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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~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, 2020~~March 31, 2021

☐ 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

~~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

Wall

New Jersey

07719

(Registrant's telephone number,
including area code)

(Address of principal executive offices)

~~(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~~

~~Wall~~

~~New Jersey~~

~~07719~~

~~(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 class

Trading symbol(s)

Name of each exchange on which registered)

Common Stock - $2.50 Par Value

NJR

New 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 5, 2020~~May 3, 2021 was ~~95,930,191.~~

96,339,849.

New Jersey Resources Corporation

TABLE OF CONTENTS



	Page
Glossary of Key Terms			1
Information Concerning Forward-Looking Statements			3
PART I. FINANCIAL INFORMATION
	ITEM 1.	Unaudited Condensed Consolidated Financial Statements	4
		Notes to Unaudited Condensed Consolidated Financial Statements	109
		Note 1. Nature of the Business	109
		Note 2. Summary of Significant Accounting Policies	109
		Note 3. Revenue	1617
		Note 4. Regulation	2021
		Note 5. Derivative Instruments	2223
		Note 6. Fair Value	2728
		Note 7. Investments in Equity Investees	2930
		Note 8. Earnings Per Share	3031
		Note 9. Debt	3132
		Note 10. Employee Benefit Plans	3233
		Note 11. Income Taxes	3334
		Note 12. Leases	35
		Note 13. Commitments and Contingent Liabilities	3837
		Note 14. Common Stock Equity	39
		Note 15. Reporting Segment and Other Operations Data	4039
		Note 16. Related Party Transactions	43
		Note 17. Acquisitions and Dispositions	43
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4645
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	7472
	ITEM 4.	Controls and Procedures	7675
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings	7776
	ITEM 1A.	Risk Factors	7776
	ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	7776
	ITEM 6.	Exhibits	7877
		Signatures	7978

New Jersey Resources Corporation

GLOSSARY OF KEY TERMS



Adelphia Gateway		Adelphia Gateway, LLC
AFUDC		Allowance for Funds Used During Construction
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Bcf		Billion Cubic Feet
BGSS		Basic Gas Supply Service
BPU		New Jersey Board of Public Utilities
~~Bridge Facility~~		~~The $350 million term loan credit agreement expiring in October 2020~~
CARES Act	Coronavirus Aid, Relief, and Economic Security Act
CIP		Conservation Incentive Program
CME		Chicago Mercantile Exchange
COVID-19		Novel coronavirus disease
CR&R		Commercial Realty & Resources Corp.
DRP		NJR Direct Stock Purchase and Dividend Reinvestment Plan
Dths		Dekatherms
EE		Energy Efficiency
Energy Services		Energy Services segment
EPS		Earnings Per Share
FASB		Financial Accounting Standards Board
FCM		Futures Commission Merchant
FERC		Federal Energy Regulatory Commission
Financial margin		A 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
Fitch		Fitch Ratings Company
FMB		First Mortgage Bond
GAAP		Generally Accepted Accounting Principles of the United States
Home Services and Other		Home Services and Other Operations
ICE		Intercontinental Exchange
IEC		Interstate Energy Company, LLC
IIP		Infrastructure Investment Program
IRS		Internal Revenue Service
ISDA		The International Swaps and Derivatives Association
ITC		Federal Investment Tax Credit
Leaf River		Leaf River Energy Center LLC
~~LIBOR~~MGP		~~London Inter-Bank Offered Rate~~
~~MGP~~	Manufactured Gas Plant
Moody's		Moody's Investors Service, Inc.
Mortgage Indenture		The 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
MW		Megawatts
MWh		Megawatt Hour
NAESB		The North American Energy Standards Board
Natural Gas Act		The 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.
NFE		Net Financial Earnings
NJ RISE		New Jersey Reinvestment in System Enhancement
NJCEP		New Jersey's Clean Energy Program
NJDEP		New Jersey Department of Environmental Protection

New Jersey Resources Corporation



GLOSSARY OF KEY TERMS (cont.)

~~NJ RISE~~NJNG		~~New Jersey Reinvestment in System Enhancement~~
~~NJCEP~~	~~New Jersey's Clean Energy Program~~
~~NJDEP~~	~~New Jersey Department of Environmental Protection~~
~~NJNG~~	New Jersey Natural Gas Company
NJNG Credit Facility		NJNG's $250 million unsecured committed credit facility expiring in December 2023
NJR Credit Facility		NJR's $425 million unsecured committed credit facility expiring in December 2023
NJR or The Company		New Jersey Resources Corporation
NJRHS		NJR Home Services Company
Non-GAAP		Not in accordance with Generally Accepted Accounting Principles of the United States
NPNS		Normal Purchase/Normal Sale
NYMEX		New York Mercantile Exchange
OASDI		Old Age, Survivors and Disability Insurance tax
O&M		Operation and Maintenance
OPEB		Other Postemployment Benefit Plans
PennEast		PennEast Pipeline Company, LLC
PPA		Power Purchase Agreement
RAC		Remediation Adjustment Clause
REC		Renewable Energy Certificate
S&P		Standard & Poor's Financial Services, LLC
SAFE		Safety Acceleration and Facility Enhancement
SAVEGREEN		The SAVEGREEN Project®
SBC		Societal Benefits Charge
SEC		U.S. Securities and Exchange Commission
SREC		Solar Renewable Energy Certificate
SRL		Southern Reliability Link
Steckman Ridge		Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
~~Talen~~Storage and Transportation		Storage and Transportation segment
Talen		Talen Energy Marketing, LLC
TETCO		Texas Eastern Transmission
The Exchange Act		The Securities Exchange Act of 1934, as amended
The Tax Act		An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, previously known as The Tax Cuts and Jobs Act of 2017
Third Circuit		The United States Court of Appeals for the Third Circuit
~~Trustee~~TREC		Transition Renewable Energy Certificate
Trustee		U.S. Bank National Association
U.S.		The United States of America
USF		Universal 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 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,~~RECs, 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 ~~2020~~2021 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, ~~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~~Storage and Transportation infrastructure projects, including PennEast and Adelphia Gateway, 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;

•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;

risks associated with acquisitions and the related integration of acquired assets with our current operations, including the ~~acquisitions~~acquisition of Adelphia Gateway and Leaf ~~River and Adelphia;~~River;

•our ability to comply with current and future regulatory requirements;


•volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG’s BGSS incentive programs, our Energy Services segment operations and our risk management efforts; •	~~volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG~~’s ~~BGSS~~ ~~incentive programs, our Energy Services segment operations and our risk management efforts;~~

the performance of our subsidiaries;

•access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;


•the level and rate at which NJNG’s 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 level and rate at which NJNG~~’~~s 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 regulatory and pricing policies of federal and state regulatory agencies;

•operating risks incidental to handling, storing, transporting and providing customers with natural gas;


•	•demographic changes in our service territory and their effect on our customer growth; •~~service 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 impact 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, natural gas cost prudence reviews and other matters;

•risks related to cyberattacks or failure of information technology systems;

•the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of potential downturns in the financial markets, 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;

•the impact of natural disasters, terrorist activities and other extreme events on our operations and customers;

•risks related to our employee workforce and succession planning;

•risks associated with the management of our joint ventures and partnerships; and

•risks associated with keeping pace with technological change.

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 Ended				Six Months Ended
	March 31,				March 31,
(Thousands, except per share data)	2021		2020		2021		2020
OPERATING REVENUES
Utility	$	310,167	$	297,220	$	505,896	$	516,843
Nonutility	492,020		342,394		750,596		737,807
Total operating revenues	802,187		639,614		1,256,492		1,254,650
OPERATING EXPENSES
Natural gas purchases:
Utility	113,235		111,563		169,380		203,377
Nonutility	330,488		318,384		503,735		635,740
Related parties	1,730		1,506		3,464		3,030
Operation and maintenance	110,265		66,832		183,901		130,177
Regulatory rider expenses	18,413		15,330		29,114		27,072
Depreciation and amortization	26,848		27,516		54,210		52,153

Total operating expenses	600,979		541,131		943,804		1,051,549
OPERATING INCOME	201,208		98,483		312,688		203,101
Other income, net	5,007		7,261		9,124		7,547
Interest expense, net of capitalized interest	20,153		19,203		39,939		35,273
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES	186,062		86,541		281,873		175,375
Income tax provision	39,057		16,284		56,498		32,755
Equity in earnings of affiliates	2,804		3,589		5,479		6,978
NET INCOME	$	149,809	$	73,846	$	230,854	$	149,598

EARNINGS PER COMMON SHARE
Basic	$1.56		$0.78		$2.40		$1.60
Diluted	$1.55		$0.77		$2.39		$1.59
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	96,248		95,584		96,181		93,747
Diluted	96,618		95,890		96,598		94,073

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands, except per share data) 2020 2019 2020
2019
OPERATING REVENUES
Utility $ 128,532
$ 120,782
$ 645,375
$ 622,167
Nonutility 170,442
314,160
908,249
1,490,797
Total operating revenues 298,974
434,942
1,553,624
2,112,964
OPERATING EXPENSES
Gas purchases:
Utility 45,665
54,861
249,042
280,627
Nonutility 166,761
289,757
802,501
1,370,408
Related parties 1,518
2,126
4,548
6,455
Operation and maintenance 68,541
64,932
198,718
194,298
Regulatory rider expenses 5,464
4,136
32,536
32,159
Depreciation and amortization 31,216
23,149
89,758
67,292
Total operating expenses 319,165
438,961
1,377,103
1,951,239
OPERATING (LOSS) INCOME (20,191 ) (4,019 ) 176,521
161,725
Other income, net 2,713
1,829
10,260
5,456
Interest expense, net of capitalized interest 15,144
11,648
50,417
37,643
(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES (32,622 ) (13,838 ) 136,364
129,538
Income tax benefit (2,190 ) (1,941 ) (4,092 ) (11,854 )
Equity in earnings of affiliates 3,213
3,495
10,191
10,027
NET (LOSS) INCOME $ (27,219 ) $ (8,402 ) $ 150,647
$ 151,419

EARNINGS PER COMMON SHARE
Basic $(0.28) $(0.09) $1.60 $1.70
Diluted $(0.28) $(0.09) $1.59 $1.69
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 95,764
89,600
94,420
88,995
Diluted 95,764
89,600
94,718
89,402

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Net income	$	149,809	$	73,846	$	230,854	$	149,598
Other comprehensive income, net of tax


Reclassifications of losses to net income on derivatives designated as hedging instruments, net of tax of $(79), $0, $(191) and $0, respectively	263		0		494		0
Loss on derivatives designated as hedging instruments, net of tax of $0, $2,781, $0 and $2,781, respectively	0		(9,711)		0		(9,711)
Adjustment to postemployment benefit obligation, net of tax of $(244), $(1,753), $(489) and $(1,970), respectively	813		6,100		1,625		6,859
Other comprehensive income (loss)	$	1,076	$	(3,611)	$	2,119	$	(2,852)
Comprehensive income	$	150,885	$	70,235	$	232,973	$	146,746

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Net (loss) income $ (27,219 ) $ (8,402 ) $ 150,647
$ 151,419
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) $ 37
$ 305
$ (2,815 ) $ 844
Comprehensive (loss) income $ (27,182 ) $ (8,097 ) $ 147,832
$ 152,263

(Thousands) Investments in Equity Securities Cash Flow Hedges Postemployment Benefit Obligation Total
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 (loss) income, ~~(loss),~~ net of related tax effects during the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020:


(Thousands)	Cash Flow Hedges		Postemployment Benefit Obligation			Total
Balance at September 30, 2020	$	(10,397)	$	(33,918)		$	(44,315)
Other comprehensive income, net of tax

Amounts reclassified from accumulated other comprehensive income, net of tax of $(191), $(489), $(680), respectively	494		1,625		(1)	2,119


Balance at March 31, 2021	$	(9,903)	$	(32,293)		$	(42,196)

Balance at September 30, 2019	$	0	$	(31,787)		$	(31,787)
Other comprehensive income, net of tax
Other comprehensive (loss) income, before reclassifications, net of tax of $2,781, $(1,681), $1,100	(9,711)		5,378			(4,333)
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(289) and $(289)	0		1,481		(1)	1,481
Net current-period other comprehensive income, net of tax of $2,781, $(1,970), $811	(9,711)		6,859			(2,852)

Balance at March 31, 2020	$	(9,711)	$	(24,928)		$	(34,639)

(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.

Change in Accounting Policy

Effective October 1, 2020, the Company changed its method of accounting for ITCs at Clean Energy Ventures from the flow through method to the deferral method. Prior to the change, the Company recognized ITCs as a reduction of income tax expense in the period that the qualified solar energy property, to which it relates, was placed in service. Effective with the accounting change, the Company records ITCs as a reduction to the carrying value of the related asset when placed in service and ~~2019:~~recognizes ITCs in earnings as a reduction to depreciation expense over the productive life of the related property. The deferral method is considered the preferred method per the authoritative guidance as described in ASC 740 - Income Taxes. The change to the deferral method is also consistent with the application of authoritative accounting guidance throughout other reporting segments and promotes proper matching of the benefits of the recognition of the ITC with the expected use of the asset.

(Thousands) Investments in Equity Securities Cash Flow Hedges Postemployment Benefit Obligation Total
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 )
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
Reclassification to retained earnings $ (3,446 )
⁽²⁾

$ —
$ (3,446 )
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.~~


~~(2)~~	~~Due to the adoption of ASU No. 2016-01, an amendment to ASC 825,~~ ~~Financial Instruments~~.

The Company applied the change in accounting method retrospectively to all prior periods presented.

~~Reclassification~~

~~Certain prior period amounts related to energy and other taxes~~The impact of the change in accounting policy on the Unaudited Condensed Consolidated Statements of Operations ~~and prepaid expenses~~during the three months ended March 31, 2020 is as follows:


	As Previously		Effect of	As
(Thousands)	Reported		Change	Adjusted
Depreciation and amortization	$	30,784	(3,268)	$	27,516
Total operating expenses	$	544,399	(3,268)	$	541,131
Operating income	$	95,215	3,268	$	98,483
Income before income taxes and equity in earnings of affiliates	$	83,273	3,268	$	86,541
Income tax (benefit) expense	$	(1,643)	17,927	$	16,284
Net income	$	88,505	(14,659)	$	73,846
Earnings per common share
Basic	$	0.93	(0.15)	$	0.78
Diluted	$	0.92	(0.15)	$	0.77

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The impact of the change in accounting policy on the Unaudited Condensed Consolidated Statements of Operations during the six months ended March 31, 2020 is as follows:


	As Previously		Effect of	As
(Thousands)	Reported		Change	Adjusted
Depreciation and amortization	$	58,542	(6,389)	$	52,153
Total operating expenses	$	1,057,938	(6,389)	$	1,051,549
Operating income	$	196,712	6,389	$	203,101
Income before income taxes and equity in earnings of affiliates	$	168,986	6,389	$	175,375
Income tax (benefit) expense	$	(1,902)	34,657	$	32,755
Net income	$	177,866	(28,268)	$	149,598
Earnings per common share
Basic	$	1.90	(0.30)	$	1.60
Diluted	$	1.89	(0.30)	$	1.59

The cumulative effect of the change in accounting policy on the Unaudited Condensed Consolidated Balance Sheets ~~and Unaudited Consolidated Condensed Statements~~as of ~~Cash Flows have been reclassified to conform to~~September 30, 2020 is as follows:


	As Previously		Effect of	As
(Thousands)	Reported		Change	Adjusted
Assets
Nonutility plant and equipment, at cost	$	1,430,723	(322,211)	$	1,108,512
Accumulated depreciation and amortization, nonutility plant and equipment	$	(202,507)	61,945	$	(140,562)
Property, plant and equipment, net	$	3,983,035	(260,266)	$	3,722,769
Other noncurrent assets	$	78,716	6,941	$	85,657
Total noncurrent assets	$	964,435	6,941	$	971,376
Total assets	$	5,569,802	(253,325)	$	5,316,477
Capitalization
Retained earnings	$	1,148,297	(200,796)	$	947,501
Common stock equity	$	1,844,692	(200,796)	$	1,643,896
Total capitalization	$	4,104,158	(200,796)	$	3,903,362
Liabilities
Deferred income taxes	$	190,610	(52,529)	$	138,081
Total noncurrent liabilities	$	931,922	(52,529)	$	879,393
Total capitalization and liabilities	$	5,569,802	(253,325)	$	5,316,477

The impact of the ~~current period presentation. Certain amounts related to software costs~~change in accounting policy on the Unaudited Condensed Consolidated ~~Balance Sheets have been reclassified to utility plant construction work~~Statements of Cash Flows as of March 31, 2020 is as follows:


	As Previously		Effect of	As
(Thousands)	Reported		Change	Adjusted
Depreciation and amortization	$	58,542	(6,389)	$	52,153
Deferred income taxes	$	318	34,657	$	34,975

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The impact of the change in ~~progress to conform to~~accounting policy on the ~~current period presentation.~~Unaudited Condensed Consolidated Statements of Common Stock Equity as of March 31, 2020 is as follows:


	As Previously		Effect of	As
(Thousands)	Reported		Change	Adjusted
Retained Earnings
Balance at September 30, 2019	$	1,075,960	(206,102)	$	869,858
Net income	$	89,361	(13,609)	$	75,752
Balance at December 31, 2019	$	1,135,475	(219,711)	$	915,764
Net income	$	88,505	(14,659)	$	73,846
Balance at March 31, 2020	$	1,194,092	(234,370)	$	959,722
Total
Balance at September 30, 2019	$	1,551,717	(206,102)	$	1,345,615
Net income	$	89,361	(13,609)	$	75,752
Balance at December 31, 2019	$	1,827,803	(219,711)	$	1,608,092
Net income	$	88,505	(14,659)	$	73,846
Balance at March 31, 2020	$	1,889,107	(234,370)	$	1,654,737

Recently Adopted Updates to the Accounting Standards Codification

~~Leases~~Financial Instruments

In ~~February~~June 2016, the FASB issued ASU No. ~~2016-02,~~2016-13, an amendment to ASC ~~842,~~326, ~~Leases~~Financial Instruments - Credit Losses, which ~~along with other ASU's containing minor amendments~~changes the impairment model for certain financial assets that have a contractual right to receive cash, including trade and ~~technical corrections, provides for~~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 ~~comprehensive overhaul~~cumulative-effect adjustment to retained earnings as of the ~~lease accounting model~~beginning of the first reporting period in which the guidance is effective. The Company assessed the impact of the guidance on NJR's reserve methodologies and ~~changes~~credit policies and procedures for any assets that could be impacted, noting the ~~definition~~majority of NJR's financial assets are short-term in nature, such as trade receivables and unbilled revenues.

The Company completed its evaluation of this amendment and all subsequent amendments related to this topic and adopted this guidance on October 1, 2020 using the modified retrospective method. The adoption did not result in a ~~lease~~cumulative effect adjustment to retained earnings as the current expected lifetime loss estimates were not materially different from the reserves already in place.

The Company segregates financial assets that fall within the ~~accounting literature. Under the new standard, all leases with an original term greater than~~scope of ASC 326, primarily trade receivables and unbilled revenues due in one year or less, into portfolio segments based on shared risk characteristics, such as geographical location and regulatory environment, for evaluation of expected credit losses. Historical and current information, such as average write-offs, are ~~recorded~~applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables. Additionally, the ~~balance sheet. The related asset~~allowance for losses on uncollectible receivables is ~~amortized straight-line over the term~~adjusted for reasonable and supportable forecasts of ~~the lease. Additional disclosures are required to provide transparency~~future economic conditions, which can include changing weather, commodity prices, regulations, and macroeconomic factors, such as ~~to the amount, timing and uncertainty of cash flows arising from leasing activities.~~unemployment rates among others.

Fair Value

In ~~January~~August 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 as of October 1, 2019. The Company adopted this practical 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, if any. The Company elected this transition method and did not have any cumulative impact to the opening balance of retained earnings.

The Company’s other practical expedient elections include the package of practical expedients whereby the Company was not required to reassess all of its leases identified, lease classifications and initial direct costs associated with leases. The Company also elected to not separate non-lease components from lease components and elected to exclude short-term leases from the recognition requirements of ASC 842. The Company did not elect 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 on October 1, 2019, using the modified retrospective transition method.

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 sale-leaseback of its natural gas meters. The total right-of-use assets and operating lease liabilities recorded upon adoption were $67.1 million. Upon the 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,~~2018-13, an amendment to ASC ~~815~~820, ~~, Derivatives and Hedging~~Fair Value Measurement, which ~~along with other ASU's containing minor amendments~~removes, modifies and ~~technical corrections, is intended~~adds to ~~make targeted improvements to~~certain disclosure requirements of fair value measurements. Disclosure requirements removed include the ~~accounting~~amount of and reasons for ~~hedging activities by better aligning an entity’s risk management activities~~transfers between Level 1 and ~~financial reporting for hedging relationships. These amendments modify the accounting for both nonfinancial and financial risk components and align the recognition and presentation~~Level 2 of the ~~effects~~fair value hierarchy, the policy for timing of ~~the hedging instrument~~transfers between levels and the ~~hedged item~~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 ~~financial statements. Additionally,~~period in other comprehensive income for recurring Level 3 fair value measurements held and the ~~amendments are intended~~range and weighted average of significant unobservable inputs used to ~~simplify the application of the hedge accounting guidance and provide relief to companies by easing certain hedge documentation requirements.~~develop Level 3 fair value measurements. The Company adopted this guidance on October 1, ~~2019. As October~~2020 on a prospective basis. The Company does not have either Level 3 fair value measurements or transfers between Level 1 ~~2019, the Company did not apply hedge accounting to~~or Level 2 in its ~~risk management activities,~~current portfolios, and therefore, ~~the amendments~~this ASU did not have an impact ~~on its~~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)

Compensation - Retirement Benefits

In ~~October~~August 2018, the FASB issued ASU No. ~~2018-16,~~2018-14, an amendment to ASC ~~815,~~715, ~~Derivatives and Hedging~~Compensation - Retirement Benefits, which ~~permits~~removes disclosures that no longer are considered cost-beneficial, clarifies the ~~use~~specific requirements of ~~the Overnight Index Swap rate based on the Secured Overnight Financing Rate~~certain disclosures and adds new disclosure requirements identified as ~~an additional acceptable U.S. benchmark interest rate for hedge accounting purposes.~~relevant. The Company adopted this guidance on October 1, 2019. As the Company did not apply hedge accounting to any of its risk management activities as of October 1, 2019, the amendments did not have an impact on its financial position, results of operations or cash 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.~~2020. 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,~~January 2021, the FASB issued ASU ~~No. 2020-04, an amendment to~~2021-01, which refines the scope of ASC 848, Reference Rate Reform, ~~which provides relief for companies preparing for discontinuation~~and clarifies some of ~~interest rates such as LIBOR.~~its guidance of global reference rate reform activities. The amendments in this update ~~provide~~permits entities to elect certain optional expedients and exceptions when accounting for ~~applying GAAP to~~derivative contracts and certain hedging relationships ~~and other transactions~~ affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform ~~if certain criteria are met.~~activities under way in global financial markets (the “discounting transition”). 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, 2020, with early adoption permitted. The Company is in 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 majority of NJR's financial 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 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. 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 have an impact on the Company's financial statements and 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 amended 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~~simplifies 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~~requires 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~~these amendments but does not expect that its pending adoption will have a material effect on its consolidated financial statements.

Other

In October 2020, the FASB issued ASU 2020-10, which clarifies application of various provisions in the ASC by amending and adding new headings, cross referencing to other guidance, and refining or correcting terminology. It also improves the consistency by amending the ASC to include all disclosure guidance in the appropriate section. The guidance is effective for the Company on October 1, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of these amendments 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:
Segment	Performance Obligation	Description
Natural Gas Distribution	Natural gas utility sales	NJNG's performance obligation is to provide natural gas to residential, commercial and industrial customers as demanded, based on regulated tariff rates, which are established by the BPU. Revenues from the sale of natural gas are recognized in the period that gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period. Payment is due each month for the previous month's deliveries. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates. NJNG is entitled to be compensated for performance completed until service is terminated. Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers. As NJNG is acting as an agent on behalf of the third-party supplier, revenue is recorded for the delivery of natural gas to the customer.
Clean Energy Ventures	Commercial solar ~~and wind~~ electricity	Clean Energy Ventures operates wholly-owned solar projects that recognize revenue as electricity is generated and transferred to the customer. The performance obligation is to provide electricity to the customer in accordance with contract terms or the interconnection agreement and is satisfied upon transfer of electricity generated. ~~All wind assets were 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 Ventures	Residential 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.
Clean Energy Ventures	Transition renewable energy certificates	Clean Energy Ventures generates TRECs, which are created for every MWh of electricity produced by a solar generator. The performance obligation of Clean Energy Ventures is to generate electricity and TRECs, which are purchased monthly by a REC Administrator. Revenue is recognized upon generation.
Energy Services	Natural gas services	The performance obligation of Energy Services is to provide the customer transportation, storage and asset management services on an as-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.
~~Midstream~~Storage and Transportation	Natural gas services	The performance obligation of ~~Midstream~~the Storage and Transportation segment is to provide the customer with storage and transportation services. ~~Midstream~~The Storage and Transportation segment 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 Other	Service 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-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:
~~Midstream~~Storage and Transportation	Natural gas services	The performance obligation of ~~Midstream~~the Storage and Transportation segment is to provide the customer with storage and transportation services. ~~Midstream~~The Storage and Transportation segment 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 Other	Installations	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~~recognized 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,~~March 31, 2021 and 2020, is as follows:


(Thousands)	Natural Gas Distribution		Clean Energy Ventures		Energy Services	Storage and Transportation	Home Services and Other	Total
2021
Natural gas utility sales	$	296,888	0		0	0	0	$	296,888
Natural gas services	0		0		11,011	13,926	0	24,937
Service contracts	0		0		0	0	8,314	8,314
Installations and maintenance	0		0		0	0	4,459	4,459
Renewable energy certificates	0		817		0	0	0	817
Electricity sales	0		4,882		0	0	0	4,882
Eliminations (1)	0		0		0	(669)	(252)	(921)
Revenues from contracts with customers	296,888		5,699		11,011	13,257	12,521	339,376
Alternative revenue programs (2)	(6,664)		0		0	0	0	(6,664)
Derivative instruments	19,943		777	(3)	451,558	0	0	472,278
Eliminations (1)	0		0		(2,803)	0	0	(2,803)
Revenues out of scope	13,279		777		448,755	0	0	462,811
Total operating revenues	$	310,167	6,476		459,766	13,257	12,521	$	802,187
2020
Natural gas utility sales	$	266,868	0		0	0	0	$	266,868
Natural gas services	0		0		9,634	11,076	0	20,710
Service contracts	0		0		0	0	8,073	8,073
Installations and maintenance	0		0		0	0	4,292	4,292

Electricity sales	0		4,458		0	0	0	4,458
Eliminations (1)	0		0		0	(675)	(326)	(1,001)
Revenues from contracts with customers	266,868		4,458		9,634	10,401	12,039	303,400
Alternative revenue programs (2)	22,073		0		0	0	0	22,073
Derivative instruments	8,279		1,537		304,067	0	0	313,883
Eliminations (1)	0		0		258	0	0	258
Revenues out of scope	30,352		1,537		304,325	0	0	336,214
Total operating revenues	$	297,220	5,995		313,959	10,401	12,039	$	639,614

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Midstream
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 customers 124,888
5,294
3,536
11,143
12,163
157,024
Alternative revenue programs (2,665 ) —
—
—
—
(2,665 )
Derivative Instruments 6,309
8,102
⁽²⁾
130,007
—
—
144,418
Eliminations ⁽¹⁾
—
—
197
—
—
197
Revenues out of scope 3,644
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 customers 115,525
4,745
3,876
—
12,627
136,773
Alternative revenue programs 2,025
—
—
—
—
2,025
Derivative Instruments 3,232
6,705
⁽²⁾
286,145
—
—
296,082
Eliminations ⁽¹⁾
—
—
62
—
—
62
Revenues out of scope 5,257
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 CIP revenue.

(3)Includes SREC revenue.


~~(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 ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ is as follows:


(Thousands)	Natural Gas Distribution		Clean Energy Ventures		Energy Services	Storage and Transportation	Home Services and Other	Total
2021
Natural gas utility sales	$	486,252	0		0	0	0	$	486,252
Natural gas services	0		0		17,439	27,030	0	44,469
Service contracts	0		0		0	0	16,573	16,573
Installations and maintenance	0		0		0	0	8,777	8,777
Renewable energy certificates	0		1,507		0	0	0	1,507
Electricity sales	0		9,270		0	0	0	9,270
Eliminations (1)	0		0		0	(1,326)	(419)	(1,745)
Revenues from contracts with customers	486,252		10,777		17,439	25,704	24,931	565,103
Alternative revenue programs (2)	(5,096)		0		0	0	0	(5,096)
Derivative instruments	24,740		2,069	(3)	674,607	0	0	24,740
Eliminations (1)	0		0		(4,931)	0	0	(4,931)
Revenues out of scope	19,644		2,069		669,676	0	0	691,389
Total operating revenues	$	505,896	12,846		687,115	25,704	24,931	$	1,256,492
2020
Natural gas utility sales	$	486,762	0		0	0	0	$	486,762
Natural gas services	0		0		16,955	20,148	0	37,103
Service contracts	0		0		0	0	16,111	16,111
Installations and maintenance	0		0		0	0	9,161	9,161

Electricity sales	0		8,476		0	0	0	8,476
Eliminations (1)	0		0		0	(1,342)	(741)	(2,083)
Revenues from contracts with customers	486,762		8,476		16,955	18,806	24,531	555,530
Alternative revenue programs (2)	20,130		0		0	0	0	20,130
Derivative instruments	9,951		3,731	(3)	667,161	0	0	680,843
Eliminations (1)	0		0		(1,853)	0	0	(1,853)
Revenues out of scope	30,081		3,731		665,308	0	0	699,120
Total operating revenues	$	516,843	12,207		682,263	18,806	24,531	$	1,254,650

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Midstream
Home Services
and Other
Total
2020
Natural gas utility sales $ 611,650
—
—
—
—
$ 611,650
Natural gas services —
—
20,491
32,011
—
52,502
Service contracts —
—
—
—
24,237
24,237
Installations and maintenance —
—
—
—
13,404
13,404
Electricity sales —
13,770
—
—
—
13,770
Eliminations ⁽¹⁾
—
—
—
(2,062 ) (947 ) (3,009 )
Revenues from contracts with customers 611,650
13,770
20,491
29,949
36,694
712,554
Alternative revenue programs 17,465
—
—
—
—
17,465
Derivative Instruments 16,260
11,833
(2) 797,168
—
—
825,261
Eliminations ⁽¹⁾
—
—
(1,656 ) —
—
(1,656 )
Revenues out of scope 33,725
11,833
795,512
—
—
841,070
Total operating revenues $ 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 customers 598,676
16,944
26,204
—
36,253
678,077
Alternative revenue programs 9,059
—
—
—
—
9,059
Derivative Instruments 14,432
20,763
(2) 1,398,909
—
—
1,434,104
Eliminations ⁽¹⁾
—
—
(8,276 ) —
—
(8,276 )
Revenues out of scope 23,491
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.


~~(1)~~	~~Consists of transactions between subsidiaries that are eliminated in consolidation.~~


~~(2)~~	~~Includes SREC revenue.~~

(2)Includes CIP revenue.

(3)Includes SREC revenue.

Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ is as follows:


(Thousands)	Natural Gas Distribution		Clean Energy Ventures	Energy Services	Storage and Transportation	Home Services and Other	Total
2021
Residential	$	225,174	2,692	0	0	12,234	$	240,100
Commercial and industrial	42,824		3,007	11,011	13,257	287	70,386
Firm transportation	28,190		0	0	0	0	28,190
Interruptible and off-tariff	700		0	0	0	0	700
Revenues out of scope	13,279		777	448,755	0	0	462,811
Total operating revenues	$	310,167	6,476	459,766	13,257	12,521	$	802,187
2020
Residential	$	199,776	2,469	0	0	11,831	$	214,076
Commercial and industrial	41,635		1,989	9,634	10,401	208	63,867
Firm transportation	24,123		0	0	0	0	24,123
Interruptible and off-tariff	1,334		0	0	0	0	1,334
Revenues out of scope	30,352		1,537	304,325	0	0	336,214
Total operating revenues	$	297,220	5,995	313,959	10,401	12,039	$	639,614

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Midstream
Home Services
and Other
Total
2020
Residential $ 89,095
2,587
—
—
11,845
$ 103,527
Commercial and industrial 20,050
2,707
3,536
11,143
318
37,754
Firm transportation 14,331
—
—
—
—
14,331
Interruptible and off-tariff 1,412
—
—
—
—
1,412
Revenues out of scope 3,644
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 industrial 37,511
2,441
3,876
—
239
44,067
Firm transportation 12,296
—
—
—
—
12,296
Interruptible and off-tariff 1,734
—
—
—
—
1,734
Revenues out of scope 5,257
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 ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ is as follows:


(Thousands)	Natural Gas Distribution		Clean Energy Ventures	Energy Services	Storage and Transportation	Home Services and Other	Total
2021
Residential	$	362,398	5,414	0	0	24,438	$	392,250
Commercial and industrial	72,053		5,363	17,439	25,704	493	121,052
Firm transportation	49,294		0	0	0	0	49,294
Interruptible and off-tariff	2,507		0	0	0	0	2,507
Revenues out of scope	19,644		2,069	669,676	0	0	691,389
Total operating revenues	$	505,896	12,846	687,115	25,704	24,931	$	1,256,492

2020
Residential	$	352,998	4,929	0	0	24,110	$	382,037
Commercial and industrial	87,057		3,547	16,955	18,806	421	126,786
Firm transportation	43,712		—	0	0	0	43,712
Interruptible and off-tariff	2,995		0	0	0	0	2,995
Revenues out of scope	30,081		3,731	665,308	0	0	699,120
Total operating revenues	$	516,843	12,207	682,263	18,806	24,531	$	1,254,650

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Midstream
Home Services
and Other
Total
2020
Residential $ 442,093
7,516
—
—
35,955
$ 485,564
Commercial and industrial 107,107
6,254
20,491
29,949
739
164,540
Firm transportation 58,043
—
—
—
—
58,043
Interruptible and off-tariff 4,407
—
—
—
—
4,407
Revenues out of scope 33,725
11,833
795,512
—
—
841,070
Total operating revenues $ 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 industrial 139,691
10,317
26,204
—
731
176,943
Firm transportation 52,006
—
—
—
—
52,006
Interruptible and off-tariff 4,787
—
—
—
—
4,787
Revenues out of scope 23,491
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 resulting in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Unaudited Condensed Consolidated Balance Sheets during ~~the nine~~six months ended ~~June 30, 2020,~~March 31, 2021 are as follows:


	Customer Accounts Receivable				Customers' Credit
(Thousands)	Billed		Unbilled		Balances and Deposits
Balance as of October 1, 2020	$	134,173	$	9,226	$	25,934
Increase (Decrease)	103,056		32,715		(5,171)
Balance as of March 31, 2021	$	237,229	$	41,941	$	20,763

Customer Accounts Receivable Customers' Credit
(Thousands) Billed Unbilled Balances and Deposits
Balance as of October 1, 2019 $ 139,263
$ 6,510
$ 27,116
Increase (decrease) 3,796
2,228
(7,060 )
Balance as of June 30, 2020 $ 143,059
$ 8,738
$ 20,056

The following table provides information about receivables, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits, respectively, on the Unaudited Condensed Consolidated Balance Sheets as of ~~June 30, 2020:~~March 31, 2021:


(Thousands)	Natural Gas Distribution		Clean Energy Ventures	Energy Services	Storage and Transportation	Home Services and Other	Total

Customer accounts receivable
Billed	$	119,845	4,794	107,353	3,437	1,800	$	237,229
Unbilled	39,652		2,289	0	0	0	41,941
Customers' credit balances and deposits	(20,763)		0	0	0	0	(20,763)
Total	$	138,734	7,083	107,353	3,437	1,800	$	258,407

(Thousands) Natural Gas Distribution Clean Energy Ventures Energy Services Midstream
Home Services
and Other
Total
Customer accounts receivable
Billed $ 78,370
3,469
55,364
3,828
2,028
$ 143,059
Unbilled 8,738
—
—
—
—
8,738
Customers' credit balances and deposits (20,056 ) —
—
—
—
(20,056 )
Total $ 67,052
3,469
55,364
3,828
2,028
$ 131,741

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 permitted to implement certain BGSS rate changes on a provisional basis with proper notification to the BPU.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets for NJNG are comprised of the following:


(Thousands)	March 31, 2021		September 30, 2020
Regulatory assets-current
New Jersey Clean Energy Program	$	6,147	$	15,570
Conservation Incentive Program	14,025		19,120

Derivatives at fair value, net	1,509		0
Other current regulatory assets	1,730		1,682
Total current regulatory assets	$	23,411	$	36,372
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries	$	37,476	$	36,516
Liability for future expenditures	143,495		150,590
Deferred income taxes	31,603		28,241
Derivatives at fair value, net	4		1
SAVEGREEN	21,842		21,281
Postemployment and other benefit costs	180,360		188,170
Deferred storm damage costs	5,429		6,515
Cost of removal	82,353		75,080

Other noncurrent regulatory assets	17,952		20,068
Total noncurrent regulatory assets	$	520,514	$	526,462
Regulatory liability-current
Overrecovered natural gas costs	$	541	$	25,914


Derivatives at fair value, net	176		274
Total current regulatory liabilities	$	717	$	26,188
Regulatory liabilities-noncurrent
Tax Act impact (1)	$	192,895	$	195,425
Derivatives at fair value, net	0		352

Other noncurrent regulatory liabilities	759		509
Total noncurrent regulatory liabilities	$	193,654	$	196,286

(Thousands) June 30,
2020 September 30,
2019
Regulatory assets-current
New Jersey Clean Energy Program $ 17,062
$ 15,468
Under-recovered gas costs —
9,506
Conservation Incentive Program 20,836
3,371
Derivatives at fair value, net 9,845
4,526
Other 4,508
—
Total current regulatory assets $ 52,251
$ 32,871
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries $ 36,053
$ 38,351
Liability for future expenditures 128,886
131,080
Deferred income taxes 22,477
19,631
Derivatives at fair value, net —
486
SAVEGREEN 15,229
10,201
Postemployment and other benefit costs 161,847
212,461
Deferred storm damage costs 7,058
8,687
Cost of removal 62,831
65,660
Other noncurrent regulatory assets 16,720
10,080
Total noncurrent regulatory assets $ 451,101
$ 496,637
Regulatory liabilities-current
Over-recovered gas costs 6,774
—
Total current regulatory liabilities $ 6,774
$ —
Regulatory liabilities-noncurrent
Tax Act impact ⁽¹⁾
$ 196,705
$ 200,417
New Jersey Clean Energy Program 128
197
Other noncurrent regulatory liabilities 448
1,821
Total noncurrent regulatory liabilities $ 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.


~~(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 assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets for Adelphia Gateway are comprised of the following:


(Thousands)	March 31, 2021		September 30, 2020
Total current regulatory assets	$	116	$	158
Total noncurrent regulatory assets	$	1,514	$	997

Total-noncurrent regulatory liabilities	$	164	$	0

The assets are comprised primarily of the tax benefit associated with the equity component of AFUDC and the liability consists primarily of scheduling penalties. Recovery of regulatory assets is subject to FERC approval.

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

•On October ~~25, 2019,~~28, 2020, the BPU approved ~~NJNG’s annual filing to increase its EE recovery rate, which resulted in an annual recovery~~the Company’s transmission and distribution component of ~~approximately $11.3~~the IIP for $150.0 million over five years, effective November 1, ~~2019.~~2020. The recovery of information technology replacement and enhancements, that was included in the original IIP filing, will be included as part of base rate filings as projects are placed in service.

•On November ~~13, 2019,~~20, 2020, NJNG notified the BPU ~~issued an order adopting a stipulation~~ of ~~settlement approving a $62.2~~its intent to provide BGSS bill credits to residential and small commercial sales customers effective December 1, 2020 to December 31, 2020. On December 22, 2020, NJNG notified the BPU of the extension of the BGSS bill credits through January 31, 2021. The actual bill credits given to customers totaled $20.6 million, ~~increase to base rates, effective on November 15, 2019. The increase includes an overall rate~~$19.3 million net 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.~~tax.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

•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~~3, 2021, the BPU ~~requesting a base rate increase~~approved the three-year SAVEGREEN program consisting 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$126.1 million of ~~actual capital investments. Changes to base rates are anticipated~~direct investment, $109.4 million in financing options, and $23.4 million in operation and maintenance expenses, to be effective ~~October~~July 1, ~~2020.~~2021.

•On ~~May 29, 2020, NJNG filed its~~March 3, 2021, the BPU approved, on a final basis, NJNG’s annual petition ~~with the BPU~~ to ~~decrease~~modify its BGSS, ~~rate~~balancing charge and CIP rates for residential and small commercial customers. The rate changes ~~will result~~resulted in a $20.4 million decrease to the annual revenues credited to BGSS, a ~~$3.9~~$3.8 million annual decrease related to its balancing charge, as well as changes to CIP rates, which ~~will result~~resulted in a ~~$22.3~~$16.5 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)~~

•On March 30, 2021, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $165.7 million including a rate recovery for SRL and other infrastructure investments. SRL is expected to be placed in service during fiscal 2021.

•On ~~May 29, 2020,~~March 31, 2021, NJNG filed a petition with the BPU torequesting the final base rate increase ~~its EE recovery rate, which will result in an annual decrease~~ of approximately ~~$70,000,~~$311,000 for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $3.4 million made through June 30, 2021. This filing will be updated for actual information through June 30, 2021. Changes to base rates are anticipated to be effective October 1, ~~2020.~~2021.

•On ~~June 25, 2020, NJNG filed its~~April 7, 2021, the BPU approved a stipulation resolving NJNG’s annual ~~USF compliance filing proposing a decrease~~SBC application requesting to recover remediation expenses including an increase in the RAC, of approximately $1.3 million annually and an increase to the ~~statewide USF rate, which will result~~NJCEP factor, resulting in ~~the~~an annual ~~recovery decreasing by~~increase of approximately ~~$400,000, to be~~$6 million, effective ~~October~~April 1, ~~2020.~~2021.

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 and may utilize foreign currency derivatives to hedge Canadian dollar denominated natural gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations in interest rates. All of these types of contracts are accounted for as ~~derivatives.~~derivatives, unless the Company elects NPNS, which is done on a contract-by-contract election. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. For a more detailed discussion of the ~~Company's~~Company’s fair value measurement policies and level disclosures associated with ~~NJR's~~the Company’s derivative instruments, see Note 6. Fair Value.

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 natural 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 natural gas purchases and realized gains and losses on all physical derivatives follow the presentation of the related unrealized gains and losses as a component of either natural gas purchases or operating revenues.

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 natural 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 natural 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

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.~~a portfolio basis. However, since NPNS is a contract-by-contract election, where it makes sense to do so, NJNG can and may elect to treat certain contracts ~~to be~~as 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 natural 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 February 2020 and March 2020, NJNG entered into treasury lock transactions to fix the benchmark treasury rate associated with a ~~forecasted~~$75 million debt ~~issuance expected during~~tranche that was issued in September 2020. Settlement of the ~~fiscal year. The change~~treasury locks resulted in ~~fair value of NJNG's treasury lock agreement is~~a $6.6 million loss, which was recorded as a component of regulatory assets ~~or liabilities~~ on the Unaudited Condensed Consolidated Balance ~~Sheets since NJNG believes that the market value upon settlement will be reflected in future rates. Upon settlement, any gain or~~Sheets. The loss ~~will be~~is being amortized ininto earnings over the ~~life~~term of the ~~future~~ debt ~~issuance~~ as a component of interest expense on the Unaudited Condensed Consolidated Statements of ~~Operations.~~Operations, which totaled $54,000 and $114,000 during the three and six months ended March 31, 2021.

Clean Energy Ventures

The Company elects NPNS accounting treatment on PPA contracts ~~that~~executed by 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 to treat certain contracts ~~to be~~as normal.

Home Services and Other

~~In January 2018,~~During fiscal 2020, NJR entered into treasury lock transactions to fix the benchmark treasury rate associated with a ~~variable-for-fixed interest rate swap on~~$260 million debt issuance that was finalized in July 2020 and a $200 million debt issuance that was finalized in September 2020. NJR designated its ~~existing $100 million variable rate term loan, which fixed the variable rate at 2.84 percent. The swap terminated on August 16, 2019, which coincided with the maturity of the debt. The change~~treasury lock contracts as cash flow hedges, therefore, changes in ~~the~~ fair value of the ~~interest rate swap~~effective portion of the hedges were recorded in OCI. Settlement of the treasury locks in fiscal 2020 resulted in a loss of $13.7 million, which was recorded within OCI. The loss is being amortized into earnings over the term of the debt as a component of interest expense on the Unaudited Condensed Consolidated Statements of ~~Operations.~~

~~In February 2020~~Operations, which totaled $263,000 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~~$494,000, net of tax, 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.three and six months ended March 31, 2021.

Fair Value of Derivatives

The following table presents the fair value of NJR's derivative assets and liabilities recognized on the Unaudited Condensed Consolidated Balance Sheets as of:


			Derivatives at Fair Value
			March 31, 2021						September 30, 2020
(Thousands)	Balance Sheet Location	Assets			Liabilities			Assets			Liabilities
Derivatives not designated as hedging instruments:
Natural Gas Distribution:
Physical commodity contracts	Derivatives - current		$	177		$	1		$	78		$	76

Financial commodity contracts	Derivatives - current		589			88			71			282



Energy Services:
Physical commodity contracts	Derivatives - current		3,668			16,415			6,454			20,438
	Derivatives - noncurrent		1,364			20,090			1,264			12,003


Financial commodity contracts	Derivatives - current		12,770			7,166			16,671			12,965
	Derivatives - noncurrent		585			407			2,037			1,346
Foreign currency contracts	Derivatives - current		229			20			36			104
	Derivatives - noncurrent		28			9			48			3




Total fair value of derivatives			$	19,410		$	44,196		$	26,659		$	47,217

Fair Value
June 30, 2020 September 30, 2019
(Thousands) Balance Sheet Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Derivatives not designated as hedging instruments:
Natural Gas Distribution:
Physical commodity contracts Derivatives - current $ 66
$ 133
$ 67
$ 245
Financial commodity contracts Derivatives - current —
190
382
570
Interest rate contracts Derivatives - current —
5,056
—
—
Energy Services:
Physical commodity contracts Derivatives - current 5,440
17,242
6,847
27,540
Derivatives - noncurrent 2,671
22,448
1,710
12,641
Financial commodity contracts Derivatives - current 23,852
13,447
17,806
29,057
Derivatives - noncurrent 3,647
1,129
5,716
6,105
Foreign currency contracts Derivatives - current 9
230
1
211
Derivatives - noncurrent 29
23
—
75
Derivatives designated as hedging instruments:
Home Services and Other:
Interest rate contracts Derivatives - current —
10,796
—
—
Total fair value of derivatives $ 35,714
$ 70,694
$ 32,529
$ 76,444

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Weather ⁽¹⁾
$ (5,261 ) $ 4,530
$ 17,883
$ 2,699
Usage 3,061
(3,504 ) 1,783
(1,161 )
Total $ (2,200 ) $ 1,026
$ 19,666
$ 1,538

New Jersey Resources Corporation

~~(1)~~

~~Compared with the 20-year average, weather was 21.9 percent colder-than-normal and 25.5 percent warmer-than-normal during the three months ended~~ ~~June 30, 2020~~ ~~and 2019, respectively, and 7.6 percent and 0.6 percent warmer-than-normal during the nine months ended~~ ~~June 30, 2020~~ ~~and 2019, respectively.~~

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 natural 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.

NJNG’s residential and commercial markets are currently open to competition, and its rates are segregated between BGSS (i.e., natural gas commodity) and delivery (i.e., transportation) components. NJNG earns utility gross margin through the delivery of natural gas to its customers and, therefore, is not negatively affected by customers who use its transportation service and purchase natural gas from another supplier. Under an existing order from the BPU, BGSS can be provided by suppliers other than the state’s natural gas utilities; however, customers who purchase natural gas from another supplier continue to use NJNG for transportation service.

On March 27, 2020, the BPU approved, on a final basis, a decrease to NJNG’s BGSS rate for residential and small commercial customers, ~~and~~ an increase to its balancing charge rate, resulting in a $2$2.0 million decrease to the annual revenues credited to BGSS, as well as changes to the CIP rates, ~~resulting~~which resulted in a $10.6 million annual recovery increase, effective October 1, 2019.

On ~~May 29,~~November 20, 2020, NJNG ~~filed~~notified the BPU of its intent to provide BGSS bill credits to residential and small commercial sales customers effective December 1, 2020 to December 31, 2020. On December 22, 2020, NJNG notified the BPU of the extension of the BGSS bill credits through January 31, 2021. The actual bill credits given to customers totaled $20.6 million, $19.3 million net of tax.

On March 3, 2021, the BPU approved, on a final basis, NJNG’s annual petition ~~with the BPU~~ to ~~decrease~~modify its BGSS, ~~rate~~balancing charge and CIP rates for residential and small commercial customers. The rate changes ~~to the BGSS rate, the balancing charge and the CIP rates will result~~resulted in a $2$20.4 million ~~overall net~~ decrease to the annual revenues credited to BGSS, a $3.8 million annual decrease related to its balancing charge, as well as changes to CIP rates, which resulted in a $16.5 million annual recovery ~~anticipated to be~~increase, effective October 1, 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.

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 ~~$2.4~~$2.1 million and ~~$2.5~~$1.6 million during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, and $6.7 million and ~~$5.9~~$4.3 million during the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 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 natural gas sales volumes hedged by each November 1 and at least 25 percent of the projected periodic BGSS natural 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 energy 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 are shown in the graph below, which illustrates the daily natural gas prices⁽¹⁾ in the Northeast market region, also known as TETCO M-3.

(1) Data source from S&P Global Platts.

The maximum price per MMBtu was ~~$5.59~~$14.57 and ~~$9.17~~$5.59 and the minimum price was ~~$0.68~~$0.28 and ~~$1.25~~$0.68 for the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. A more detailed discussion of the impacts of the price of natural gas on operating revenues, natural 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. On June 24, 2019, NJNG filed its annual USF compliance filing proposing an increase to the statewide USF rate, which resulted 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~~$400,000. On September 23, 2020, the BPU approved the decrease, effective October 1, 2020.

On March 16, 2020, the BPU approved on a final basis NJNG's annual SBC application including recovery of remediation expenses, an increase in the RAC of approximately $1.2 million annually and an annual decrease to the NJCEP factor of $600,000, which was effective April 1, 2020.

On April 7, 2021, the BPU approved on a final basis NJNG's annual SBC application to recover remediation expenses, including an increase in the RAC, of approximately $1.3 million annually and an increase to the NJCEP factor, of approximately $6.0 million, which was effective April 1, 2021.

Environmental Remediation

NJNG is responsible for the ~~remedial cleanup~~environmental remediation of ~~certain~~ former MGP sites, ~~dating back to gas operations in the late 1800s and early 1900s,~~ which contain contaminated residues from former gas manufacturing ~~operations.~~operations that ceased operating at these sites by the mid-1950s and, in some cases, had been discontinued many years earlier. Actual MGP remediation costs may vary from management’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 ~~$128.9~~$143.5 million as of ~~June 30, 2020,~~March 31, 2021, a decrease of ~~$2.2~~$7.1 million compared with ~~September 30, 2019. On March 16, 2020, a stipulation was signed in NJNG's annual SBC application including recovery of remediation expenses, an increase in~~ the ~~RAC of approximately $1.2 million annually and an annual decrease to the NJCEP factor of $600,000. The stipulation is pending BPU approval.~~prior fiscal period.

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 initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership and if ~~there were~~ former MGP operations were 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~~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. 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 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 Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating revenues	$	310,167	$	297,220	$	505,896	$	516,843
Operating expenses
Natural gas purchases (1)	118,452		114,256		177,761		210,078
Operation and maintenance	52,951		39,815		96,589		76,000
Regulatory rider expense	18,413		15,330		29,114		27,072
Depreciation and amortization	19,475		18,100		38,644		34,917

Total operating expenses	209,291		187,501		342,108		348,067
Operating income	100,876		109,719		163,788		168,776
Other income, net	4,293		3,792		8,189		5,058
Interest expense, net of capitalized interest	9,006		7,473		17,980		15,305
Income tax provision	15,622		19,702		23,989		28,337
Net income	$	80,541	$	86,336	$	130,008	$	130,192

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating revenues $ 128,532
$ 120,782
$ 645,375
$ 622,167
Operating expenses
Gas purchases ⁽¹⁾
48,116
57,187
258,194
294,536
Operation and maintenance ⁽²⁾
39,344
45,138
115,344
124,471
Regulatory rider expense 5,464
4,136
32,536
32,159
Depreciation and amortization 18,269
14,689
53,186
42,557
Total operating expenses 111,193
121,150
459,260
493,723
Operating income (expense) 17,339
(368 ) 186,115
128,444
Other income, net 3,023
1,483
8,081
2,891
Interest expense, net of capitalized interest 7,455
6,301
22,760
18,166
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 $5.2 million and $2.7 million for the three months ended March 31, 2021 and 2020, respectively, and $8.4 million and $6.7 million for the six months ended March 31, 2021 and 2020, respectively, the majority of which is eliminated in consolidation.


~~(1)~~	~~Includes related party transactions of approximately $2.5 million and $2.3 million~~ ~~for the~~ ~~three months ended June 30, 2020 and 2019, respectively, and$9.2 million and $13.9 million for the nine months ended June 30, 2020 and 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 Natural Gas Purchases

During the three months ended ~~June 30, 2020~~,March 31, 2021, compared with the three months ended ~~June 30, 2019~~,March 31, 2020, operating revenues increased by ~~6.4~~4.4 percent and natural gas purchases increased 3.7 percent. During the six months ended March 31, 2021, compared with the six months ended March 31, 2020, operating revenues decreased by 2.1 percent and natural gas purchases decreased ~~15.9~~15.4 percent. ~~During the nine months ended~~ ~~June 30, 2020, compared with the nine months ended~~ ~~June 30, 2019, operating revenues increased by 3.7 percent and gas purchases decreased 12.3 percent.~~

The factors contributing to the increases and decreases in operating revenues and natural gas purchases are as follows:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2021 v. 2020				2021 v. 2020
(Thousands)	Operating revenues		Natural gas purchases		Operating revenues		Natural gas purchases
Firm sales	$	39,422	$	17,970	$	31,218	$	12,144
BGSS incentives	5,193		4,666		(5,682)		(8,058)
SAFE II/NJ RISE	2,681		—		5,012		—
Base rate impact	(117)		—		5,076		—
CIP adjustments	(20,546)		—		(12,321)		—
Average BGSS rates	(6,551)		(6,551)		(14,891)		(14,891)
Bill credits	(11,071)		(11,071)		(20,590)		(20,590)
Other (1)	3,936		(818)		1,231		(922)
Total increase (decrease)	$	12,947	$	4,196	$	(10,947)	$	(32,317)

(1)Other includes changes in rider rates, including those related to EE, NJCEP and other programs.

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 impact 14,314
—
48,580
—
CIP adjustments (3,226 ) —
18,128
—
SAFE II/NJ RISE 1,250
—
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)

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~~revenues 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 Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating revenues	$	310,167	$	297,220	$	505,896	$	516,843
Less:
Natural gas purchases	118,452		114,256		177,761		210,078
Regulatory rider expense	18,413		15,330		29,114		27,072
Utility gross margin	$	173,302	$	167,634	$	299,021	$	279,693

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating revenues $ 128,532
$ 120,782
$ 645,375
$ 622,167
Less:
Gas purchases 48,116
57,187
258,194
294,536
Regulatory rider expense 5,464
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 Ended						Six Months Ended
	March 31,						March 31,
	2021			2020			2021			2020
($ in thousands)	Margin		Bcf	Margin		Bcf	Margin		Bcf	Margin		Bcf
Utility gross margin/throughput
Residential	$	124,468	22.7	$	120,541	18.9	$	210,443	36.3	$	197,623	33.5
Commercial, industrial and other	23,050		4.3	22,884		3.6	40,090		6.7	38,071		6.4
Firm transportation	22,878		5.7	21,469		5.1	40,166		9.6	37,128		9.4
Total utility firm gross margin/throughput	170,396		32.7	164,894		27.6	290,699		52.6	272,822		49.3
BGSS incentive programs	2,114		23.6	1,587		28.2	6,692		49.5	4,316		56.1
Interruptible/off-tariff agreements	792		0.8	1,153		4.7	1,630		5.3	2,555		13.7
Total utility gross margin/throughput	$	173,302	57.1	$	167,634	60.5	$	299,021	107.4	$	279,693	119.1

Three Months Ended Nine Months Ended
June 30, June 30,
2020 2019 2020 2019
($ in thousands) Margin Bcf Margin Bcf Margin Bcf Margin Bcf
Utility gross margin/throughput
Residential $ 47,002
7.7
$ 35,914
5.9
$ 244,625
41.2
$ 199,698
43.0
Commercial, industrial and other 11,668
1.2
9,198
1.2
49,739
7.6
43,217
9.0
Firm transportation 12,655
2.3
10,259
2.5
49,783
11.7
42,526
12.1
Total utility firm gross margin/throughput 71,325
11.2
55,371
9.6
344,147
60.5
285,441
64.1
BGSS incentive programs 2,402
28.2
2,544
33.2
6,718
84.3
5,901
89.0
Interruptible/off-tariff agreements 1,225
5.2
1,544
12.0
3,780
18.9
4,130
24.8
Total utility gross margin/throughput $ 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 ~~$16 million and $58.7~~$5.5 million during the three ~~and nine~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021, compared with the three ~~and nine~~ months ended ~~June 30, 2019,~~March 31, 2020, due primarily to increased returns on infrastructure programs related to SAFE II and NJ RISE.Utility firm gross margin increased $17.9 million during the six months ended March 31, 2021, compared with the six months ended March 31, 2020, due primarily to the increase in base rates, along with increased returns on infrastructure programs ~~related to SAFE II and NJ RISE.~~as previously discussed.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

BGSS Incentive Programs

The factors contributing to the change in utility gross margin generated by BGSS incentive programs are as follows:


	Three Months Ended			Six Months Ended
	March 31,			March 31,
(Thousands)	2021 v. 2020			2021 v. 2020
Off-system sales		$	903		$	767
Storage		(327)			1,749
Capacity release		(49)			(140)
Total increase		$	527		$	2,376

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 v. 2019 2020 v. 2019
Storage $ (2 ) $ 1,058

Off-system sales 111
458

Capacity release (251 ) (699 )
Total (decrease) increase $ (142 ) $ 817

The 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~~three and six months ended ~~June 30, 2020,~~March 31, 2021, compared with the ~~nine~~three and six months ended ~~June 30, 2019,~~March 31, 2020, was due primarily to ~~an increase in the storage incentive program related to timing of storage injections and improved~~increased margins from off-system sales ~~partially offset by a decrease in capacity release volume.~~along with improved and earlier opportunities for storage incentive compared with the prior year.

Operation and Maintenance Expense

O&M expense ~~decreased $5.8~~increased $13.1 million during the three months ended March 31, 2021, compared with the three months ended March 31, 2020, due primarily to increased compensation and information technologies expenses. O&M expense increased $20.6 million during the six months ended March 31, 2021, compared with the six months ended March 31, 2020, due primarily to increased compensation, information technology and bad debt expenses.

Depreciation Expense

Depreciation expense increased $1.4 million and ~~$9.1~~$3.7 million during the three and ~~nine~~six months ended ~~months ended June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~months ended June 30, 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,~~March 31, 2020, ~~compared with the three and nine months ended June 30, 2019, respectively,~~ as a result of additional utility plant being placed into ~~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.~~service.

Interest Expense

Interest expense increased ~~$1.2~~$1.5 million and ~~$4.6~~$2.7 million during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019, respectively,~~March 31, 2020, due primarily to increased outstanding long-term debt.

Other Income

Other income increased ~~$1.5 million~~$501,000 and ~~$5.2~~$3.1 million during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019, respectively,~~March 31, 2020, due primarily to increased AFUDC earned on infrastructure projects.

Income Tax Provision

I~~ncome~~Income tax provision ~~increased $2.3~~decreased $4.1 million and ~~$12.6~~$4.3 million during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019, respectively,~~March 31, 2020, due to lower operating income.

Net Income

Net income decreased $5.8 million during the three months ended March 31, 2021, compared with the three months ended March 31, 2020, due primarily to increased ~~operating income.~~

~~Net Income~~

O&M, depreciation and interest expenses, as previously discussed. Net income ~~increased $15.8 million and $45.7 million~~remained relatively flat during the ~~three and nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the ~~three and nine~~six months ended ~~June 30, 2019~~March 31, 2020.

~~, 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
	March 31,
($ in Thousands)	2021				2020
Placed in service	Projects	MW	Costs		Projects	MW	Costs
Grid-connected	1	2.7	$	5,492	2	20.0	$	40,385
Net-metered:

Residential	80	0.8	2,230		157	1.7	5,075
Total placed in service	81	3.5	$	7,722	159	21.7	$	45,460

Three Months Ended
June 30,
($ in Thousands) 2020 2019
Placed in service Projects MW Costs Projects MW Costs
Grid-connected 3
32.0
$ 53,771
1
10.0
$ 21,785

Net-metered:
Commercial —
—
50
—
—
—

Residential 90
1.2
3,291
190
1.9
6,178

Total placed in service 93
33.2
$ 57,112
191
11.9
$ 27,963


~~(1)~~	~~Includes an operational 12.5 MW commercial solar project acquired in June 2020.~~


	Six Months Ended
	March 31,
($ in Thousands)	2021				2020
Placed in service	Projects	MW	Costs		Projects	MW	Costs
Grid-connected	2	5.6	$	9,175	3	22.9	$	52,092
Net-metered:

Residential	126	1.3	3,829		281	3.0	9,085
Total placed in service	128	6.9	$	13,004	284	25.9	$	61,177

(1)Includes an operational 2.9 MW commercial solar project acquired in December 2020.

Nine Months Ended
June 30,
($ in Thousands) 2020 2019
Placed in service Projects MW Costs Projects MW Costs
Grid-connected 6
54.9
$ 105,863
2
20.0
$ 42,340

Net-metered:
Commercial —
—
50
1
9.2
27,562

Residential 371
4.2
12,376
545
5.5
17,086

Total placed in service 377
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~~364.3 MW of solar ~~capacity and has an additional 7.1 MW under construction or planned for fiscal 2020.~~capacity. Projects that were placed in service through December 31, 2019, ~~qualify~~qualified for a 30-percent federal ITC. The credit ~~declines~~declined to 26 percent for property under construction during 2020 and was originally scheduled to decline to 22 percent for property under construction during 2021 and 10 percent for any property that is under construction ~~before~~after 2021. On December 27, 2020, the 26 percent federal ITC was extended through the end of 2022. The credit declines to 22 percent after 2022 and to 10 percent after 2023.

Projects placed in service after December 31, 2019, ~~may~~ also ~~qualify~~qualified 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)

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 five 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, TRECs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the 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~~December 2020,, Clean Energy Ventures received proceeds of ~~$42.9~~$12.1 million in connection with the ~~sale-leaseback~~sale leaseback of commercial solar assets. Clean Energy Ventures did not enter into any ~~sale-leaseback~~sale leaseback transactions for its commercial solar assets during the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020.

As part of its solar investment portfolio, Clean Energy Ventures operates a residential and small commercial solar program, The Sunlight Advantage®, that provides qualifying homeowners and small business owners the opportunity to have a solar system installed at their home or place of business 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~~For solar ~~installation has received the proper certifications and commences operations,~~installations placed in-service in New Jersey prior to April 30, 2020, 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.

In December 2019, the BPU established the TREC as pursuant to the successor program to the SREC ~~activity consisted~~program. TRECs provide a fixed compensation base multiplied by an assigned project factor in order to determine their value. The project factor is determined by the type and location of the ~~following:~~project, as defined. All TRECs generated are required to be purchased monthly by a TREC program administrator as appointed by the BPU.

Nine Months Ended
June 30,
2020 2019
Inventory balance as of October 1, 53,395
105,192
SRECs generated 253,649
197,041
SRECs delivered (62,680 ) (104,670 )
Inventory balance as of June 30, 244,364
197,563


SREC and TREC activity consisted of the following:	Six Months Ended
	March 31,
	2021		2020
	SRECs	TRECs	SRECs
Inventory balance as of October 1,	35,011	9,270	53,395
RECs generated	141,071	10,310	138,700
RECs delivered	(9,495)	(5,294)	(19,693)
Inventory balance as of December 31,	166,587	14,286	172,402

The average SREC sales price was ~~$189~~$218 and ~~$190~~$189 during the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, respectively and ~~2019, respectively.~~the average TREC price was $147 during the six months ended March 31, 2021.

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 Hedged
2021			98%
2022			97%
2023			97%
2024			93%
2025			36%
2026			10%

Energy Year ⁽¹⁾
Percent of SRECs Hedged
2020 99%
2021 94%
2022 92%
2023 55%
(1)Energy years are compliance periods for New Jersey's renewable portfolio standard that run from June 1 to May 31.


~~(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 or TRECs 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. In February 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 Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating revenues	$	6,476	$	5,995	$	12,846	$	12,207
Operating expenses
Operation and maintenance	8,260		7,479		17,461		14,813
Depreciation and amortization	4,685		6,603		10,118		12,919

Total operating expenses	12,945		14,082		27,579		27,732
Operating loss	(6,469)		(8,087)		(14,733)		(15,525)
Other income (expense), net	149		(41)		87		(124)
Interest expense, net	5,266		4,835		10,300		9,327
Income tax benefit	(2,714)		(4,134)		(5,800)		(7,968)
Net loss	$	(8,872)	$	(8,829)	$	(19,146)	$	(17,008)

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating revenues $ 13,396
$ 11,450
$ 25,603
$ 37,707
Operating expenses
Operation and maintenance ⁽¹⁾
7,542
9,488
22,355
21,479
Depreciation and amortization 10,121
8,239
29,429
24,253
Total operating expenses 17,663
17,727
51,784
45,732
Operating loss (4,267 ) (6,277 ) (26,181 ) (8,025 )
Other (expense) income, net (77 ) 643
(201 ) 494
Interest expense, net 5,070
4,320
14,397
14,405
Income tax provision (benefit) 4,193
(1,787 ) (38,432 ) (39,033 )
Net (loss) income $ (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 increased $481,000 and $639,000 during the three and six months ended March 31, 2021, compared with the three and six months ended March 31, 2020, due primarily to the recognition of TREC revenue, which was not present during the same period in the prior year.

Operation and Maintenance Expense

O&M expense increased $781,000 and $2.6 million during the three and six months ended March 31, 2021, compared with the three and six months ended March 31, 2020, due primarily to increased project maintenance, lease and information technology expenses.

Depreciation Expense

Depreciation expense decreased $1.9 million and $2.8 million during the three and six months ended March 31, 2021, compared with the three and six months ended March 31, 2020, primarily due to the change in estimated useful lives of our commercial solar assets, effective July 1, 2020.

Income Tax Benefit

Income tax benefit decreased $1.4 million and $2.2 million during the three and six months ended March 31, 2021, compared with the three and six months ended March 31, 2020, due primarily to a decreased state tax rate.

Net Income

Net income remained relatively flat during the three months ended ~~June 30, 2020,~~March 31, 2021, compared with the three months ended ~~June 30, 2019, due primarily to increased SREC sales, residential solar revenue and electricity sales. Operating revenues~~March 31, 2020. Net income decreased ~~$12.1~~$2.1 million during the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the ~~nine~~six months ended ~~June 30, 2019~~, March 31, 2020, due primarily to the ~~timing of SREC sales and decreased electricity sales as a result of the sale of the remaining wind assets in February 2019,~~increased O&M, partially offset by ~~increased residential solar revenue.~~

~~Operation and Maintenance Expense~~

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

~~Depreciation Expense~~

~~Depreciation expense increased $1.9 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 solar capital additions placed in service.~~

~~Income Tax Provision (Benefit)~~

~~Income tax provision increased $6 million during the three months ended June 30, 2020, compared with the three months ended June 30, 2019~~, due primarily to a decrease in forecasted ITCs expected to be recognized in fiscal 2020. Income tax benefit decreased $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, 2020, compared with the nine months ended June 30, 2019, ~~due primarily to the decreased operating revenue and increased~~ depreciation expense, as previously discussed.

~~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.

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 Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Net (loss) income $ (13,607 ) $ (8,167 ) $ (2,347 ) $ 17,097
Add:
Net income to NFE tax adjustment (284 ) 1,029
(470 ) 7,700
Net financial (loss) earnings $ (13,891 ) $ (7,138 ) $ (2,817 ) $ 24,797

Energy Services Segment

Overview

Energy Services markets and sells natural gas to wholesale and retail customers and manages natural gas ~~storage~~transportation and ~~transportation~~storage assets throughout major market areas across North America. Energy Services maintains a strategic portfolio of natural gas ~~storage~~transportation and ~~transportation~~storage contracts that it utilizes in conjunction with its market expertise to provide service and value to its customers. Availability of these ~~storage~~transportation and ~~transportation~~storage 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~~transportation and ~~transportation~~storage assets for natural gas producers and regulated utilities. These management transactions typically involve the release of producer/utility owned storage and/or transportation

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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~~transportation and ~~transportation~~storage 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~~revenues or natural 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 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.

Operating Results

Energy Services’ financial results are summarized as follows:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating revenues (1)	$	462,569	$	313,701	$	692,046	$	684,116
Operating expenses
Natural gas purchases (including demand charges (2)(3))	330,280		318,912		504,117		636,636
Operation and maintenance	32,998		4,822		37,014		9,560
Depreciation and amortization	13		27		55		56

Total operating expenses	363,291		323,761		541,186		646,252
Operating income (loss)	99,278		(10,060)		150,860		37,864
Other income, net	87		113		179		192
Interest expense, net	575		937		1,255		2,163
Income tax provision (benefit)	23,128		(2,449)		35,250		8,303
Net income (loss)	$	75,662	$	(8,435)	$	114,534	$	27,590

(1)Includes related party transactions of approximately $2.8 million and $259,000 for the three months ended March 31, 2021 and 2020, respectively, and $4.9 million and $1.9 million for the six months ended March 31, 2021 and 2020, respectively, which are eliminated in consolidation.

(2)Costs associated with pipeline and storage capacity 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 $226,000 and $46,000 for the three months ended March 31, 2021 and 2020, respectively, and $391,000 and $92,000 for the six months ended March 31, 2021 and 2020, respectively, a portion of which is eliminated in consolidation.

Energy Services' portfolio of financial derivative instruments are composed of:


	Six Months Ended
	March 31,
(in Bcf)	2021	2020
Net short futures contracts	12.4	29.9

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 Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating revenues ⁽¹⁾
$ 133,543
$ 290,021
$ 817,659
$ 1,425,113
Operating expenses
Gas purchases (including demand charges ⁽²⁾⁽³⁾)
167,061
290,881
803,697
1,373,784
Operation and maintenance⁽⁴⁾
3,753
3,462
13,313
14,969
Depreciation and amortization 28
23
84
75
Total operating expenses 170,842
294,366
817,094
1,388,828
Operating (loss) income (37,299 ) (4,345 ) 565
36,285
Other income, net 62
45
254
96
Interest expense, net 517
766
2,680
4,277
Income tax (benefit) provision (8,909 ) (1,193 ) (606 ) 7,063
Net (loss) income $ (28,845 ) $ (3,873 ) $ (1,255 ) $ 25,041


~~(1)~~	~~Includes related party transactions of approximately $(197,000)~~ ~~and $(62,000) for the three months ended June 30, 2020 and 2019, respectively, and $1.7 million and $8.3 million for the~~ ~~nine months ended June 30, 2020 and 2019, respectively, which are eliminated in consolidation.~~


~~(2)~~	~~Costs associated with pipeline and storage capacity 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 the three months ended June 30, 2020 and 2019, respectively, and $137,000 and $3.4 million for the nine months ended June 30, 2020 and 2019, 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 Ended
June 30,
(in Bcf) 2020 2019
Net short futures contracts 40.7
33.1

Operating Revenues and Natural Gas Purchases

Operating revenues ~~decreased $156.5~~increased $148.9 million and natural gas purchases ~~decreased $123.8~~increased $11.4 million during the three months ended ~~June 30, 2020,~~March 31, 2021, compared with the three months ended ~~June 30, 2019~~, ~~respectively,~~March 31, 2020. Operating revenues increased $7.9 million and natural gas purchases decreased $132.5 million during the six months ended March 31, 2021, compared with the six months ended March 31, 2020. The increases during the three and six months were due primarily to ~~warmer~~increased natural gas price volatility related to the extreme weather in the mid-continent and southern regions of the U.S. during February 2021 compared to the prior ~~period, which lead to decreased demand and lower natural gas prices, increased gas~~period. The decrease 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 ~~$607.5 million~~ ~~and~~ gas purchases ~~decreased $570.1 million~~during the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the ~~nine~~six months ended ~~June 30, 2019~~,March 31, 2020, was due primarily to ~~decreased~~the timing of injections and withdrawals for natural gas ~~market volatility discussed above.~~in storage.

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 warmer 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 TETCO 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~~$28.2 million and $27.5 million during the three and six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and six months ended ~~June 30, 2019,~~March 31, 2020, 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~~costs, charitable contributions and bad debt expense.

~~OPERATIONS (Continued)~~

Income Tax Provision

Income tax ~~benefit~~provision increased ~~$7.7~~$25.6 million and $26.9 million during ~~both~~ the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019~~, March 31, 2020, due primarily to ~~decreased~~increased operating ~~income.~~income related to increased natural gas price volatility during February 2021 as discussed above.

Net Income

Net income ~~decreased $25~~increased $84.1 million and ~~$26.3~~$86.9 million during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019~~,March 31, 2020, respectively, due primarily to ~~lower~~increased operating income, partially offset by ~~the related increase in the benefit from income taxes,~~higher O&M expenses, 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. GAAP also 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. This adjustment is applied to Energy Services, as the adjustment primarily relates to timing differences associated with certain derivative instruments ~~as discussed above. There~~which impacts the estimate of the annual effective tax rate for NFE. No adjustment is ~~a related~~needed during the fourth quarter, since the actual effective tax ~~effect on current~~rate is calculated at year end. Accordingly, for NFE purposes, the annual estimated effective tax rate is 18.8 percent for fiscal 2021 and ~~deferred income tax expense corresponding with NFE.~~18.2 percent for fiscal 2020.

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 natural 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 Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating revenues ⁽¹⁾
$ 133,543
$ 290,021
$ 817,659
$ 1,425,113
Less: Gas purchases 167,061
290,881
803,697
1,373,784
Add:
Unrealized loss (gain) on derivative instruments and related transactions 24,034
(24,684 ) (21,306 ) (27,056 )
Effects of economic hedging related to natural gas inventory ⁽²⁾
4,739
11,317
10,474
12,073
Financial margin $ (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 $(322,000)~~ ~~and $(62,000) for the three months ended June 30, 2020 and 2019, respectively, and $(521,000) and $1.3 million for the~~ ~~nine months ended June 30, 2020 and 2019, respectively.~~


~~(2)~~	~~Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.~~

~~New Jersey Resources Corporation~~

~~Part I~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF~~


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating revenues (1)	$	462,569	$	313,701	$	692,046	$	684,116
Less: Natural gas purchases	330,280		318,912		504,117		636,636
Add:
Unrealized loss (gain) on derivative instruments and related transactions	29,348		(3,146)		(9,433)		(45,340)
Effects of economic hedging related to natural gas inventory (2)	(7,209)		14,622		(14,741)		5,735
Financial margin	$	154,428	$	6,265	$	163,755	$	7,875

~~OPERATIONS (Continued)~~(1)Includes unrealized (gains) losses related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $(91,000) and $(626,000) for the three months ended March 31, 2021 and 2020, respectively, $1.2 million and $(199,000) for the six months ended March 31, 2021 and 2020, 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 Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating (loss) income $ (37,299 ) $ (4,345 ) $ 565
$ 36,285
Add:
Operation and maintenance 3,753
3,462
13,313
14,969
Depreciation and amortization 28
23
84
75
Subtotal (33,518 ) (860 ) 13,962
51,329
Add:
Unrealized loss (gain) on derivative instruments and related transactions 24,034
(24,684 ) (21,306 ) (27,056 )
Effects of economic hedging related to natural gas inventory 4,739
11,317
10,474
12,073
Financial margin $ (4,745 ) $ (14,227 ) $ 3,130
$ 36,346


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating income (loss)	$	99,278	$	(10,060)	$	150,860	$	37,864
Add:
Operation and maintenance	32,998		4,822		37,014		9,560
Depreciation and amortization	13		27		55		56

Subtotal	132,289		(5,211)		187,929		47,480
Add:
Unrealized loss (gain) on derivative instruments and related transactions	29,348		(3,146)		(9,433)		(45,340)
Effects of economic hedging related to natural gas inventory	(7,209)		14,622		(14,741)		5,735
Financial margin	$	154,428	$	6,265	$	163,755	$	7,875

Financial margin increased ~~$9.5~~$148.2 million and $155.9 million during the three and six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and six months ended ~~June 30, 2019,~~March 31, 2020, due primarily to ~~decreases in the variable component of transportation and storage demand fees. Financial margin decreased $33.2 million~~natural gas price volatility during ~~the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019~~, ~~due primarily to warmer weather~~February 2021, as previously discussed 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.~~period.

Net Financial Earnings

A reconciliation of Energy Services' net income, the most directly comparable GAAP financial measure, to NFE is as follows:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Net income (loss)	$	75,662	$	(8,435)	$	114,534	$	27,590
Add:
Unrealized loss (gain) on derivative instruments and related transactions	29,348		(3,146)		(9,433)		(45,340)
Tax effect (1)	(6,976)		747		2,243		10,780
Effects of economic hedging related to natural gas inventory	(7,209)		14,622		(14,741)		5,735
Tax effect	1,713		(3,475)		3,503		(1,363)
Net income to NFE tax adjustment	3,990		2,174		1,922		(37)
Net financial earnings (loss)	$	96,528	$	2,487	$	98,028	$	(2,635)

(1)Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $23,000 and $150,000 for the three months ended and 2020, respectively, and $(284,000) and $48,000 for the six months ended March 31, 2021 and 2020, respectively.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Net (loss) income $ (28,845 ) $ (3,873 ) $ (1,255 ) $ 25,041
Add:
Unrealized loss (gain) on derivative instruments and related transactions 24,034
(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 inventory 4,739
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~~$94.0 million and $100.7 million during the three and six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and six months ended ~~June 30, 2019,~~March 31, 2020, 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~~higher financial margin, 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~~Storage and Transportation Segment

~~OPERATIONS (Continued)~~

~~Midstream Segment~~

Overview

Our ~~Midstream~~Storage and Transportation segment invests in natural gas assets, such as natural gas transportation and storage facilities. We believe that acquiring, owning and developing these ~~midstream~~storage and transportation assets, which operate under a tariff structure that has either regulated or market-based rates, can provide us a growth opportunity. Our ~~Midstream~~Storage and Transportation 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~~storage and transportation assets may be subject to risk associated with the COVID-19 pandemic, such as disruption to the 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~~Storage and Transportation 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 Gateway, 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~~$166.0 million. Adelphia Gateway 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~~On October 5, 2020, we received a partial Notice to Proceed with construction from FERC and have begun the conversion of the southern ~~portion~~zone of the pipeline to natural ~~gas is expected to begin upon receipt of the Notice to Proceed from FERC.~~gas.

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.

On September 10, 2019, ~~the United States Court of Appeals for~~ the Third Circuit issued an order overturning the ~~United States~~U.S. 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 submitted a letter to 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 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~~end in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction is expected to begin following approval by FERC of the phased approach and receipt of any remaining governmental and regulatory permits.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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 Solicitor General filed its brief with the Supreme Court on December 9, 2020.

The State of New Jersey filed a brief with the Supreme Court on December 23, 2020, in response to the brief of the Solicitor General.

On February 3, 2021, the Supreme Court granted the petition for a writ of certiorari. The matter was argued before the Supreme Court on April 28, 2021.

We evaluated our investment in PennEast for an other-than-temporary impairment and determined an impairment charge was not necessary. It is reasonably possible that future unfavorable developments, such as a reduced likelihood of success from development options and legal outcomes, estimated increases in construction costs, increases in the discount rate, or further significant delays, could result in an impairment of our equity method investment. Also, the use of alternate judgments and assumptions could result in a different calculation of fair value, which could ultimately result in the recognition of an impairment charge in the Unaudited Condensed Consolidated Financial Statements.

Due to the expiration of a customer contract for Steckman Ridge, we evaluated our investment in Steckman Ridge for other-than-temporary impairment and determined an impairment charge was not necessary.

The fair value of our investment in Steckman Ridge was determined using a discounted cash flow method and utilized management’s best estimates and assumptions related to expected future results, including the price and capacity of firm natural gas storage contracting, operations and maintenance costs, the nature and timing of major maintenance and capital investment, and discount rates. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and other factors. As a result, it is reasonably possible that future unfavorable developments, such as the failure to execute storage contracts and other services for available capacity at anticipated price levels could result in an other-than temporary impairment charge in the Unaudited Condensed Consolidated Financial Statements.

As of ~~June 30, 2020,~~March 31, 2021, our investments in Steckman Ridge and PennEast were ~~$112.9~~$111.4 million and ~~$92.9~~$103.1 million, respectively.

Operating Results

The financial results of our Storage and Transportation segment are summarized as follows:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating revenues (1)	$	13,926	$	11,076	$	27,030	$	20,148
Operating expenses
Natural gas purchases	238		193		471		539
Operation and maintenance	7,139		6,094		13,681		10,972
Depreciation and amortization	2,364		2,397		5,004		4,078
Total operating expenses	9,741		8,684		19,156		15,589
Operating income	4,185		2,392		7,874		4,559
Other income, net	1,591		4,671		2,845		5,368
Interest expense, net	3,578		5,621		7,560		8,443
Income tax provision	873		1,105		1,519		1,807
Equity in earnings of affiliates	3,386		3,921		6,579		7,585
Net income	$	4,711	$	4,258	$	8,219	$	7,262

(1)Includes related party transactions of approximately $669,000 and $675,000 for the three months ended March 31, 2021 and 2020, respectively, and $1.3 million for both the six months ended March 31, 2021 and 2020, which are eliminated in consolidation.

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 Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating revenues ⁽¹⁾
$ 11,863
$ —
$ 32,011
$ —
Operating expenses
Gas purchases 464
—
1,003
—
Operation and maintenance 6,430
951
17,402
2,655
Depreciation and amortization 2,513
1
6,591
4
Total operating expenses 9,407
952
24,996
2,659
Operating income 2,456
(952 ) 7,015
(2,659 )
Other income, net 1,033
1,088
6,401
6,434
Interest expense, net 1,843
522
10,286
1,630
Income tax provision 1,646
729
3,453
2,910
Equity in earnings of affiliates 3,615
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.~~

Revenues

Operating ~~revenue~~revenues increased ~~$11.9~~$2.9 million and ~~$32~~$6.9 million during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019~~, March 31, 2020, due to increased operating revenues at Leaf River and Adelphia ~~that were not present in the prior period.~~Gateway.

Equity in earnings of affiliates decreased ~~$552,000~~$535,000 and ~~$766,000~~$1.0 million during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, due primarily to decreases in storage revenue at Steckman ~~Ridge, partially offset by an increase in AFUDC earned at PennEast.~~

Ridge.

Operation and Maintenance Expense

O&M ~~expense~~ increased ~~$5.5~~$1.0 million and ~~$14.7~~$2.7 million during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019, respectively,~~ March 31, 2020, due primarily to operations of Adelphia Gateway and increases at Leaf ~~River and Adelphia~~River.

Depreciation Expense

Depreciation expense remained relatively flat during the ~~nine~~three months ended ~~June 30,~~March 31, 2021, compared with the three months ended March 31, 2020.

Depreciation expense increased ~~$2.5~~$926,000 during the six months ended March 31, 2021, compared with the six months ended March 31, 2020, due primarily to operations of Adelphia Gateway during the six months ended March 31, 2021, that were not present in the first quarter of fiscal 2020.

Interest Expense

Interest expense decreased $2.0 million and ~~$6.6 million~~$883,000 during the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and ~~nine~~six months ended ~~June 30, 2019, respectively,~~ March 31, 2020, due primarily to ~~operations of Leaf River and Adelphia during the nine months ended June 30, 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~~higher 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.~~Adelphia during fiscal 2020.

Net Income

Net income increased ~~$563,000~~$453,000 and $957,000 during the three and six months ended ~~June 30, 2020,~~March 31, 2021, compared with the three and six months ended ~~June 30, 2019, due primarily to the increased operating income, partially offset by the related increase in income tax provision and interest expense, as previously discussed.~~ ~~Net income decreased $324,000 during the nine months ended June 30,~~March 31, 2020, ~~compared with the nine months ended June 30, 2019~~, due primarily to increased ~~O&M and interest expense,~~operating revenue, partially offset by ~~an increase in operating revenue,~~increased O&M and 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)~~

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 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 condensed financial results of Home Services and Other are summarized as follows:

Three Months Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Operating revenues $ 12,369
$ 13,082
$ 37,641
$ 37,905
Operation and maintenance⁽¹⁾
$ 11,686
$ 6,276
$ 31,145
$ 32,049
Income tax (benefit) provision $ (131 ) $ 1,705
$ 2,044
$ 854
Net income (loss) $ (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.~~


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2021		2020		2021		2020
Operating revenues	$	12,773	$	12,365	$	25,350	$	25,272
Operation and maintenance	$	9,254	$	8,926	$	19,575	$	19,459
Interest expense, net	$	1,728	$	565	$	2,844	$	837
Income tax (benefit) provision	$	(59)	$	1,956	$	59	$	2,175
Net income	$	747	$	148	$	685	$	1,257

~~Operating revenue decreased $713,000 and $264,000 during the three and nine months ended June 30, 2020, respectively, compared with the three and nine months ended June 30, 2019~~, ~~due primarily to decreased installation revenue at 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, 2020, compared with the three months ended June 30, 2019~~, ~~due primarily to increased O&M, as previously discussed. Net income decreased $2 million during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019~~, ~~due primarily to decreases in interest income and changes in income 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 Ended Nine Months Ended
June 30, June 30,
(Thousands) 2020 2019 2020 2019
Net income (loss) $ (582 ) $ 4,365
$ 675
$ 2,672
Add:
Unrealized loss on derivative instruments and related transactions —
100
—
361
Tax effect —
(28 ) —
(101 )
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)

Operating Revenues

Operating revenues increased $408,000 during the three months ended March 31, 2021, compared with the three months ended March 31, 2020, due primarily to increased service contract and installation revenue at NJRHS. Operating revenues remained relatively flat during the six months ended March 31, 2021, compared with the six months ended March 31, 2020.

Net Income

Net income increased $599,000 during the three months ended March 31, 2021, compared with the three months ended March 31, 2020, due primarily to increased operating revenues as previously discussed along with decreased income tax expense, partially offset by higher interest expense. Net income decreased $572,000 during the six months ended March 31, 2021, compared with the six months ended March 31, 2020, due primarily to increased shared corporate costs and information technology expense.

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:


	March 31, 2021		September 30, 2020
Common stock equity	44	%	43	%
Long-term debt	55		53
Short-term debt	1		4
Total	100	%	100	%

June 30,
2020 September 30,
2019
Common stock equity 45 % 50 %
Long-term debt 41
49
Short-term debt 14
1
Total 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~~$3.6 million of equity through the DRP by issuing 23,000 shares of common stock during the three months ended March 31, 2021 and raised $5.2 million during the three months ended March 31, 2020 by issuing 143,000 shares of treasury stock. NJR raised approximately ~~408,000~~$7.5 million of equity through the DRP by issuing 23,000 shares of common stock and ~~279,000~~approximately 140,000 shares of treasury stock during the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021, and ~~2019, respectively. During~~raised $8.8 million during the ~~nine~~six months ended ~~June 30, 2019, NJR raised approximately $57.4 million of equity~~March 31, 2020, by issuing approximately ~~1,181,000~~223,000 shares of ~~common stock through the waiver discount feature of the DRP.~~treasury stock. There were no shares of common stock issued through the waiver discount feature of the DRP during the ~~nine~~three and six months ended ~~June 30,~~March 31, 2021 and 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, 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 1,212,120 common shares issuable pursuant to forward sales agreements with investment banks. The issuance of 5,333,334 common shares 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 inwith respect ofto certain fixed amounts specified in the agreements, such as dividends.

New Jersey Resources Corporation

~~Our current intent is~~Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

On September 18, 2020, we amended our forward sale agreements to ~~physically settle~~extend the maturity date of such forward sales agreements from September 30, 2020 to September 10, 2021. On March 3, 2021, we cash settled a portion of the forward sale ~~agreements by issuing~~agreement for a payout of approximately $388,000 for 727,272 common shares. As of ~~June 30, 2020,~~March 31, 2021, if we had elected to net settle the remaining forward sale ~~agreements,~~agreement, we would ~~receive $7~~have paid approximately $1.4 million under a cash settlement or ~~would receive 227,461~~issued 31,607 common shares under a net share settlement.

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 March 31, 2021, we had 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 six months ended March 31, 2021 and 2020.

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~~Storage and Transportation and Energy Services currently anticipate that each of their financing requirements for

~~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 and meter ~~and~~or solar ~~sale-leasebacks and proceeds from the issuance of equity.~~asset sale leasebacks.

We believe that as of ~~June 30, 2020,~~March 31, 2021, 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~~Storage and Transportation investments and PennEast contributions, share repurchases and, on an initial basis, Clean Energy Ventures' investments. Energy Services' use of ~~high volume~~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, 2020,~~March 31, 2021, NJR had revolving credit facilities totaling ~~$675~~$425 million, with ~~$250.2~~$406.2 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, 2020,~~March 31, 2021, 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 $249.3 million.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Short-term borrowings were as follows:


	Three Months Ended			Six Months Ended
(Thousands)	March 31, 2021
NJR
Notes Payable to banks:
Balance at end of period	$	8,500			$	8,500
Weighted average interest rate at end of period	1.75		%		1.75		%
Average balance for the period	$	141,381			$	123,582
Weighted average interest rate for average balance	1.04		%		1.04		%
Month end maximum for the period	$	153,000			$	153,000
NJNG
Commercial Paper and Notes Payable to banks:
Balance at end of period	$	—			$	—
Weighted average interest rate at end of period	—		%		—		%
Average balance for the period	$	106			$	292
Weighted average interest rate for average balance	.06		%		.04		%
Month end maximum for the period	$	5,100			$	14,350

Three Months Ended Nine Months Ended
(Thousands) June 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 $ 545,366
$ 482,971
Weighted average interest rate for average balance 1.42 % 2.17 %
Month end maximum for the period $ 553,400
$ 533,400
NJNG
Commercial Paper and Notes Payable to banks:
Balance at end of period $ —
$ —
Weighted average interest rate at end of period 0.25 % 0.25 %
Average balance for the period $ 387
$ 18,587
Weighted average interest rate for average balance .25 % 1.61 %
Month end maximum for the period $ —
$ 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~~six months ended ~~June 30, 2020,~~March 31, 2021, NJR's average interest rate was ~~1.42~~1.04 percent and ~~2.17~~1.04 percent, resulting in interest expense of approximately ~~$1.9 million~~$362,000 and ~~$7.6 million,~~$643,000, 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, 2020,~~March 31, 2021, NJR had ~~three~~seven letters of credit outstanding totaling ~~$8.5~~$10.3 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 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, 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 were repaid. As of June 30, 2020, there were no 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~~six months ended ~~June 30, 2020,~~March 31, 2021, NJNG's average interest rate was ~~0.25~~0.06 percent and ~~1.61~~0.04 percent, ~~resulting in~~respectively. NJNG's interest ~~expense of approximately $265,000, for the nine months ended June 30, 2020. Interest~~ expense was immaterial for the three and six months ended ~~June 30, 2020.~~March 31, 2021.

As of ~~June 30, 2020,~~March 31, 2021, 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.

Short-Term Debt Covenants

Borrowings under the NJR Credit Facilities 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;

•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, 2020,~~March 31, 2021, NJR had the following outstanding:

•$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;

•$100 million of 3.96 percent senior notes due June 8, 2028; ~~and~~

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

•$130 million of 3.50 percent senior notes due July 23, 2030;

•$120 million of 3.13 percent senior notes due September 1, 2031;

•$130 million of 3.60 percent senior notes due July 23, 2032; and

•$80 million of 3.25 percent senior notes due September 1, 2033.

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

On May 14, 2020, NJR entered into a Note Purchase Agreement for $260 million of its senior notes, of 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 23, 2020, NJR issued all $260 million of the senior notes. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR.

NJNG

As of ~~June 30, 2020,~~March 31, 2021, NJNG's long-term debt consisted of ~~$942.8 million~~$1.1 billion in fixed-rate debt issuances secured by the Mortgage Indenture, with maturities ranging from 2024 to ~~2059,~~2060, and ~~$66.9~~$58.3 million in ~~capital~~finance leases with various maturities ranging from 2021 to ~~2026.~~2037.

On May 14, 2020, NJNG entered into a Note Purchase Agreement for $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 $50 million of 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 23, 2050 and $25 million of 3.33 percent senior notes due July 23, 2060. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s Mortgage Indenture.

NJR is not obligated directly or contingently with respect to ~~the NJNG notes or the FMBs.~~NJNG’s fixed-rate debt issuances.

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;

•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.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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~~Sale Leaseback

NJNG

NJNG received ~~$4 million and $9.9~~$4.0 million in December 2019, ~~and 2018, respectively,~~ in connection with the ~~sale-leaseback~~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 for both the six months ended March 31, 2021 and ~~$1.1 million~~2020. There were no natural gas meter sale leasebacks recorded during the ~~nine~~six months ended ~~June 30, 2020~~ ~~and 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.~~ March 31, 2021.

Clean Energy Ventures

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. In ~~June~~December 2020,, Clean Energy Ventures received proceeds of ~~$42.9~~$12.1 million in connection with the ~~sale-leaseback~~sale leaseback of ~~three~~two commercial solar projects. Clean Energy Ventures did not receive proceeds related to the ~~sale-leaseback~~sale leaseback of commercial solar assets during the ~~nine~~six 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 five to 15-year terms. These sale-leasebacks are financing obligations secured by the solar assets, related future cash flows from SREC and energy 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.March 31, 2020.

~~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 ~~$388~~between $424 million and ~~$396~~$454 million induring fiscal ~~2020 and 2021, respectively.~~2021. Total capital expenditures spent or accrued during the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, were ~~$241.9~~$188.4 million. NJNG expects to fund its obligations with a combination of cash ~~flow~~flows from operations, cash on hand, issuance of commercial paper, available capacity under its revolving credit facility and the issuance of long-term debt. As of ~~June 30, 2020,~~March 31, 2021, NJNG's future MGP expenditures are estimated to be ~~$128.9~~$143.5 million. For a more detailed description of MGP expenditures see Note 13. Commitments and Contingent Liabilities in the accompanying Unaudited Condensed Consolidated Financial Statements.

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.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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~~six months ended ~~June 30, 2020,~~March 31, 2021, total capital expenditures spent or accrued related to the purchase and installation of solar equipment were ~~$99.7~~$37.5 million. We estimate solar-related capital expenditures for projects during fiscal ~~2020~~2021 to be between ~~$125~~$96 million and ~~$135~~$118 million.

During the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, our Storage and Transportation segment had capital expenditures for the Adelphia Gateway project totaling $27.4 million and capital expenditures for Leaf River totaling $2.6 million. During fiscal 2021, we expect expenditures related to ~~our Midstream investment in~~ the Adelphia project were $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 AdelphiaGateway project to be between ~~$180~~$110 million and ~~$200~~$130 million ~~in fiscal 2020. We estimate capital~~and expenditures related to ~~our Midstream investment in the PennEast project~~Leaf River to be between $7$22 million and ~~$8 million in fiscal 2020.~~$23 million.

Energy Services does not currently anticipate any significant capital expenditures during fiscal 2021 and 2022.

On December 16, 2020, Energy Services entered into a series of asset management agreements with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts. The utility will provide certain asset management services and Energy Services may deliver natural gas to the utility in exchange for aggregate net proceeds of approximately $500 million, payable through November 1, 2030. The asset management agreements include a series of initial and permanent releases commencing on November 1, 2021. NJR will receive approximately $260 million in cash from fiscal ~~2020~~2022 through fiscal 2024 and ~~2021.~~$34 million per year from fiscal 2025 through fiscal 2031 under the agreements.

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, ~~2019.~~2020.

Off-Balance-Sheet Arrangements

As of ~~June 30, 2020,~~March 31, 2021, our off-balance-sheet arrangements consist of guarantees covering approximately ~~$274.5~~$196.5 million of natural gas purchases, SREC sales and demand fee commitments and outstanding letters of credit totaling ~~$9.2~~$11.0 million.

Cash Flows

Operating Activities

Cash flows from operating activities during the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, totaled ~~$182.8~~$356.3 million compared with ~~$165.8~~$179.1 million during the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020. 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 natural gas costs;

•changes in contractual assets utilized to optimize margins related to natural gas transactions;

•broker margin requirements;

•impact of unusual weather patterns on our wholesale business;

•timing of the collections of receivables and payments of current liabilities;

•volumes of natural gas purchased and sold; and

•timing of SREC deliveries.

The increase of $177.1 million in cash flows from operating activities during the six months ended March 31, 2021, compared with the six months ended March 31, 2020, was due primarily to higher net income due primarily to increased earnings at Energy Services along with increased working capital.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The increase of $17 million in cash flows from operating activities during the nine months ended June 30, 2020, compared with the nine months ended June 30, 2019, was due primarily to increased margin at our Natural Gas Distribution segment related to increased base rates.

Investing Activities

Cash flows used in investing activities totaled ~~$891~~$245.5 million during the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared with ~~cash flows used in investing activities totaling $105~~$751.1 million during the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020. The ~~increase~~decrease of ~~$786~~$505.6 million was due primarily to the acquisition of Leaf River and Adelphia ~~see~~ ~~Note 17. Acquisitions and Dispositions, for more detail,~~in the prior period that did not recur along with a decrease of $28.9 million in solar capital expenditures, partially offset by an increase in capital expenditures of ~~$1.5~~$20.1 million for utility plant investments ~~including cost of removal~~ and ~~$19.6~~$20.8 million ~~in solar capital expenditures, a well as proceeds from the sale of our wind assets~~for Storage and ~~Dominion shares that occurred in February 2019 and March 2019, respectively, that did not recur in fiscal 2020.~~Transportation.

Financing Activities

Financing cash flows generally are seasonal in nature and are impacted by the volatility in pricing in the natural gas and other energy markets. NJNG's inventory levels are built up during its natural gas injection season (April through October) and reduced during withdrawal season (November through March) in response to the supply requirements of its customers. Changes in financing cash flows can also be impacted by natural gas management and marketing activities at 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 ~~of $35.8~~totaled $171.2 million during the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2021, compared with cash flows from financing activities of $596.3 million during the six months ended March 31, 2020. The ~~increase~~decrease of ~~$785.2~~$767.6 million is due primarily to increased short-term debt activity at NJR ~~primarily~~ related to the ~~acquisition~~acquisitions of Leaf River and Adelphia in the ~~issuance~~prior period that did not recur and current period payments of ~~$50 million of long-term~~short-term debt, ~~at NJNG, as well as~~partially offset by proceeds of ~~$42.9~~$12.1 million from solar ~~sale-leasebacks~~sale leasebacks at Clean Energy ~~Ventures.~~Ventures in the current period.

Credit Ratings

The table below summarizes NJNG's credit ratings as of ~~June 30, 2020,~~March 31, 2021, issued by two rating entities, Moody's and Fitch:


				Moody's		Fitch
Corporate Rating		~~Moody's~~		~~Fitch~~N/A		A-
~~Corporate Rating~~Commercial Paper		~~N/A~~		A-P-2		F-2
~~Commercial Paper~~Senior Secured		~~P-2~~		~~F-2~~A1		A+
~~Senior Secured~~		A1	A+
Ratings Outlook	~~Stable~~		Stable		Stable

The Fitch ratings and outlook were reaffirmed on March ~~18, 2020.~~15, 2021. NJNG's Moody's and Fitch ratings are investment-grade ratings. NJR is not a rated entity.

On March 18, 2020, Moody’s revised NJNG's secured rating from Aa3 to A1 and its commercial paper rating from P-1 to ~~P-2. This change reflects Moody’s view that the NJNG's financial metrics are expected to remain below 20 percent over the next few years as the loss of cash flow~~P-2 resulting from ~~deferred taxes and~~ higher debt levels ~~in funding its~~to fund NJNG’s elevated capital ~~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.~~program. The outlook was increased to stable from negative. This action does not currently affect any of NJNG’s long-term borrowing rates or 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 unregulated businesses are subject to market risk due to fluctuations in the price of natural gas. To economically hedge against such fluctuations, we have entered into forwards, futures, options and swap agreements. To manage these derivative instruments, we have well-defined risk management policies and procedures that include daily monitoring of volumetric limits and monetary guidelines. Our natural gas businesses are conducted through two of our operating subsidiaries. NJNG is a regulated utility that uses futures, options and swaps to provide relative price stability, and its recovery of natural gas costs is governed by the BPU. 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:


	Balance			Increase		Less		Balance
(Thousands)	September 30, 2020			(Decrease) in Fair Market Value		Amounts Settled		March 31, 2021
Natural Gas Distribution		$	(211)		(1,440)		(2,152)		$	501
Energy Services		4,397			24,569		23,184		5,782
Total		$	4,186		23,129		21,032		$	6,283

Balance Increase Less Balance
(Thousands) September 30, 2019
(Decrease) in Fair
Market Value
Amounts
Settled
June 30,
2020
Natural Gas Distribution $ (188 ) (6,605 ) (6,603 ) $ (190 )
Energy Services (11,640 ) 66,094
41,531
12,923
Total $ (11,828 ) 59,489
34,928
$ 12,733

There were no changes in methods of valuations during the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.

The following is a summary of fair market value of financial derivatives at ~~June 30, 2020,~~March 31, 2021, excluding foreign exchange contracts discussed below, by method of valuation and by maturity for each fiscal year period:

(Thousands) 2020 2021 2022 - 2024 After 2024
Total
Fair Value
Price based on NYMEX/CME $ 1,159
869
122
—
$ 2,150
Price based on ICE 4,957
4,975
701
(50 ) 10,583
Total $ 6,116
5,844
823
(50 ) $ 12,733


(Thousands)	2021		2022	2023 - 2025		After 2025		Total Fair Value
Price based on NYMEX/CME	$	139	42		12				$	193
Price based on ICE	4,658		1,372		60				6,090
Total	$	4,797	1,414		72		—		$	6,283

The following is a summary of financial derivatives by type as of ~~June 30, 2020:~~March 31, 2021:


		Volume Bcf	Price per MMBtu(1)	Amounts included in Derivatives (Thousands)
Natural Gas Distribution	Futures	22.1	$0.00 - $3.03		$	501


Energy Services	Futures	(11.6)	$1.67 - $4.73		5,589
	Swaps	(0.8)	$2.72 - $3.08		193

Total					$	6,283

Volume Bcf
Price per MMBtu⁽¹⁾
Amounts included in Derivatives (Thousands)
Natural Gas Distribution Futures 18.8
$1.62 - $3.88 $ (190 )
Energy Services Futures (38.4 ) ($0.18) - $5.30 11,149
Swaps (2.3 ) $2.72 - $3.20 1,774
Total $ 12,733
(1) Million British thermal unit


~~(1)~~	~~Million British thermal unit~~

The following table reflects the changes in the fair market value of physical commodity contracts:


	Balance				Increase			Less			Balance					Balance			Increase		Less		Balance
(Thousands)	September 30, 2019				(Decrease) in Fair Market Value			Amounts Settled			June 30, 2020				(Thousands)	September 30, 2020			(Decrease) in Fair Market Value		Amounts Settled		March 31, 2021
Natural Gas Distribution - Prices based on other external data		$	(178	)		184			73			$	(67	)	Natural Gas Distribution - Prices based on other external data		$	2		782		608		$	176
Energy Services - Prices based on other external data		(31,624		)		(1,999	)		(2,044	)		(31,579		)	Energy Services - Prices based on other external data		(24,723)			(7,121)		(371)		(31,473)
Total		$	(31,802	)		(1,815	)		(1,971	)		$	(31,646	)	Total		$	(24,721)		(6,339)		237		$	(31,297)

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:~~

Balance Increase Less Balance
(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 ~~$7.5~~$2.4 million. This analysis does not include potential changes to reported credit adjustments embedded in the $0$0.4 million reported fair value.


Derivative Fair Value Sensitivity Analysis
(Thousands)	Henry Hub Futures and Fixed Price Swaps
Percent increase in NYMEX natural gas futures prices	0%		5%		10%		15%		20%
Estimated change in derivative fair value	$	—	$	(1,179)	$	(2,357)	$	(3,536)	$	(4,715)
Ending derivative fair value	$	423	$	(756)	$	(1,934)	$	(3,113)	$	(4,292)

Percent decrease in NYMEX natural gas futures prices	0%		(5)%		(10)%		(15)%		(20)%
Estimated change in derivative fair value	$	—	$	1,179	$	2,357	$	3,536	$	4,715
Ending derivative fair value	$	423	$	1,602	$	2,780	$	3,959	$	5,138

Derivative Fair Value Sensitivity Analysis
(Thousands) Henry Hub Futures and Fixed Price Swaps
Percent increase in NYMEX natural gas futures prices 0% 5% 10% 15% 20%
Estimated change in derivative fair value $ —
$ (3,773 ) $ (7,546 ) $ (11,319 ) $ (15,092 )
Ending derivative fair value $ (373 ) $ (4,146 ) $ (7,919 ) $ (11,692 ) $ (15,465 )

Percent decrease in NYMEX natural gas futures prices 0% (5)% (10)% (15)% (20)%
Estimated change in derivative fair value $ —
$ 3,773
$ 7,546
$ 11,319
$ 15,092
Ending derivative fair value $ (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, 2020.~~March 31, 2021. 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~~Storage and Transportation 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~~Storage and Transportation's counterparty credit exposure as of ~~June 30, 2020,~~March 31, 2021, is as follows:


(Thousands)	Gross Credit Exposure			Net Credit Exposure
Investment grade		$	122,148		$	107,865
Noninvestment grade		9,445			1,114
Internally rated investment grade		23,607			17,921
Internally rated noninvestment grade		19,949			11,966
Total		$	175,149		$	138,866

(Thousands) Gross Credit Exposure Net Credit Exposure
Investment grade $ 122,345
$ 109,175
Noninvestment grade 8,460
1,771
Internally rated investment grade 22,660
20,003
Internally rated noninvestment grade 9,171
3,649
Total $ 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,~~March 31, 2021, is as follows:


(Thousands)	Gross Credit Exposure			Net Credit Exposure
Investment grade		$	6,437		$	6,182
Noninvestment grade		26			—
Internally rated investment grade		54			32
Internally rated noninvestment grade		169			2
Total		$	6,686		$	6,216

(Thousands) Gross Credit Exposure Net 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.

New Jersey Resources Corporation

Part I

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

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, ~~2019~~2020.

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~~SEC'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, 2020,~~March 31, 2021, 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, ~~2019,~~2020, and is set forth in Part I, Item 1, Note 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, 2020,~~March 31, 2021, 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 ~~2019~~2020 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 ~~2019~~2020 Annual Report on Form ~~10-K and~~ ~~Part II, Item 1A, of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.~~10-K.

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, 2020:~~March 31, 2021:



Period	Total Number of Shares ~~(or~~ (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
1/01/2001/21 - ~~4/30/20~~01/31/21	—	$	—	—	2,431,053
5/02/01/2021 - ~~5/31/20~~02/28/21	—	—		—	2,431,053
6/03/01/2021 - ~~6/30/20~~03/31/21	—	—		—	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, 2020,~~March 31, 2021, 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.

New Jersey Resources Corporation

Part II

ITEM 6. EXHIBITS


Exhibit Number			Exhibit Description



~~Exhibit~~ ~~Number~~	~~Exhibit Description~~



~~4.1~~

















31.1+		~~$260,000,000 Note Purchase Agreement, dated as of May 14, 2020, by and among New Jersey Resources Corporation and the Purchasers party thereto (incorporated by reference to~~ ~~Exhibit 4.1 to the Current Report on Form 8-K, as filed on May 18, 2020)~~

~~4.2~~	~~$125,000,000 Note Purchase Agreement, dated as of May 14, 2020, by and among New Jersey Natural Gas Company and the Purchasers party thereto (incorporated by reference to~~ ~~Exhibit 4.2 to the Current Report on Form 8-K, as filed on May 18, 2020)~~

~~4.3~~	~~Seventh Supplemental Indenture, dated as of June 1, 2020, by and between New Jersey Natural Gas Company and U.S. Bank National Association (incorporated by reference to~~ ~~Exhibit 4.1 to the Current Report on Form 8-K, as filed on July 2, 2020)~~

~~10.1~~	364-Day $250,000,000 Revolving Credit Facility, dated as of April 24, 2020 by and 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 Joint Lead Arrangers, and Truist Bank and TB Bank, N.A., as Co- Syndication Agents (incorporated by reference to ~~Exhibit 10.1 to the Current Report on Form 8-K, as filed on April 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+~~	Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

31.2+		Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

32.1+ †		Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

32.2+ †		Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

101+		Interactive Data File (Form 10-Q, for the fiscal period ended ~~June 30, 2020,~~March 31, 2021, furnished in iXBRL (Inline eXtensible Business Reporting Language))

104+		Cover Page Interactive Data File included in Exhibit 101


+	~~Filed herewith.~~

+ 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 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 7, 2020~~May 6, 2021
			By:/s/ Patrick Migliaccio
			Patrick Migliaccio
			Senior Vice President and
			Chief Financial Officer


	Six Months Ended
	March 31,
(Thousands)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	230,854	$	149,598
Adjustments to reconcile net income to cash flows from operating activities
Unrealized gain on derivative instruments	(8,235)		(45,539)


Depreciation and amortization	54,210		52,153
Amortization of acquired wholesale energy contracts	3,401		3,953
Allowance for equity used during construction	(10,603)		(8,053)
Allowance for doubtful accounts	10,607		951
Non cash lease expense	1,957		1,856
Deferred income taxes	20,909		34,975


Manufactured gas plant remediation costs	(6,284)		(5,291)
Equity in earnings, net of distributions received from equity investees	(3,543)		(2,760)
Cost of removal - asset retirement obligations	(512)		(122)
Contributions to postemployment benefit plans	(2,018)		(5,742)
Taxes related to stock-based compensation	(145)		803
Changes in:
Components of working capital	6,846		3,526
Other noncurrent assets	18,854		(1,258)
Other noncurrent liabilities	39,993		95
Cash flows from operating activities	356,291		179,145
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for:
Utility plant	(152,496)		(132,352)
Solar equipment	(40,884)		(69,786)
Storage and Transportation and other	(28,518)		(7,724)
Cost of removal	(23,989)		(17,487)
Acquisition of assets, net of cash acquired of $5.1 million	0		(523,647)
Distribution from equity investees in excess of equity in earnings	871		1,132
Investments in equity investees	(482)		(1,266)



Cash flows used in investing activities	(245,498)		(751,130)
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES

Payments of long-term debt	(11,001)		(9,764)
Proceeds from term loan	0		350,000
Payments of term loan	0		(212,900)
(Payments of) proceeds from short-term debt, net	(116,850)		304,023
Proceeds from sale leaseback transaction - solar	12,124		0
Proceeds from sale leaseback transaction	0		4,000
Payments of common stock dividends	(60,894)		(56,821)
Proceeds from issuance of common stock - public equity offering	0		212,900
Cash settlement of equity forward agreement	(388)		0

Proceeds from issuance of common stock - DRP	7,540		8,767

Tax withholding payments related to net settled stock compensation	(1,772)		(3,893)
Cash flows (used in) from financing activities	(171,241)		596,312
Change in cash, cash equivalents and restricted cash	(60,448)		24,327
Cash, cash equivalents and restricted cash at beginning of period	119,423		4,063
Cash, cash equivalents and restricted cash at end of period	$	58,975	$	28,390
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables	$	(136,295)	$	(87,532)
Inventories	94,233		90,484
Recovery of natural gas costs	(20,279)		(21,891)
Natural gas purchases payable	33,191		(10,933)
Natural gas purchases payable - related parties	62		11
Accounts payable and other	(19,621)		(27,345)
Prepaid expenses	(8,170)		(602)
Prepaid and accrued taxes	59,614		22,258
Restricted broker margin accounts	7,644		39,193
Customers' credit balances and deposits	(5,171)		(7,788)
Other current assets	1,638		7,671
Total	$	6,846	$	3,526
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Interest (net of amounts capitalized)	$	40,465	$	32,872
Income taxes	$	3,733	$	1,193
Accrued capital expenditures	$	22,840	$	17,930

See Notes to Unaudited Condensed Consolidated Financial Statements



	Nine Months Ended
	June 30,
(Thousands)	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	150,647		$	151,419
Adjustments to reconcile net income to cash flows from operating activities
Unrealized gain on derivative instruments	(21,827		)	(25,353		)
Realized and unrealized gains on investments in equity securities	—			(1,567		)
Gain on sale of businesses	—			(645		)
Depreciation and amortization	89,758			67,292
Amortization of acquired wholesale energy contracts	4,356			7,813
Allowance for equity used during construction	(12,328		)	(6,135		)
Allowance for doubtful accounts	1,657			1,686
Non cash lease expense	2,864			—
Deferred income taxes	(3,066		)	(29,092		)
Manufactured gas plant remediation costs	(6,629		)	(9,582		)
Equity in earnings, net of distributions received from equity investees	(4,985		)	(2,700		)
Cost of removal - asset retirement obligations	(183		)	(194		)
Contributions to postemployment benefit plans	(5,969		)	(5,994		)
Tax benefit from stock-based compensation	644			1,289
Changes in:
Components of working capital	(17,397		)	(14,829		)
Other noncurrent assets	10,177			16,906
Other noncurrent liabilities	(4,936		)	15,476
Cash flows from operating activities	182,783			165,790
CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for:
Utility plant	(213,667		)	(207,357		)
Solar equipment	(110,968		)	(91,333		)
Midstream and other	(18,261		)	(13,116		)
Cost of removal	(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 earnings	1,411			1,473
Investments in equity investees	(1,491		)	(2,696		)
Proceeds from sale of businesses, net of closing costs	—			205,745
Proceeds from sale of investments in equity securities, net	—			34,484
Cash flows used in investing activities	(890,966		)	(105,012		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from term loan	350,000			—
Payments of term loan	(212,900		)	—
Proceeds from long-term debt	50,000			35,800
Payments of long-term debt	(11,947		)	(15,001		)
Proceeds from (payments of) short-term debt, net	390,562			(52,650		)
Proceeds from sale-leaseback transaction - solar	42,927			—
Proceeds from sale-leaseback transaction	4,000			9,895
Payments of common stock dividends	(86,709		)	(77,730		)
Proceeds from issuance of common stock - public equity offering	212,900			—
Proceeds from waiver discount issuance of common stock	—			57,391
Proceeds from issuance of common stock - DRP	14,498			13,199
Tax withholding payments related to net settled stock compensation	(3,966		)	(6,704		)
Cash flows from (used in) financing activities	749,365			(35,800		)
Change in cash, cash equivalents and restricted cash	41,182			24,978
Cash, cash equivalents and restricted cash at beginning of period	4,063			1,710
Cash, cash equivalents and restricted cash at end of period	$	45,245		$	26,688
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables	$	(3,019	)	$	28,385
Inventories	42,566			51,833
Recovery of gas costs	(5,722		)	(14,870		)
Gas purchases payable	(55,593		)	(66,060		)
Prepaid expenses	1,487			(2,385		)
Prepaid and accrued taxes	(991		)	10,110
Accounts payable and other	(13,084		)	(31,883		)
Restricted broker margin accounts	11,900			13,092
Customers' credit balances and deposits	(7,060		)	(7,832		)
Other current assets	12,119			4,781
Total	$	(17,397	)	$	(14,829	)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Interest (net of amounts capitalized)	$	47,642		$	42,107
Income taxes	$	1,127		$	8,550
Accrued capital expenditures	$	20,814		$	32,143


(Thousands)	March 31, 2021		September 30, 2020
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost	$	2,883,656	$	2,800,052
Construction work in progress	456,513		379,846
Nonutility plant and equipment, at cost	1,121,155		1,108,512
Construction work in progress	229,923		176,556
Total property, plant and equipment	4,691,247		4,464,966
Accumulated depreciation and amortization, utility plant	(620,028)		(601,635)
Accumulated depreciation and amortization, nonutility plant and equipment	(156,063)		(140,562)
Property, plant and equipment, net	3,915,156		3,722,769
CURRENT ASSETS
Cash and cash equivalents	57,654		117,012
Customer accounts receivable
Billed	237,229		134,173
Unbilled revenues	41,941		9,226
Allowance for doubtful accounts	(17,325)		(7,242)
Regulatory assets	23,527		36,530
Natural gas in storage, at average cost	74,853		167,504
Materials and supplies, at average cost	18,824		20,406
Prepaid expenses	14,729		6,639
Prepaid and accrued taxes	3,432		24,301
Derivatives, at fair value	17,433		23,310
Restricted broker margin accounts	45,916		69,444

Other	17,015		21,029
Total current assets	535,228		622,332
NONCURRENT ASSETS
Investments in equity method investees	214,521		208,375
Regulatory assets	522,027		527,459
Operating lease assets	144,326		131,769
Derivatives, at fair value	1,977		3,349

Intangible assets, net	6,462		10,060
Software costs	5,485		4,707
Other noncurrent assets	79,952		85,657
Total noncurrent assets	974,750		971,376
Total assets	$	5,425,134	$	5,316,477



(Thousands)	June 30, 2020			September 30, 2019
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost	$	2,741,021		$	2,625,730
Construction work in progress	362,970			237,011
Nonutility plant and equipment, at cost	1,410,428			861,904
Construction work in progress	167,807			62,492
Total property, plant and equipment	4,682,226			3,787,137
Accumulated depreciation and amortization, utility plant	(586,711		)	(585,160		)
Accumulated depreciation and amortization, nonutility plant and equipment	(191,520		)	(156,033		)
Property, plant and equipment, net	3,903,995			3,045,944
CURRENT ASSETS
Cash and cash equivalents	42,821			2,676
Customer accounts receivable
Billed	143,059			139,263
Unbilled revenues	8,738			6,510
Allowance for doubtful accounts	(6,975		)	(6,148		)
Regulatory assets	52,251			32,871
Gas in storage, at average cost	123,962			169,803
Materials and supplies, at average cost	18,128			14,475
Prepaid expenses	7,700			8,333
Prepaid and accrued taxes	25,546			22,602
Derivatives, at fair value	29,367			25,103
Restricted broker margin accounts	52,212			73,723
Other	24,269			22,395
Total current assets	521,078			511,606
NONCURRENT ASSETS
Investments in equity method investees	205,800			200,268
Regulatory assets	451,115			496,637
Operating lease assets	101,657			—
Derivatives, at fair value	6,347			7,426
Intangible assets, net	11,006			14,611
Other noncurrent assets	81,086			96,493
Total noncurrent assets	857,011			815,435
Total assets	$	5,282,084		$	4,372,985


(Thousands, except share data)	March 31, 2021		September 30, 2020
CAPITALIZATION
Common stock, $2.50 par value; authorized 150,000,000 shares; outstanding March 31, 2021 — 96,262,016; September 30, 2020 — 95,949,183	$	240,497	$	240,243
Premium on common stock	497,167		491,982
Accumulated other comprehensive loss, net of tax	(42,196)		(44,315)
Treasury stock at cost and other; shares March 31, 2021 — 16,313; September 30, 2020 — 148,310	11,983		8,485
Retained earnings	1,114,382		947,501
Common stock equity	1,821,833		1,643,896
Long-term debt	2,265,202		2,259,466
Total capitalization	4,087,035		3,903,362
CURRENT LIABILITIES
Current maturities of long-term debt	22,635		27,236
Short-term debt	8,500		125,350
Natural gas purchases payable	129,136		95,945
Natural gas purchases payable to related parties	853		791
Accounts payable and other	126,154		141,500
Dividends payable	32,007		31,902
Accrued taxes	41,462		2,717
Regulatory liabilities	717		26,188
New Jersey Clean Energy Program	6,148		15,570
Derivatives, at fair value	23,690		33,865
Operating lease liabilities	4,001		6,724


Customers' credit balances and deposits	20,763		25,934
Total current liabilities	416,066		533,722
NONCURRENT LIABILITIES
Deferred income taxes	166,238		138,081
Deferred investment tax credits	3,171		3,332
Deferred gain	894		1,035
Derivatives, at fair value	20,506		13,352
Manufactured gas plant remediation	143,490		150,590
Postemployment employee benefit liability	236,432		237,221
Regulatory liabilities	193,817		196,450
Operating lease liabilities	111,034		95,030
Asset retirement obligation	34,102		33,723
Other	12,349		10,579
Total noncurrent liabilities	922,033		879,393
Commitments and contingent liabilities (Note 13)	0		0
Total capitalization and liabilities	$	5,425,134	$	5,316,477


(Thousands)	Number of Shares	Common Stock		Premium on Common Stock		Accumulated Other Comprehensive (Loss) Income			Treasury Stock And Other		Retained Earnings		Total
Balance at September 30, 2020	95,949	$	240,243	$	491,982		$	(44,315)	$	8,485	$	947,501	$	1,643,896
Net income	—	—		—			—		—		81,045		81,045
Other comprehensive income	—	—		—			1,043		—		—		1,043
Common stock issued:

Incentive compensation plan	50	124		5,410			—		—		—		5,534
Dividend reinvestment plan (1)	140	—		(4,502)			—		5,593		—		1,091

Cash dividend declared ($.3325 per share)	—	—		—			—		—		(31,966)		(31,966)
Treasury stock and other	—	—		—			—		(2,429)		—		(2,429)
Balance at December 31, 2020	96,139	$	240,367	$	492,890		$	(43,272)	$	11,649	$	996,580	$	1,698,214









Net income	—	—		—			—		—		149,809		149,809
Other comprehensive income	—	—		—			1,076		—		—		1,076
Common stock issued:
Common stock offering	—	—		(388)			—		—		—		(388)
Incentive compensation plan	28	72		1,144			—		—		—		1,216
Dividend reinvestment plan	103	58		3,521			—		—		—		3,579

Cash dividend declared ($.3325 per share)	—	—		—			—		—		(32,007)		(32,007)
Treasury stock and other	(8)	—		—			—		334		—		334
Balance at March 31, 2021	96,262	$	240,497	$	497,167		$	(42,196)	$	11,983	$	1,114,382	$	1,821,833


~~(1)~~	~~Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.~~



Balance at September 30, 2018	88,293		$	226,196	$	274,748	$	(12,610	)	$	(76,473	)	$	1,007,117		$	1,418,978
Net income	—		—		—		—			—			86,248			86,248
Other comprehensive income	—		—		—		234			—			—			234
Common stock issued:
Incentive compensation plan	137		343		1,791		—			—			—			2,134
Dividend reinvestment plan ⁽¹⁾	82		—		454		—			3,238			—			3,692
Waiver discount	168		—		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, 2018	88,680		$	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 plan	30		74		1,150		—			—			—			1,224
Dividend reinvestment plan ⁽¹⁾	123		—		870		—			4,892			—			5,762
Waiver discount	339		—		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, 2019	89,164		$	226,613	$	283,429	$	(15,517	)	$	(46,062	)	$	1,120,699		$	1,569,162
Net loss	—		—		—		—			—			(8,402		)	(8,402		)
Other comprehensive income	—		—		—		305			—			—			305
Common stock issued:
Incentive plan	6		14		194		—			—			—			208
Dividend reinvestment plan ⁽¹⁾	74		—		676		—			2,956			—			3,632
Waiver discount	674		—		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, 2019	89,918		$	226,627	$	290,414	$	(15,212	)	$	(15,628	)	$	1,085,996		$	1,572,197



	June 30, 2020				September 30, 2019
($ in thousands)	Gas in Storage			Bcf	Gas 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



(Thousands)	Investments in Equity Securities		Cash Flow Hedges			Postemployment Benefit Obligation				Total
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	)


(Thousands)	Amounts Presented on Balance Sheets (1)			Offsetting Derivative Instruments (2)			Financial Collateral Received/Pledged (3)			Net Amounts (4)
As of March 31, 2021:
Derivative assets:
Energy Services
Physical commodity contracts		$	5,032		$	(1,757)		$	(200)		$	3,075
Financial commodity contracts		13,355			(7,573)			0			5,782
Foreign currency contracts		257			(29)			0			228
Total Energy Services		$	18,644		$	(9,359)		$	(200)		$	9,085
Natural Gas Distribution
Physical commodity contracts		$	177		$	(1)		$	0		$	176
Financial commodity contracts		589			(88)			0			501

Total Natural Gas Distribution		$	766		$	(89)		$	0		$	677



Derivative liabilities:
Energy Services
Physical commodity contracts		$	36,505		$	(1,757)		$	0		$	34,748

Financial commodity contracts		7,573			(7,573)			0			0
Foreign currency contracts		29			(29)			0			0
Total Energy Services		$	44,107		$	(9,359)		$	0		$	34,748
Natural Gas Distribution
Physical commodity contracts		$	1		$	(1)		0			$	0
Financial commodity contracts		88			(88)			0			0

Total Natural Gas Distribution		$	89		$	(89)		$	0		$	0



As of September 30, 2020:
Derivative assets:
Energy Services
Physical commodity contracts		$	7,718		$	(3,587)		$	(200)		$	3,931
Financial commodity contracts		18,708			(14,311)			0			4,397
Foreign currency contracts		84			(84)			0			0
Total Energy Services		$	26,510		$	(17,982)		$	(200)		$	8,328
Natural Gas Distribution
Physical commodity contracts		$	78		$	(65)		$	0		$	13
Financial commodity contracts		71			(71)			0			0
Total Natural Gas Distribution		$	149		$	(136)		$	0		$	13



Derivative liabilities:
Energy Services
Physical commodity contracts		$	32,441		$	(3,587)		$	0		$	28,854
Financial commodity contracts		14,311			(14,311)			0			0
Foreign currency contracts		107			(84)			0			23
Total Energy Services		$	46,859		$	(17,982)		$	0		$	28,877
Natural Gas Distribution
Physical commodity contracts		$	76		$	(65)		$	0		$	11
Financial commodity contracts		282			(71)			0			211

Total Natural Gas Distribution		$	358		$	(136)		$	0		$	222



(Thousands)	Amounts Presented on Balance Sheets ⁽¹⁾			Offsetting Derivative Instruments ⁽²⁾				Financial Collateral Received/Pledged ⁽³⁾				Net Amounts ⁽⁴⁾
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		$	8,557		$	(2,906	)		$	(200	)		$	5,451
Financial commodity contracts		23,522			(19,646		)		—				3,876
Foreign currency contracts		1			(1		)		—				—
Total Energy Services		$	32,080		$	(22,553	)		$	(200	)		$	9,327
Natural Gas Distribution
Physical commodity contracts		$	67		$	(9	)		$	—			$	58
Financial commodity contracts		382			(382		)		—				—
Total Natural Gas Distribution		$	449		$	(391	)		$	—			$	58
Derivative liabilities:
Energy Services
Physical commodity contracts		$	40,181		$	(2,906	)		$	—			$	37,275
Financial commodity contracts		35,162			(19,646		)		(15,516		)		—
Foreign currency contracts		286			(1		)		—				285
Total Energy Services		$	75,629		$	(22,553	)		$	(15,516	)		$	37,560
Natural Gas Distribution
Physical commodity contracts		$	245		$	(9	)		$	—			$	236
Financial commodity contracts		570			(382		)		(188		)		—
Total Natural Gas Distribution		$	815		$	(391	)		$	(188	)		$	236


~~(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.~~


(Thousands)	Location of gain (loss) recognized in income on derivatives	Amount of gain (loss) recognized in income on derivatives
		Three Months Ended				Six Months Ended
		March 31,				March 31,
Derivatives not designated as hedging instruments:		2021		2020		2021		2020
Energy Services:
Physical commodity contracts	Operating revenues	$	36,419	$	12,096	$	41,671	$	21,932
Physical commodity contracts	Natural gas purchases	2,650		(1,892)		(2,404)		(3,302)
Financial commodity contracts	Natural gas purchases	(27,315)		23,319		20,440		69,412
Foreign currency contracts	Natural gas purchases	27		(475)		227		(360)


Total unrealized and realized gains		$	11,781	$	33,048	$	59,934	$	87,682


(Thousands)	Amount of Pre-tax Gain (Loss) Recognized in OCI on Derivatives				Location of Gain (Loss) Reclassified from OCI into Income	Amount of Pre-tax Gain (Loss) Reclassified from OCI into Income
	Three Months Ended					Three Months Ended
	March 31,					March 31,
Derivatives in cash flow hedging relationships:	2021		2020			2021		2020
Interest rate contracts	$	0	$	(12,492)	Interest expense	$	(342)	$	0
	Six Months Ended					Six Months Ended
	March 31,					March 31,
Derivatives in cash flow hedging relationships:	2021		2020			2021		2020
Interest rate contracts	$	0	$	(12,492)	Interest expense	$	(685)	$	0



(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 Ended					Three Months Ended
	June 30,					June 30,
Derivatives in cash flow hedging relationships:	2020			2019		2020		2019
Interest rate contracts	$	(807	)	$	—	$	—	$	—
	Nine Months Ended					Nine Months Ended
	June 30,					June 30,
Derivatives in cash flow hedging relationships:	2020			2019		2020		2019
Interest rate contracts	$	(13,299	)	$	—	$	—	$	—


		Volume (Bcf)
	Transaction Type	March 31, 2021	September 30, 2020
Natural Gas Distribution	Futures	22.1	23.7


	Physical Commodity	16.6	6.0

Energy Services	Futures	(11.6)	(27.5)
	Swaps	(0.8)	(1.8)

	Physical Commodity	1.5	5.0


~~(1)~~	~~Excludes finance~~ ~~leases of $77.6 million and $35.4 million~~ ~~as of June~~ (1)Excludes finance leases of $68.2 million and $74.2 million as of March 31, 2021 and September 30, 2020, ~~and September 30, 2019~~, respectively.


~~(2)~~	~~Excludes solar asset financing obligations of~~ ~~$130.8 million~~ ~~and~~ ~~$91.4 millionas of June 30, 2020~~ ~~and September 30, 2019, 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 $1.5 million and $2 million~~ ~~as of June 30, 2020~~ ~~and September 30, 2019, respectively.~~


~~Level 3~~	~~Inputs 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.~~


	Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs						Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(Thousands)	(Level 1)			(Level 2)			(Level 3)			Total		(Thousands)	(Level 1)			(Level 2)			(Level 3)			Total
As of June 30, 2020:
As of March 31, 2021:												As of March 31, 2021:
Assets:												Assets:
Physical commodity contracts		$	—		$	8,177		$	—	$	8,177	Physical commodity contracts		$	0		$	5,209		$	0	$	5,209
Financial commodity contracts		25,349			2,150			—		27,499		Financial commodity contracts		13,751			193			0		13,944
Financial commodity contracts - foreign exchange		—			38			—		38		Financial commodity contracts - foreign exchange		0			257			0		257

Money market funds		36,172			—			—		36,172		Money market funds		50,368			0			0		50,368
Other ⁽¹⁾		1,814			—			—		1,814
Other												Other		1,818			0			0		1,818
Total assets at fair value		$	63,335		$	10,365		$	—	$	73,700	Total assets at fair value		$	65,937		$	5,659		$	0	$	71,596
Liabilities:												Liabilities:
Physical commodity contracts		$	—		$	39,823		$	—	$	39,823	Physical commodity contracts		$	0		$	36,506		$	0	$	36,506
Financial commodity contracts		14,766			—			—		14,766		Financial commodity contracts		7,661			0			0		7,661
Financial commodity contracts - foreign exchange		—			253			—		253		Financial commodity contracts - foreign exchange		0			29			0		29
Interest rate contracts		—			15,852			—		15,852

Total liabilities at fair value		$	14,766		$	55,928		$	—	$	70,694	Total liabilities at fair value		$	7,661		$	36,535		$	0	$	44,196
As of September 30, 2019:
As of September 30, 2020:												As of September 30, 2020:
Assets:												Assets:
Physical commodity contracts		$	—		$	8,624		$	—	$	8,624	Physical commodity contracts		$	0		$	7,796		$	0	$	7,796
Financial commodity contracts		20,028			3,876			—		23,904		Financial commodity contracts		18,279			500			0		18,779
Financial commodity contracts - foreign exchange		—			1			—		1		Financial commodity contracts - foreign exchange		0			84			0		84
Other ⁽¹⁾		1,706			—			—		1,706

Money market funds												Money market funds		112,291			0			0		112,291
Other												Other		1,840			0			0		1,840
Total assets at fair value		$	21,734		$	12,501		$	—	$	34,235	Total assets at fair value		$	132,410		$	8,380		$	0	$	140,790
Liabilities:												Liabilities:
Physical commodity contracts		$	—		$	40,426		$	—	$	40,426	Physical commodity contracts		$	0		$	32,517		$	0	$	32,517
Financial commodity contracts		35,732			—			—		35,732		Financial commodity contracts		14,593			0			0		14,593
Financial commodity contracts - foreign exchange		—			286			—		286		Financial commodity contracts - foreign exchange		0			107			0		107
Total liabilities at fair value		$	35,732		$	40,712		$	—	$	76,444	Total liabilities at fair value		$	14,593		$	32,624		$	0	$	47,217


~~(1)~~	~~Includes a deferred tax component related to AFUDC equity of $4.6 million and $4.1 million for~~ ~~June 30, 2020~~ ~~and~~ ~~September 30, 2019, respectively.~~


~~(1)~~	C~~onsist primarily of unvested stock awards and performance shares.~~


~~(1)~~	~~Committed credit facilities, which require commitment fees on the unused amounts.~~


~~(2)~~	~~Letters of credit outstanding total $8.5 million and $4.8 million for~~ ~~June 30, 2020~~ ~~and~~ ~~September 30, 2019, respectively, which reduces amount available by the same amount.~~


~~(3)~~	~~Letters of credit outstanding total $731,000 for both~~ ~~June 30, 2020~~ ~~and~~ ~~September 30, 2019, which reduces the amount available by the same amount.~~


	Pension								OPEB
	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	March 31,				March 31,				March 31,				March 31,
(Thousands)	2021		2020		2021		2020		2021		2020		2021		2020
Service cost	$	2,183	$	2,055	$	4,365	$	4,111	$	1,211	$	1,072	$	2,422	$	2,427
Interest cost	2,278		2,646		4,556		5,293		1,517		1,509		3,035		3,513
Expected return on plan assets	(4,851)		(5,232)		(10,075)		(10,289)		(1,565)		(1,695)		(3,248)		(3,255)
Recognized actuarial loss	2,861		2,466		5,723		5,212		1,978		930		3,955		3,721
Prior service cost (credit) amortization	26		26		51		51		(45)		(50)		(90)		(99)

Net periodic benefit cost	$	2,497	$	1,961	$	4,620	$	4,378	$	3,096	$	1,766	$	6,074	$	6,307



(Thousands)	Operating Leases			Finance Leases
Remainder of fiscal 2020	$	2,137		$	3,417
2021	6,481			56,271
2022	6,387			6,004
2023	6,356			4,622
2024	5,985			5,279
Thereafter	126,331			5,720
Total future minimum lease payments	153,677			81,313
Less: Interest component	(53,101		)	(3,724		)
Total lease liability	$	100,576		$	77,589



(Thousands)	Operating Leases		Capital 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


~~(1)~~	~~Includes sales to Canada for the Energy Services segment, which are immaterial.~~