized as follows:
 Three Months EndedNine Months Ended
 June 30,June 30,
(Thousands)2020201920202019
Operating revenues (1)
$11,863
$
$32,011
$
Operating expenses    
Gas purchases464

1,003

Operation and maintenance6,430
951
17,402
2,655
Depreciation and amortization2,513
1
6,591
4
Total operating expenses9,407
952
24,996
2,659
Operating income2,456
(952)7,015
(2,659)
Other income, net1,033
1,088
6,401
6,434
Interest expense, net1,843
522
10,286
1,630
Income tax provision1,646
729
3,453
2,910
Equity in earnings of affiliates3,615
4,167
11,200
11,966
Net income$3,615
$3,052
$10,877
$11,201
(1)Includes related party transactions of approximately $720,000 and $2.1 million for the three and nine months ended June 30, 2020, respectively, which are eliminated in consolidation.

Income taxes decreased $260,000Operating revenue increased $11.9 million and $32 million during the three and nine months ended June 30, 2019,2020, compared with the three and nine months ended June 30, 2018, due primarily to a lower income tax rate 2019, due to operating revenues at Leaf River and Adelphia that were not present in the Tax Act. Income taxes increased $11.6 millionprior period.

Equity in earnings of affiliates decreased $552,000 and $766,000 during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, due primarily to decreases in storage revenue at Steckman Ridge, partially offset by an income tax benefitincrease in AFUDC earned at PennEast.

O&M expense increased $5.5 million and $14.7 million during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, respectively, due primarily to operations of $13.9 million associated with the revaluation of deferred income taxes resulting from the Tax ActLeaf River and Adelphia during the nine months ended June 30, 2018, that did not recur2020.

Depreciation expense increased $2.5 million and $6.6 million during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, respectively, due primarily to operations of Leaf River and Adelphia during the nine months ended June 30, 2019.2020.

Income tax provision increased $917,000 and $543,000 during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, respectively, due primarily to the increased operating income generated at Leaf River and Adelphia.

Interest expense increased $1.3 million and $8.7 million during the three and nine months ended June 30, 2020, compared with the three and nine months ended June 30, 2019, respectively, due primarily to increased debt service requirements related to the acquisition of Leaf River and Adelphia.

Net income decreased $437,000increased $563,000 during the three months ended June 30, 2019,2020, compared with the three months ended June 30, 2018,2019, due primarily to the increased O&Moperating income, partially offset by the related increase in income tax provision and interest expense, as previously discussed. Net income decreased $11.1 million$324,000 during the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018, 2019, due primarily to the decreased income tax benefit,increased O&M and interest expense, partially offset by increased other income,an increase in operating revenue, as previously discussed.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Home Services and Other Operations

Overview

The financial results of Home Services and Other consist primarily of the operating results of NJRHS. NJRHS provides service, sales and installation of appliances to approximately 109,000 service contract customers and has been focused on growing its installation business and expanding its service contract customer base. Home Services and Other also includes organizational expenses incurred at NJR and rental income at CR&R.

Operating Results

The consolidatedcondensed financial results of Home Services and Other are summarized as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Operating revenues$13,082
$14,759
$37,905
$32,977
$12,369
$13,082
$37,641
$37,905
Operation and maintenance(1)$5,600
$10,488
$29,630
$31,099
$11,686
$6,276
$31,145
$32,049
Energy and other taxes$676
$1,006
$2,419
$3,119
Other (expense) income, net$(99)$49
$(247)$5,350
Income tax provision$1,705
$1,122
$854
$11,539
Income tax (benefit) provision$(131)$1,705
$2,044
$854
Net income (loss)$4,365
$2,128
$2,672
$(7,982)$(582)$4,365
$675
$2,672
(1)Includes energy and other taxes due to change in presentation in the Unaudited Condensed Consolidated Statements of Operations.

Operating revenue decreased $1.7 million$713,000 and increased $4.9 million$264,000 during the three and nine months ended June 30, 2019,2020, respectively, compared with the three and nine months ended June 30, 2018, 2019, due primarily to changes in contractdecreased installation revenue recognition at NJRHS resulting from the adoption of ASC 606, Revenue from Contracts with Customers. As of October 1, 2018, NJRHS recognizes contract revenue on a straight line basis over the term of the contract. Previously, contract revenue was recognized on a seasonal basis based on demand for services.NJRHS.

O&M increased $5.4 million during the three months ended June 30, 2020, compared with the three months ended June 30, 2019, due to a higher allocation of shared corporate costs primarily related to IT infrastructure enhancements and improvements during the three months ended June 30, 2019 that did not recur. O&M decreased $904,000 during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019, due primarily to higher consulting expenses related to technology improvement projects in the prior period, partially offset by increased compensation and shared corporate costs in the current period.

Net income decreased $4.9 million during the three months ended June 30, 2019,2020, compared towith the three months ended June 30, 2018, 2019, due primarily to decreased shared corporate costs.increased O&M, as previously discussed. Net income decreased $1.5$2 million during the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018, 2019, due primarily to increased compensation costs.

Other income, net decreased $148,000 during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to an increasedecreases in net periodic benefit cost related to the adoption of ASU No. 2017-07 an amendment to ASC 715, Compensation - Retirement Benefits, partially offset by increased interest income at NJR. Other income, net decreased $5.6 million during the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018, due primarily to the sale of equity securities in an energy company, which resulted in a pre-tax gain of $5.3 million during the nine months ended June 30, 2018.

Income tax provision increased $583,000 during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to increased pre-tax income, as previously discussed. Income tax provision decreased $10.7 million during the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018, due primarily to income tax expense of $10.8 millionassociated with the revaluation of deferred income taxes resulting from the Tax Act during the nine months ended June 30, 2018, that did not recur during the nine months ended June 30, 2019.

Net income increased $2.2 million during the three months ended June 30, 2019, compared with the three months ended June 30, 2018, due primarily to a decrease in O&M, partially offset by the decrease in operating revenue, as previously discussed. Net income increased $10.7 million during the nine months ended June 30, 2019, compared with the nine months ended June 30,
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

2018, due primarily to the increase in operating revenue and decreasechanges in income tax provision, partially offset by the decrease in other income, net, as previously discussed.taxes.

Non-GAAP Financial Measures

In fiscal 2019, NFE is based on removing timing differences associated with NJR's variable-for-fixed interest rate swap. 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. A reconciliation of Home Services and Other's net income, the most directly comparable GAAP financial measure, to NFE is as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
June 30,June 30,
(Thousands)20192018201920182020201920202019
Net income (loss)$4,365
$2,128
$2,672
$(7,982)$(582)$4,365
$675
$2,672
Add:  
Unrealized loss (gain) on derivative instruments and related transactions100
(204)361
(325)
Unrealized loss on derivative instruments and related transactions
100

361
Tax effect(28)69
(101)96

(28)
(101)
Net financial earnings (loss)$4,437
$1,993
$2,932
$(8,211)
Net financial earnings$(582)$4,437
$675
$2,932
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Liquidity and Capital Resources

Our objective is to maintain an efficient consolidated capital structure that reflects the different characteristics of each business segment and business operations and provides adequate financial flexibility for accessing capital markets as required.

Our consolidated capital structure was as follows:
June 30,
2019
September 30,
2018
June 30,
2020
September 30,
2019
Common stock equity52%49%45%50%
Long-term debt40
41
41
49
Short-term debt8
10
14
1
Total100%100%100%100%

Common Stock Equity

We satisfy our external common equity requirements, if any, through issuances of our common stock, including the proceeds from stock issuances under our DRP. The DRP allows us, at our option, to use treasury shares or newly issued shares to raise capital. On December 4, 2019, NJR completed an equity offering which satisfied our currently forecasted equity needs for fiscal 2020 and 2021. NJR raised approximately $212.9 million of equity, net of issuance costs, by issuing 5,333,334 shares of common stock related to the equity offering. NJR also raised approximately $14.5 million and $13.2 million of equity through the DRP by issuing approximately 408,000 and 279,000 shares of treasury stock, during the nine months ended June 30, 2020 and 2019, respectively. During the nine months ended June 30, 2019, NJR raised approximately $57.4 million and $41.7 million of equity by issuing approximately 1,181,000 and 1,014,000 shares of common stock through the waiver discount feature of the DRP. There were no shares of common stock issued through the waiver discount feature of the DRP during the nine months ended June 30, 2019 and 2018, respectively. NJR also raised $13.2 million and $13.6 million of equity through the DRP by issuing approximately 279,000 and 334,000 shares of treasury stock, during the nine months ended June 30, 2019 and 2018, respectively.2020.

In 1996, the Board of Directors authorized us to implement a share repurchase program, which was expanded seven times since the inception of the program, authorizing a total of 19.5 million shares of common stock for repurchase. As of June 30, 2019,2020, we have repurchased a total of approximately 17.1 million of those shares and may repurchase an additional 2.4 million shares under the approved program. There were no shares repurchased during the nine months ended June 30, 2020 and 2019.

Common Stock Issuance and Forward Sale Agreement

On December 4, 2019, we completed an equity offering of 6,545,454 common shares, consisting of 5,333,334 common shares issued directly by NJR and 2018.1,212,120 common shares issuable pursuant to forward sales agreements with investment banks. The issuance of 5,333,334 resulted in proceeds of approximately $212.9 million, net of issuance costs, and was reflected in shareholders' equity and as a financing activity on the statement of cash flows.

Under the forward sale agreements, a total of 1,212,120 common shares were borrowed from third parties and sold to the underwriters. Each forward sale agreement allows us, at our election and prior to September 30, 2020, to physically settle the forward sale agreements by issuing common shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement, which was initially $40.0125 per share, or, alternatively, to settle the forward sale agreements in whole or in part through the delivery or receipt of shares or cash. The forward sale price is subject to adjustment daily based on a floating interest rate factor and will decrease in respect of certain fixed amounts specified in the agreements, such as dividends.

Our current intent is to physically settle the forward sale agreements by issuing common shares. As of June 30, 2020, if we had elected to net settle the forward sale agreements, we would receive $7 million under a cash settlement or would receive 227,461 common shares under a net share settlement.

Debt

NJR and its unregulated subsidiaries generally rely on cash flows generated from operating activities and the utilization of committed credit facilities to provide liquidity to meet working capital and short-term debt financing requirements. NJNG also relies on the issuance of commercial paper for short-term funding. NJR and NJNG periodically access the capital markets to fund long-life assets through the issuance of long-term debt securities.

We believe that our existing borrowing availability, equity proceeds and cash flow from operations will be sufficient to satisfy our and our subsidiaries' working capital, capital expenditures and dividend requirements for the next 12 months. NJR, NJNG, Clean Energy Ventures, Midstream and Energy Services currently anticipate that each of their financing requirements for the next 12 months will be met primarily through the issuance of short and long-term debt and equity, including proceeds from our DRP and including utilizing the waiver discount feature.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

the next 12 months will be met primarily through the issuance of short and long-term debt, meter and solar sale-leasebacks and proceeds from the issuance of equity.

We believe that as of June 30, 2019,2020, NJR and NJNG were, and currently are, in compliance with all existing debt covenants, both financial and non-financial.

As a result of the COVID-19 pandemic there have been disruptions, uncertainty and volatility in the credit and capital markets. Our ability to access funds from financial institutions at a reasonable cost may impact the nature and timing of future capital market transactions.

Short-Term Debt

We use our short-term borrowings primarily to finance Energy Services' short-term liquidity needs, Midstream investments and PennEast contributions, share repurchases and, on an initial basis, Clean Energy Ventures' investments. Energy Services' use of high volume storage facilities and anticipated pipeline park-and-loan arrangements, combined with related economic hedging activities in the volatile wholesale natural gas market, create significant short-term cash requirements.

As of June 30, 2019,2020, NJR had revolving credit facilities totaling $425$675 million, with $420.8$250.2 million available under the facilities. As of June 30, 2020, NJR has a $350 million Bridge Facility, there were $137.1 million in borrowings remaining against the facility.

NJNG satisfies its debt needs by issuing short-term and long-term debt based on its financial profile. The seasonal nature of NJNG's operations creates large short-term cash requirements, primarily to finance natural gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, and for the temporary financing of construction and MGP remediation expenditures and energy tax payments, based on its financial profile, through the issuance of commercial paper supported by the NJNG Credit Facility or through short-term bank loans under the NJNG Credit Facility.

NJNG’s commercial paper is sold through several commercial banks under an issuing and paying agency agreement and is supported by the $250 million NJNG Credit Facility. As of June 30, 2019,2020, the unused amount available under the NJNG Credit Facility, including amounts allocated to the backstop under the commercial paper program and the issuance of letters of credit, was $150$249.3 million.

Short-term borrowings were as follows:
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
(Thousands)June 30, 2019June 30, 2020
NJR      
Notes Payable to banks:      
Balance at end of period$
 $
$553,400
 $553,400
Weighted average interest rate at end of period% %1.15% 1.15%
Average balance for the period$
 $126,808
$545,366
 $482,971
Weighted average interest rate for average balance% 3.33%1.42% 2.17%
Month end maximum for the period$
 $280,000
$553,400
 $533,400
NJNG      
Commercial Paper and Notes Payable to banks:      
Balance at end of period$99,300
 $99,300
$
 $
Weighted average interest rate at end of period2.62% 2.62%0.25% 0.25%
Average balance for the period$37,925
 $49,784
$387
 $18,587
Weighted average interest rate for average balance2.67% 2.66%.25% 1.61%
Month end maximum for the period$99,300
 $123,500
$
 $62,300

Due to the seasonal nature of natural gas prices and demand, and because inventory levels are built up during its natural gas injection season (April through October), NJR and NJNG's short-term borrowings tend to peak in the November through January time frame.

NJR

Based on its average borrowings during the three and nine months ended June 30, 2019,2020, NJR's average interest rate was 3.331.42 percent and 2.17 percent, resulting in interest expense of approximately $3.1$1.9 million and $7.6 million, respectively.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

As of June 30, 2019,2020, NJR had twothree letters of credit outstanding totaling $4.2$8.5 million, which reduced the amount available under the NJR Credit Facility by the same amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties.

On December 5, 2018, NJR entered into an Amended and Restated Credit Agreement governing a $425 million NJR Credit Facility. The NJR Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension beyond
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

that date. The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJR Credit Facility also includes an accordion feature, which would allow 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 minimum increments of $50 million up to a maximum of $250 million. Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility.

On December 21, 2018,October 9, 2019, NJR entered into a four-month $100$350 million Bridge Facility, which was used primarily to finance the Leaf River acquisition. The Bridge Facility accrues interest at the LIBOR rate for a 1-month interest period plus 0.875 percent during the first 180 days, and 1.075 percent after 180 days, which is dependent on the credit rating of NJNG from Fitch and Moody’s. The occurrence of an event of default under the Bridge Facility could result in all loans and other obligations of NJR becoming immediately due and payable and the Bridge Facility being terminated. Loans under the Bridge Facility are required to be prepaid to the extent of new cash proceeds received upon the issuance of equity of NJR, the incurrence of indebtedness by NJR or its subsidiaries, the disposition of assets by NJR or its subsidiaries or upon other specified events, in each case subject to certain exceptions set forth in the Bridge Facility. As of June 30, 2020, there were $137.1 million in borrowings remaining against the facility. The net proceeds from the December 2019 equity issuance were used to pay down the Bridge Facility. On April 23, 2020, the Bridge Facility was amended to clarify that the April 24, 2020 $250 million revolving credit facility is not considered a debt issuance that requires prepayment of the Bridge Facility. On July 23, 2020, the remaining $137.1 million in borrowings were repaid.

On April 24, 2020, NJR entered into a 364-day $250 million revolving credit facility with an interest rate based on LIBOR plus 1.625 percent. After six months, all outstanding amounts under the credit facility will convert to a term loan and will be due on April 23, 2021. Proceeds will be used to fund ongoing ordinary working capital requirements and other general corporate purposes. In connection with entry into this credit facility, all outstanding borrowings under NJR's December 13, 2019, $150 million revolving line of credit facility which expired on April 18, 2019. Therewere repaid. As of June 30, 2020, there were no amounts outstanding under this credit facility at expiration.borrowings against the facility.

Neither NJNG nor its assets are obligated or pledged to support the NJR Credit Facility.

NJNG

As noted above, based on its average borrowings during the three and nine months ended June 30, 2019,2020, NJNG's average interest rate was 2.670.25 percent and 2.661.61 percent, respectively, resulting in interest expense of approximately $260,000 and $1.3 million, respectively.$265,000, for the nine months ended June 30, 2020. Interest expense was immaterial for the three months ended June 30, 2020.

As of June 30, 2019,2020, NJNG had two letters of credit outstanding for $731,000, which reduced the amount available under NJNG's committed credit facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the counterparties.

On December 5, 2018, NJNG entered into an Amended and Restated Credit Agreement governing a $250 million NJNG Credit Facility. The NJNG Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension beyond that date. The NJNG Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJNG Credit Facility also includes an accordion feature, which would allow 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 million up to a maximum of $100 million.

Short-Term Debt Covenants

Borrowings under the NJR Credit FacilityFacilities and the NJNG Credit Facility are conditioned upon compliance with a maximum leverage ratio (consolidated total indebtedness to consolidated total capitalization as defined in the applicable agreements), of not more than .65 to 1.00 at any time. These revolving credit facilities contain customary representations and warranties for transactions of this type. They also contain customary events of default and certain covenants that will limit NJR's or NJNG's ability, beyond agreed upon thresholds, to, among other things:

incur additional debt;

incur liens and encumbrances;

make dispositions of assets;

enter into transactions with affiliates; and

merge, consolidate, transfer, sell or lease all or substantially all of the borrower's or guarantors' assets.

These covenants are subject to a number of exceptions and qualifications set forth in the applicable agreements.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Default Provisions

The agreements governing our long-term and short-term debt obligations include provisions that, if not complied with, could require early payment or similar actions. Default events include, but are not limited to, the following:

defaults for non-payment;

defaults for breach of representations and warranties;

defaults for insolvency;

defaults for non-performance of covenants;

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

cross-defaults to other debt obligations of the borrower; and

guarantor defaults.

The occurrence of an event of default under these agreements could result in all loans and other obligations of the borrower becoming immediately due and payable and the termination of the credit facilities or term loan.

Long-Term Debt

NJR

As of June 30, 2019,2020, NJR had the following outstanding:

$100 million variable rate term loan due August 16, 2019;

$50 million of 3.25 percent senior notes due September 17, 2022;

$50 million of 3.20 percent senior notes due August 18, 2023;

$100 million of 3.48 percent senior notes due November 7, 2024;

$100 million of 3.54 percent senior notes due August 18, 2026; and

$100 million of 3.96 percent senior notes due June 8, 2028.2028; and

$150 million of 3.29 percent senior notes due July 17, 2029.

Neither NJNG nor its assets are obligated or pledged to support NJR's long-term debt.

On July 17, 2019,May 14, 2020, NJR entered into a Note Purchase Agreement for $150$260 million of 3.29 percentits senior notes, dueof which $130 million are at a fixed interest rate of 3.5 percent, maturing in 2030, and $130 million are at a fixed interest rate of 3.6 percent, maturing in 2032. On July 17, 2029. The company23, 2020, NJR issued $50all $260 million of thesethe senior notes on July 17, 2019 and will issue the remaining $100 million of these senior notes on or around August 15, 2019, subject to certain, customary closing conditions.notes. The senior notes are not secured by assets, but are insteadunsecured and guaranteed by certain unregulated subsidiaries of NJR and will be used for environmentally beneficial activities such as the funding of commercial solar projects.NJR.

NJNG

As of June 30, 2019,2020, NJNG's long-term debt consisted of $610.8$942.8 million in fixed-rate debt issuances secured by the Mortgage Indenture, with maturities ranging from 2024 to 2059, $97 million in secured variable rate debt with maturities ranging from 2027 to 2041 and $28.3$66.9 million in capital leases with various maturities ranging from 20192021 to 2025.2026.

On April 18, 2019, NJNG remarketed three FMBs, in the amount of $35.8 million, with a weighted average interest rate of 3.02 percent. The bonds have maturity dates ranging from April 2038 to April 2059.

On July 17, 2019,May 14, 2020, NJNG entered into a Note Purchase Agreement underfor $125 million of its senior notes, of which $100 million were at an interest rate of 3.13 percent, maturing in 2050, and $25 million were at an interest rate of 3.33 percent, maturing in 2060. On June 30, 2020, NJNG issued $100$50 million of 3.763.13 percent senior notes due June 30, 2050. On July 23, 2020, NJNG issued the remaining $50 million of 3.13 percent senior notes due July 17, 204923, 2050 and $85$25 million of 3.863.33 percent senior notes due July 17, 2059.23, 2060. The senior notes are secured by an equal principal amount of NJNG'sNJNG’s FMBs issued under NJNG'sNJNG’s Mortgage Indenture.

NJR is not obligated directly or contingently with respect to the NJNG notes or the FMBs.

Long-Term Debt Covenants and Default Provisions

The NJR and NJNG long-term debt instruments contain customary representations and warranties for transactions of their type. They also contain customary events of default and certain covenants that will limit NJR or NJNG's ability beyond agreed upon thresholds to, among other things:
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

incur additional debt (including a covenant that limits the amount of consolidated total debt of the borrower at the end of a fiscal quarter to 65 percent of the consolidated total capitalization of the borrower, as those terms are defined in the applicable agreements, and a covenant limiting priority debt to 20 percent of the borrower's consolidated total capitalization, as those terms are defined in the applicable agreements);

incur liens and encumbrances;

make loans and investments;

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

make dispositions of assets;

make dividends or restricted payments;

enter into transactions with affiliates; and

merge, consolidate, transfer, sell or lease substantially all of the borrower's assets.

The aforementioned covenants are subject to a number of exceptions and qualifications set forth in the applicable note purchase agreements.

In addition, the FMBs issued by NJNG under the Mortgage Indenture are subject to certain default provisions. Events of Default, as defined in the Mortgage Indenture, consist mainly of:

failure for 30 days to pay interest when due;

failure to pay principal or premium when due and payable;

failure to make sinking fund payments when due;

failure to comply with any other covenants of the Mortgage Indenture after 30 days' written notice from the Trustee;

failure to pay or provide for judgments in excess of $30 million in aggregate amount within 60 days of the entry thereof; or

certain events that are or could be the basis of a bankruptcy, reorganization, insolvency or receivership proceeding.

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 pursuant to 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, six percent per annum.

Sale-Leaseback

NJNG

NJNG received $9.9$4 million and $7.8$9.9 million in December 20182019 and 2017,2018, respectively, in connection with the sale-leaseback of its natural gas meters. NJNG exercised early purchase options with respect to certain outstanding meter leases by making final principal payments of $1.2 million and $1.1 million during both the nine months ended June 30, 20192020 and 2018.2019, respectively. NJNG continues to evaluate this sale-leaseback program based on current market conditions. As noted, natural gas meters are accepted as property under the Mortgage Indenture.

Clean Energy Ventures

In June 2020, Clean Energy Ventures hasreceived proceeds of $42.9 million in connection with the sale-leaseback of three commercial solar projects. Clean Energy Ventures did not receive proceeds related to the sale-leaseback of commercial solar assets during the nine months ended June 30, 2019. Clean Energy Ventures entered into transactions to sell certain of its commercial solar assets concurrent with agreements to lease the assets back over sixfive to 15-year terms. These sale-leasebacks are financing obligations secured by the solar assets, and related future cash flows from SREC and energy sales.sales and a continuing guaranty by NJR. ITCs and other tax benefits associated with these solar projects were transferred to the buyer. Clean Energy Ventures will continue to operate the solar projects and retain ownership of SRECs generated, and has the option to renew the lease or repurchase the assets at the end of the lease term per the terms of the arrangement. Clean Energy Ventures did not enter into sale-leasebacks transactions during the nine months ended June 30, 2019 and 2018.
New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

Contractual Obligations

NJNG's total capital expenditures are projected to be $347.9$388 million and $454.6$396 million, in fiscal 20192020 and 2020,2021, respectively. Total capital expenditures spent or accrued during the nine months ended June 30, 2019,2020, were $241.6$241.9 million. NJNG expects to fund its obligations with a combination of cash flow 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 June 30, 2019,2020, NJNG's future MGP expenditures are estimated to be $125.6$128.9 million. For a more detailed description of MGP expenditures see Note 12.13. Commitments and Contingent Liabilities in the accompanying Unaudited Condensed Consolidated Financial Statements.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)

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.

Clean Energy Ventures' expenditures include clean energy projects that support our goal to promote renewable energy. Accordingly, Clean Energy Ventures enters into agreements to install solar equipment involving both residential and commercial projects. During the nine months ended June 30, 2019,2020, total capital expenditures spent or accrued related to the purchase and installation of solar equipment were $92.6$99.7 million. An additional $36.1 million has been committed for solar projects to be placed into service during fiscal 2019 and beyond. We estimate solar-related capital expenditures for projects during fiscal 20192020 to be between $150$125 million and $170$135 million.

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 logistics associated with the start-up of residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any delays related to electric grid interconnection, economic trends, unforeseen events and the ability to access capital or allocation of capital to other investments or business opportunities.

During the nine months ended June 30, 2019,2020, capital expenditures related to our Midstream investment in the Adelphia project were $11.1 million.$175 million, which includes the remaining purchase price of $156 million that was paid upon the close of the acquisition of the related assets in January 2020. We estimate capital expenditures related to our Midstream investment in the Adelphia project to be between $175$180 million and $200 million in fiscal 2019. During the nine months ended June 30, 2019, capital expenditures related to our Midstream investment in the PennEast pipeline project were $2.7 million.2020. We estimate capital expenditures related to our Midstream investment in the PennEast project to be between $3$7 million and $10$8 million in fiscal 2019.2020.

Energy Services does not currently anticipate any significant capital expenditures in fiscal 20192020 and 2020.2021.

More detailed information regarding contractual obligations is contained in Liquidity and Capital Resources - Contractual Obligations section of Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 2018.2019.

Off-Balance-Sheet Arrangements

OurAs of June 30, 2020, our off-balance-sheet arrangements consist of guarantees covering approximately $311.1$274.5 million of natural gas purchases, SREC sales and demand fee commitments and outstanding letters of credit totaling $5$9.2 million.

Cash Flows

Operating Activities

Cash flows from operating activities during the nine months ended June 30, 2019,2020, totaled $165.8$182.8 million compared with $392.6$165.8 million during the nine months ended June 30, 2018.2019. 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;

the deferral and recovery of 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.

New Jersey Resources Corporation
Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)                                                                                                                                                             

The decreaseincrease of $226.8$17 million in cash flows from operating activities during the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018,2019, was due primarily to lower financialincreased margin generated at Energy Services andour Natural Gas Distribution segment related to increased working capital requirements.base rates.

Investing Activities

Cash flows used in investing activities totaled $891 million during the nine months ended June 30, 2020, compared with cash flows used in investing activities totaling $105 million during the nine months ended June 30, 2019, compared with $254.2 million during the nine months ended June 30, 2018.2019. The decreaseincrease of $149.2$786 million was due primarily to proceeds, netthe acquisition of closing costs, from the sale of our remaining wind assets of $205.7 millionLeaf River and Dominion shares of $34.5 million, partially offset byAdelphia, see Note 17. Acquisitions and Dispositions, for more detail, an increase in capital expenditures of $66.2$1.5 million, for utility plant.plant investments including cost of removal and $19.6 million in solar capital expenditures, a well as proceeds from the sale of our wind assets and Dominion shares that occurred in February 2019 and March 2019, respectively, that did not recur in fiscal 2020.

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 gas management and marketing activities at Energy Services and clean energy investments at Clean Energy Ventures.

Cash flows from financing activities totaled $749.4 million during the nine months ended June 30, 2020, compared with cash flows used in financing activities totaledof $35.8 million during the nine months ended June 30, 2019, compared with $139.5 million during the nine months ended June 30, 2018.2019. The decreaseincrease of $103.7$785.2 million is due primarily to reducedincreased short-term debt activity at NJR primarily related to the acquisition of Leaf River and NJNG and an increase in dividends paid to shareowners, partially offset by increased proceeds fromAdelphia, the issuance of common stock through the waiver discount feature$50 million of the DRP.long-term debt at NJNG, as well as proceeds of $42.9 million from solar sale-leasebacks at Clean Energy Ventures.

Credit Ratings

The table below summarizes NJNG's credit ratings as of June 30, 2019,2020, issued by two rating entities, Moody's and Fitch:
 Moody'sFitch
Corporate RatingN/AA-
Commercial PaperP-1P-2F-2
Senior SecuredAa3A1A+
Ratings OutlookNegativeStableStable

On November 29, 2018,The Fitch assignedratings and outlook were reaffirmed on March 18, 2020. NJNG's Moody's and Fitch ratings are investment-grade ratings. NJR is not a first-time long-term issuer default rating to NJNG. The rating reflects a constructive regulatory environment, including margin decoupling and fuel cost recovery, and strong customer growth. Other considerations were the weakened credit metrics driven by the impact of tax reform and an elevated capital program, with a substantial portion of investment recovered under tracking mechanisms. On March 28, 2019, Fitch affirmed the ratings outlook as stable.rated entity.

On February 8, 2019,March 18, 2020, Moody’s revised NJNG's secured rating from Aa2Aa3 to Aa3.A1 and its commercial paper rating from P-1 to P-2. This change reflects Moody’s view that the Company's credit measuresNJNG's financial metrics are expected to deteriorate due toremain below 20 percent over the next few years as the loss of cash flow from deferred taxes lower authorized returns and peakhigher debt levels in funding its elevated capital programs in 2019 and 2020.program has brought down historically very strong credit metrics. These measures are mitigated by the credit supportive regulatory rate construct and NJNG's recovery mechanism. Management's response and regulatory outcomes have partially mitigated some of the near term negative cash flow impacts relatedThe outlook was increased to tax reform.stable from negative. This action does not currently affect any of NJNG’s shortlong-term borrowing rates or long term borrowing rates.

NJNG's Moody's and Fitch ratings are investment-grade ratings. NJR is not a rated entity. On May 24, 2019, at NJNG’s request, S&P withdrew all ratings on NJNG, including its 'A' senior secured debt rating and 'A-2' short-term and commercial paper rating.credit facility pricing.

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.

New Jersey Resources Corporation
Part I

ITEM 3. 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 deregulatedunregulated 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. Energy Services 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:
BalanceIncreaseLessBalanceBalanceIncreaseLessBalance
(Thousands)September 30, 2018
(Decrease) in Fair
Market Value
Amounts
Settled
June 30,
2019
September 30, 2019
(Decrease) in Fair
Market Value
Amounts
Settled
June 30,
2020
Natural Gas Distribution $94
 (2,044) (2,147) $197
 $(188) (6,605) (6,603) $(190)
Energy Services (13,925) 24,587
 7,349
 3,313
 (11,640) 66,094
 41,531
 12,923
Total $(13,831) 22,543
 5,202
 $3,510
 $(11,828) 59,489
 34,928
 $12,733

There were no changes in methods of valuations during the nine months ended June 30, 2019.2020.

The following is a summary of fair market value of financial derivatives at June 30, 2019,2020, excluding foreign exchange contracts discussed below, by method of valuation and by maturity for each fiscal year period:
(Thousands)201920202021 - 2023After 2023
Total
Fair Value
202020212022 - 2024After 2024
Total
Fair Value
Price based on NYMEX/CME$1,125
2,608
 796
 
 $4,529
$1,159
869
 122
 
 $2,150
Price based on ICE2,201
(4,607) 1,387
 
 (1,019)4,957
4,975
 701
 (50) 10,583
Total$3,326
(1,999) 2,183
 
 $3,510
$6,116
5,844
 823
 (50) $12,733

The following is a summary of financial derivatives by type as of June 30, 2019:2020:
 Volume Bcf
Price per MMBtu(1)
Amounts included in Derivatives (Thousands) Volume Bcf
Price per MMBtu(1)
Amounts included in Derivatives (Thousands)
Natural Gas DistributionFutures28.7
$1.68 - $2.94 $197
Futures18.8
$1.62 - $3.88 $(190)
Energy ServicesFutures(26.9)$0.72 - $4.09 (1,248)Futures(38.4)($0.18) - $5.30 11,149
Swaps(6.2)$2.72 - $3.46 4,528
Swaps(2.3)$2.72 - $3.20 1,774
Options
$0.01 - $0.10 33
Total   $3,510
   $12,733
(1)Million British thermal unit

The following table reflects the changes in the fair market value of physical commodity contracts:
BalanceIncreaseLessBalanceBalanceIncreaseLessBalance
(Thousands)September 30, 2018(Decrease) in Fair
Market Value
Amounts
Settled
June 30,
2019
September 30, 2019(Decrease) in Fair
Market Value
Amounts
Settled
June 30,
2020
Natural Gas Distribution - Prices based on other external data $(107) 2,614
 2,514
 $(7) $(178) 184
 73
 $(67)
Energy Services - Prices based on other external data (17,877) (17,368) (9,189) (26,056) (31,624) (1,999) (2,044) (31,579)
Total $(17,984) (14,754) (6,675) $(26,063) $(31,802) (1,815) (1,971) $(31,646)

New Jersey Resources Corporation
Part I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)                         

The following table reflects the changes in the fair market value of interest rate contracts:
 BalanceIncreaseLessBalance
(Thousands)September 30, 2018(Decrease) in Fair
Market Value
Amounts
Settled
June 30,
2019
Home Services and Other - Prices based on other external data 381
 (246) 115
 20
Total $381
 (246) 115
 $20
 BalanceIncreaseLessBalance
(Thousands)September 30, 2019(Decrease) in Fair
Market Value
Amounts
Settled
June 30,
2020
Natural Gas Distribution - Prices based on other external data $
 (5,056) 
 $(5,056)
Home Services and Other - Prices based on other external data 
 (13,298) (2,502) (10,796)
Total $
 (18,354) (2,502) $(15,852)

Our market price risk is predominately linked with changes in the price of natural gas at the Henry Hub, the delivery point for the NYMEX natural gas futures contracts. Based on price sensitivity analysis, an illustrative 10 percent movement in the natural gas futures contract price, for example, increases (decreases) the reported derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed price swap positions by approximately $6$7.5 million. This analysis does not include potential changes to reported credit adjustments embedded in the $14.7$0 million reported fair value.

Derivative Fair Value Sensitivity Analysis  
(Thousands)Henry Hub Futures and Fixed Price SwapsHenry Hub Futures and Fixed Price Swaps
Percent increase in NYMEX natural gas futures prices0%5%10%15%20%0%5%10%15%20%
Estimated change in derivative fair value$
$(3,007)$(6,015)$(9,022)$(12,030)$
$(3,773)$(7,546)$(11,319)$(15,092)
Ending derivative fair value$14,657
$11,650
$8,642
$5,635
$2,627
$(373)$(4,146)$(7,919)$(11,692)$(15,465)
  
Percent decrease in NYMEX natural gas futures prices0%(5)%(10)%(15)%(20)%0%(5)%(10)%(15)%(20)%
Estimated change in derivative fair value$
$3,007
$6,015
$9,022
$12,030
$
$3,773
$7,546
$11,319
$15,092
Ending derivative fair value$14,657
$17,664
$20,672
$23,679
$26,687
$(373)$3,400
$7,173
$10,946
$14,719

Wholesale Credit Risk

The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade counterparties, as of June 30, 2019.2020. Gross credit exposure for Energy Services is defined as the unrealized fair value of derivative and energy trading contracts plus any outstanding wholesale receivable for the value of natural gas or power delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received. Gross credit exposure for Midstream is defined as demand and estimated usage fees for contracted services and/or market value of loan balances for which payment has not yet been received. Net credit exposure is defined as gross credit exposure reduced by collateral received from counterparties and/or payables, where netting agreements exist. The amounts presented below exclude accounts receivable for NJNG retail natural gas sales and services.

Energy Services' &, Clean Energy Ventures' and Midstream's counterparty credit exposure as of June 30, 2019,2020, is as follows:
(Thousands)Gross Credit ExposureNet Credit Exposure
Investment grade $124,686
 $102,054
Noninvestment grade 19,511
 1,884
Internally rated investment grade 18,205
 13,881
Internally rated noninvestment grade 10,689
 3,833
Total $173,091
 $121,652

NJNG's counterparty credit exposure as of June 30, 2019, is as follows:
(Thousands)Gross Credit ExposureNet Credit ExposureGross Credit ExposureNet Credit Exposure
Investment grade $2,916
 $2,815
 $122,345
 $109,175
Noninvestment grade 31
 
 8,460
 1,771
Internally rated investment grade 210
 210
 22,660
 20,003
Internally rated noninvestment grade 21,607
 15,259
 9,171
 3,649
Total $24,764
 $18,284
 $162,636
 $134,598

New Jersey Resources Corporation
Part I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)                         

NJNG's counterparty credit exposure as of June 30, 2020, is as follows:
(Thousands)Gross Credit ExposureNet Credit Exposure
Investment grade $3,681
 $3,302
Noninvestment grade 455
 
Internally rated investment grade 217
 39
Internally rated noninvestment grade 3,148
 
Total $7,501
 $3,341

Due to the inherent volatility in the market price for natural gas, electricity and SRECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty failed to perform the obligations under its contract (for example, failed to make payment for natural gas received), we could sustain a loss. This loss would comprise the loss on natural gas delivered but not paid for and/or the cost of replacing natural gas not delivered or received at a price that exceeds the original contract price. Any such loss could have a material impact on our financial condition, results of operations or cash flows.

Effects of Interest Rate and Foreign Currency Rate Fluctuations

We are also exposed to changes in interest rates on our debt hedges, variable rate debt and changes in foreign currency rates for our business conducted in Canada using Canadian dollars. We do not believe an immediate 10 percent increase or decrease in interest rates or foreign currency rates would have a material effect on our operating results or cash flows.

Information regarding NJR's interest rate risk can be found in Item 7A. Quantitative and Qualitative Disclosures About Market Risks and the Liquidity and Capital Resources - Debt section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 20182019.

Effects of Inflation

Although inflation rates have been relatively low to moderate in recent years, including the three most recent fiscal years, any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of our utility subsidiary. We attempt to minimize the effects of inflation through cost control, productivity improvements and regulatory actions, when appropriate.

ITEM 4. CONTROLS AND PROCEDURES                                                                                                                             

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of end of the period covered by this report, our disclosure controls and procedures are effective, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended June 30, 2019,2020, that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
New Jersey Resources Corporation
Part II


ITEM 1. LEGAL PROCEEDINGS                                                                                                                                                

Information regarding reportable legal proceedings is contained in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K for the year ended September 30, 2018,2019, and is set forth in Part I, Item 1, Note 12.13. Commitments and Contingent Liabilities-Legal Proceedings on the Unaudited Condensed Consolidated Financial Statements, which is incorporated by reference. No legal proceedings became reportable during the quarter ended June 30, 2019,2020, and there have been no material developments during such quarter regarding any previously reported legal proceedings, which have not been previously disclosed.

ITEM 1A. RISK FACTORS                                                                                                                                                             

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical, under the circumstances, some level of risk and uncertainty will always be present. Part I, Item 1A. Risk Factors of our 20182019 Annual Report on Form 10-K includes a detailed discussion of our risk factors. Those risks and uncertainties have the potential to materially affect our financial condition and results of operations. There have been no material changes in our risk factors from those previously disclosed in Part I, Item 1A, of our 20182019 Annual Report on Form 10-K.10-K and Part II, Item 1A, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS                                                  

The following table sets forth our repurchase activity for the quarter ended June 30, 2019:2020:
Period
Total Number of Shares
(or Units) Purchased
Average Price Paid per Share (or Unit)Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
4/1/01/1920 - 4/30/1920$

 2,431,053
5/01/1920 - 5/31/1920

 2,431,053
6/01/1920 - 6/30/1920

 2,431,053
Total$

 2,431,053

The stock repurchase plan, which was authorized by our Board of Directors, became effective in September 1996 and as of June 30, 2019,2020, included 19.5 million shares of common stock for repurchase, of which, approximately 2.4 million shares remained available for repurchase. The stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder, unless the repurchase plan is earlier terminated by action of our Board of Directors or further shares are authorized for repurchase.

ITEM 5. OTHER INFORMATION

Laurence M. Downes, Chairman and CEO of the Company, announced at NJR’s July 8, 2019 Board of Directors meeting his intent to retire from his position as CEO of NJR and its principal subsidiaries, including New Jersey Natural Gas Company, effective September 30, 2019. Mr. Downes will continue to serve as Chairman of the NJR Board until the Annual Shareowners Meeting on January 22, 2020. Following the July 8, 2019 meeting of the NJR Board, in accordance with NJR’s succession plan, the Board announced that Mr. Stephen D. Westhoven, NJR’s President and COO, will be the successor to the office of CEO, upon Mr. Downes’ retirement. The Board expects to formally appoint Mr. Westhoven as NJR’s CEO and to specify his compensation and benefits later in 2019.

Andrew Westhoven, the brother of Stephen D. Westhoven (President and COO of the Company) is employed by NJR Clean Energy Ventures, serving as Senior Project Manager-Construction and Engineering. The total compensation paid to Andrew Westhoven during 2019 was within the range set for employees with comparable qualifications and responsibilities who hold similar positions at the Company (salary of $123,800 to $238,000, plus short-term annual incentive compensation targeted between 15 to 30 percent of salary). He also received health insurance and other benefits available to all other employees in a similar position. His compensation was determined in accordance with our compensation practices applicable to employees who hold similar positions. Stephen D. Westhoven did not and does not have any direct responsibility for reviewing his brother’s work or any influence over his brother’s compensation or the other terms of his employment. The Audit Committee of the Board of Directors of NJR reviewed, approved and ratified the compensation of Andrew Westhoven.


New Jersey Resources Corporation
Part II

ITEM 6. EXHIBITS                                                                                                                                                                         

Exhibit
Number
Exhibit Description
4.1
 Amended and Restated Indenture,$260,000,000 Note Purchase Agreement, dated as of April 1, 2019, between NJNGMay 14, 2020, by and among New Jersey Economic Development AuthorityResources Corporation and U.S. Bank National Association, as Trusteethe Purchasers party thereto (incorporated by reference to Exhibit 4.1 to the QuarterlyCurrent Report on Form 10-Q,8-K, as filed on May 3, 201918, 2020))
  
4.2
 Second Amendment to the Loan$125,000,000 Note Purchase Agreement, dated as of April 1, 2019, NJNGMay 14, 2020, by and among New Jersey Economic Development AuthorityNatural Gas Company and the Purchasers party thereto (incorporated by reference to Exhibit 4.2 to the QuarterlyCurrent Report on Form 10-Q,8-K, as filed on May 3, 201918, 2020))
  
4.3
Amended and Restated Continuing Disclosure Undertaking,Seventh Supplemental Indenture, dated as of April 18, 2019June 1, 2020, by and between New Jersey Natural Gas Company and U.S. Bank National Association (incorporated by reference to Exhibit 4.34.1 to the QuarterlyCurrent Report on Form 10-Q,8-K, as filed on May 3, 2019July 2, 2020))
  
4.410.1
Fourth Supplemental Indenture,364-Day $250,000,000 Revolving Credit Facility, dated as of April 1, 2019, between NJNG24, 2020 by and U.S.among New Jersey Resources Corporation and each of the Guarantors party thereto and the lenders party thereto, and PNC Bank, National Association and PNC Capital Markets LLC, SunTrust Robinson Humphrey, Inc. and TD Bank, N.A., as TrusteeJoint Lead Arrangers, and Truist Bank and TB Bank, N.A., as Co- Syndication Agents (incorporated by reference to Exhibit 4.410.1 to the QuarterlyCurrent Report on Form 10-Q,8-K, as filed on May 3, 2019April 27, 2020)
10.2
)First Amendment to the Term Loan Credit Agreement, dated as of April 23, 2020, by and among New Jersey Resources Corporation and each of the Guarantors party thereto and the lenders party thereto and Wells Fargo Bank, National Association and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, as filed on April 27, 2020)
  
31.1+
  
31.2+
  
32.1+ †
  
32.2+ †
  
101+Interactive Data File (Form 10-Q, for the fiscal period ended June 30, 2019,2020, furnished in iXBRL (Inline eXtensible Business Reporting Language))
  
104+Cover Page Interactive Data File included in Exhibit 101


+Filed herewith.
†    This certificate accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by NJR for purposes of Section 18 or any other provision of the Securities Exchange Act of 1934, as amended.
New Jersey Resources Corporation
Part II

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  NEW JERSEY RESOURCES CORPORATION
  (Registrant)
Date:August 6, 20197, 2020 
  By:/s/ Patrick Migliaccio
  Patrick Migliaccio
  Senior Vice President and
  Chief Financial Officer


7279