Published: 2023-02-02 00:00:00 ET

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1. NATURE OF THE BUSINESS

The Company provides regulated natural gas distribution services, transmission and storage services and operates certain unregulated businesses primarily through the following:

NJNG provides natural gas utility service to approximately 572,500 customers throughout Burlington, Middlesex, Monmouth, Morris, Ocean and Sussex counties in New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment.

NJRCEV, the Company's clean energy subsidiary, comprises the Clean Energy Ventures segment and invests in, owns and operates clean energy projects, including commercial and residential solar installations located in New Jersey, Connecticut, Rhode Island and New York.

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

NJR Midstream Holdings Corporation, which comprises the Storage and Transportation segment, invests in energy-related ventures through its subsidiaries. The Company operates natural gas storage and transmission assets through the wholly-owned subsidiaries of Leaf River and Adelphia Gateway, and is subject to rate regulation by FERC. The Company holds a 50 percent combined ownership interest in Steckman Ridge, located in Pennsylvania which are accounted for under the equity method of accounting and 20 percent ownership interest in PennEast, which ceased operations in fiscal 2022.

NJR Retail Holdings Corporation has one principal subsidiary, NJRHS, which provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey. NJRHS is included in Home Services and Other operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by the Company in accordance with the rules and regulations of the U.S. Securities and Exchange Commission and GAAP. The September 30, 2022 Balance Sheet data is derived from the audited financial statements of the Company. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 2022 Annual Report on Form 10-K.

The Unaudited Condensed Consolidated Financial Statements include the accounts of NJR and its subsidiaries. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary for a fair presentation of the results of the interim periods presented. These adjustments are of a normal and recurring nature. Because of the seasonal nature of the Company's utility and wholesale energy services operations, in addition to other factors, the financial results for the interim periods presented are not indicative of the results that are to be expected for the fiscal year ending September 30, 2023. Intercompany transactions and accounts have been eliminated.

Use of Estimates

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

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

In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention and has spread globally, including throughout the U.S. The Company’s Unaudited Condensed Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting periods presented. The Company considered the impacts of COVID-19 on the assumptions and estimates used and determined that there have been no material adverse impacts on the Company’s results of operations as of December 31, 2022.

The Company continues to closely monitor developments related to the COVID-19 pandemic and has, when appropriate, taken steps to ensure business continuity in the safe operation of its business. These steps include working from home for office-based employees utilizing a hybrid schedule and limiting direct contact with customers. While the Company and many businesses generally have returned to normal operating practices, this remains an evolving situation. The timing for recovery of businesses and local economies, resurgences or mutations of the virus, and any potential future shutdowns remains unknown. Throughout the COVID-19 pandemic, the Company has continued to provide essential services to our customers. Both the Company and NJNG continue to have sufficient liquidity to meet their current obligations and business operations remain fundamentally unchanged at this time. The Company will continue to monitor developments affecting its employees, customers, and operations and take additional steps to address the COVID-19 pandemic and its impacts, as necessary. The Company considered the impacts of COVID-19 on the assumptions and estimates used and determined that there have been no material adverse impacts on the Company’s results of operations as of December 31, 2022.

Revenues

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

Clean Energy Ventures recognizes revenue when SRECs are transferred to counterparties. SRECs are physically delivered through the transfer of certificates as per contractual settlement schedules. The Clean Energy Act of 2018 established guidelines for the closure of the SREC registration program to new applicants in New Jersey. The SREC program officially closed to new qualified solar projects on April 30, 2020.

In December 2019, the BPU established the TREC as the successor to the SREC 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 project, as defined.

In July 2021, the BPU established a new successor solar incentive program. This Administratively Determined Incentive Program, which we refer to as SREC IIs, provides administratively set incentives for net metered residential projects and net metered non-residential projects of 5 MW or less.

TREC & SREC IIs generated are required to be purchased monthly by a REC program administrator as appointed by the BPU. Revenue is recognized when RECs are generated and are transferred monthly based upon metered solar electricity activity.

Revenues for Energy Services are recognized when the natural gas is physically delivered to the customer. In addition, changes in the fair value of derivatives that economically hedge the forecasted sales of the natural gas are recognized in operating revenues as they occur. Energy Services also recognizes changes in the fair value of SREC derivative contracts as a component of operating revenues.

During December 2020, Energy Services entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts, which commenced on November 1, 2021. The AMAs include a series of temporary and permanent releases and revenue under these agreements is recognized as the performance obligations are satisfied. For temporary releases of pipeline capacity, revenue is recognized on a straight-line basis over the agreed upon term. For permanent releases of pipeline capacity, which represent a transfer of contractual rights for such capacity, revenue is recognized upon the transfer of the underlying contractual rights. Energy Services recognized $20.0 million and $22.1 million of operating revenue on the Unaudited Condensed Consolidated Statements of Operations during the three months ended December 31, 2022 and 2021, respectively. Amounts received in excess of revenue totaling $87.2 million and $33.8 million are included in deferred revenue on the Unaudited Condensed Consolidated Balance Sheets as of December 31, 2022 and September 30, 2022, respectively.

Storage and Transportation generates revenues from firm storage contracts and transportation contracts, related usage fees and hub services for the use of storage space, injections and withdrawals from their natural gas storage facility and the delivery of natural gas to customers. Demand fees are recognized as revenue over the term of the related agreement while usage fees and hub services revenues are recognized as services are performed.

Revenues from all other activities are recorded in the period during which products or services are delivered and accepted by customers, or over the related contractual term. See Note 3. Revenue for further information.

Cash and Cash Equivalents

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

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Unaudited Condensed Consolidated Balance Sheets to the total amounts in the Unaudited Condensed Consolidated Statements of Cash Flows as follows:

(Thousands)			December 31, 2022			September 30, 2022			December 31, 2021
Balance Sheet
Cash and cash equivalents			$	2,407		$	1,107		$	1,259
Restricted cash in other noncurrent assets			$	461		$	345		$	1,294
Statements of Cash Flow
Cash, cash equivalents and restricted cash			$	2,868		$	1,452		$	2,553

Allowance for Doubtful Accounts

The Company segregates financial assets, 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 applied to each portfolio segment to estimate the allowance for losses on uncollectible receivables. Additionally, the allowance for losses on uncollectible receivables is adjusted for reasonable and supportable forecasts of future economic conditions, which can include changing weather, commodity prices, regulations, and macroeconomic factors, such as unemployment rates among others, including the estimated impact of the ongoing pandemic on the outstanding balances.

Loans Receivable

NJNG currently provides loans, with terms ranging from two to 10 years, to customers that elect to purchase and install certain energy-efficient equipment in accordance with its BPU-approved SAVEGREEN program. The loans are recognized at fair value on the Unaudited Condensed Consolidated Balance Sheets. The Company has $14.8 million and $14.5 million recorded in other current assets as of December 31, 2022 and September 30, 2022, respectively, and $34.7 million in other noncurrent assets as of both December 31, 2022 and September 30, 2022, on the Unaudited Condensed Consolidated Balance Sheets, related to the loans. The Company regularly evaluates the credit quality and collection profile of its customers. If NJNG determines a loan is impaired, the basis of the loan would be subject to regulatory review for recovery. As of December 31, 2022 and September 30, 2022, the Company has not recorded any impairments for SAVEGREEN loans.

Natural Gas in Storage

The following table summarizes natural gas in storage, at average cost by segment as of:

			December 31, 2022									September 30, 2022
($ in thousands)			Natural Gas in Storage						Bcf			Natural Gas in Storage						Bcf
Natural Gas Distribution						$	152,010		22.0						$	191,175		29.0
Energy Services						102,350			18.1						82,469			10.8
Total						$	254,360		40.1						$	273,644		39.8

Software Costs

The Company capitalizes certain costs, such as software design and configuration, coding, testing and installation, that are incurred to purchase or create and implement computer software for internal use. Capitalized costs include external costs of materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related costs for employees who are directly associated with and devote time to the internal-use software project. Maintenance costs are expensed as incurred. Upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Amortization is recorded on the straight-line basis over the estimated useful lives.

The following tables present the software costs included in the Unaudited Condensed Consolidated Financial Statements:

(Thousands)			December 31, 2022			September 30, 2022
Balance Sheets
Utility plant, at cost			$	46,066		$	40,437
Construction work in progress			$	22,619		$	14,381
Nonutility plant and equipment, at cost			$	344		$	344
Accumulated depreciation and amortization, utility plant			$	(4,229)		$	(3,361)
Accumulated depreciation and amortization, nonutility plant and equipment			$	(28)		$	(25)
Software costs			$	6,649		$	6,120

						Three Months Ended
						December 31,
Statements of Operations									2022			2021
Operation and maintenance (1)									$	3,753		$	2,523
Depreciation and amortization									$	871		$	299

(1)During the three months ended December 31, 2022 and 2021, approximately $114,000 and $113,000, respectively, was amortized from software costs into O&M.

Sale Leasebacks

NJNG utilizes sale leaseback arrangements as a financing mechanism to fund certain of its capital expenditures related to natural gas meters, whereby the physical asset is sold concurrent with an agreement to lease the asset back. These agreements include options to renew the lease or repurchase the asset at the end of the term. Proceeds from sale leaseback transactions are accounted for as financing arrangements and are included in long-term debt on the Unaudited Condensed Consolidated Balance Sheets. NJNG received $8.4 million and $17.3 million during the three months ended December 31, 2022 and 2021, respectively, in connection with the sale leaseback of its natural gas meters.

In addition, for certain of its commercial solar energy projects, the Company enters into lease agreements that provide for the sale of commercial solar energy assets to third parties and the concurrent leaseback of the assets. For sale leaseback transactions where the Company has concluded that the arrangement does not qualify as a sale as the Company retains control of the underlying assets, the Company uses the financing method to account for the transaction. Under the financing method, the Company recognizes the proceeds received from the buyer-lessor that constitute a payment to acquire the solar energy asset as a financing arrangement, which is recorded as a component of debt on the Unaudited Condensed Consolidated Balance Sheets.

Clean Energy Ventures received proceeds of $33.2 million and $3.3 million during the three months ended December 31, 2022 and 2021, respectively, in connection with sale leasebacks of commercial solar assets. The proceeds received were recognized as a financing obligation on the Unaudited Condensed Consolidated Balance Sheets. Clean Energy Ventures simultaneously entered into agreements to lease the assets back over a term of five to 15 years. The Company continues to operate the solar assets and is responsible for related expenses and entitled to retain the revenue generated from SRECs, TRECs, SREC IIs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the buyer; however, the payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax attributes. Accordingly, Clean Energy Ventures recognizes the equivalent value of the tax attributes 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.

Accumulated Other Comprehensive Loss

The following table presents the changes in the components of accumulated other comprehensive loss, net of related tax effects during the three months ended December 31, 2022 and 2021:

(Thousands)			Cash Flow Hedges						Postemployment Benefit Obligation						Total
Balance at September 30, 2022			$	(8,322)					$	3,496					$	(4,826)
Other comprehensive income, net of tax
Amounts reclassified from accumulated other comprehensive loss, net of tax of $(79), $(12) and $(91), respectively			263						41			(1)			304
Balance at December 31, 2022			$	(8,059)					$	3,537					$	(4,522)
Balance at September 30, 2021			$	(9,376)					$	(25,152)					$	(34,528)
Other comprehensive income, net of tax
Amounts reclassified from accumulated other comprehensive loss, net of tax of $(79), $(233) and $(312), respectively			264						766			(1)			1,030
Balance at December 31, 2021			$	(9,112)					$	(24,386)					$	(33,498)

(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.

Recently Adopted Updates to the Accounting Standards Codification

Debt and Other

In August 2020, the FASB issued ASU No. 2020-06, an amendment to ASC 470, Debt, and ASC 815, Derivatives and Hedging, which changes the accounting for convertible instruments by reducing the number of acceptable accounting models to three models including, the embedded derivative, substantial premium, and traditional no proceeds allocated models. The Company adopted this guidance on October 1, 2022, and as the Company does not currently have convertible debt instruments, there was no impact on its financial position, results of operations, cash flows and disclosures upon adoption.

In May 2021, the FASB issued ASU No. 2021-04, an amendment to ASC 470, Debt, ASC 260, Earnings per Share, ASC 718, Stock Compensation, and ASC 815, Derivatives and Hedging. The update impacts equity-classified written call options that remain equity-classified after a modification or exchange. The Company adopted this guidance on October 1, 2022, on a prospective basis. As the Company does not currently have equity-classified written call options, there was no impact on its financial position, results of operations, cash flows and disclosures upon adoption.

Leases

In July 2021, the FASB issued ASU No. 2021-05, an amendment to ASC 842, Leases, which requires a lessor to classify a lease with entirely or partially variable payments that do not depend on an index or rate as an operating lease if another classification, including sales-type or direct financing would trigger a loss at the lease commencement date. The Company adopted this guidance on October 1, 2022, on a prospective basis. The Company currently does not have any leases that meet this criteria, so there was no material impact on its financial position, results of operations, cash flows and disclosures upon adoption.

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Other Recent Updates to the Accounting Standards Codification

Business Combinations

In October 2021, the FASB issued ASU No. 2021-08, an amendment to ASC 805, Business Combinations, which requires that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The guidance is effective for the Company beginning October 1, 2023, and will be applied on a prospective basis to new acquisitions following the date of adoption. The Company is currently evaluating the amendment to understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption.

Derivatives and Hedging

In March 2022, the FASB issued ASU No. 2022-01, an amendment to ASC 815, Derivatives and Hedging, which addresses fair value hedge accounting of interest rate risk for portfolios of financial assets. This update further clarifies guidance previously released in ASU 2017-12 which established the "last-of-layer" method and this update renames that method as the “portfolio layer” method. The guidance is effective for the Company beginning October 1, 2023, and the transition method can be on a prospective basis for a multiple-layer hedging strategy or a modified retrospective basis for a portfolio layer method. As the Company does not currently apply hedge accounting to any of its risk management activities, it does not expect the amendment to have an impact on its financial position, results of operations, cash flows and disclosures upon adoption.

Financial Instruments

In March 2022, the FASB issued ASU No. 2022-02, an amendment to ASC 326, Financial Instruments-Credit Losses, which eliminates the accounting guidance for creditors in troubled debt restructuring. It also aligns conflicting disclosure requirement guidance in ASC 326 by requiring disclosure of current-period gross write-offs by year of origination. The amendment also adds new disclosures for creditors with loan refinancing and restructuring for borrowers experiencing financial difficulty. The guidance is effective for the Company beginning October 1, 2023, and the Company can elect to apply it either on a modified retrospective or prospective basis. At this time, the Company has not experienced a troubled debt restructuring and does not expect the amendments to have an impact on its financial position, results of operations and cash flows upon adoption. The Company is currently evaluating the amendment to understand the impact on its disclosures upon adoption.

Fair Value Measurement

In June 2022, the FASB issued ASU No. 2022-03, an amendment to ASC 820, Fair Value Measurement, The amendment clarifies the fair value principles when measuring the fair value of an equity security subject to a contractual sale restriction. The guidance is effective for the Company on October 1, 2024, and will be applied on a prospective basis. At this time, the Company does not have equity securities subject to contractual sale restrictions, and therefore this amendment would only impact the Company upon adoption if, in the future, it entered into such transactions.

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.

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Below is a listing of performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms and the nature of the goods and services being transferred, by reporting segment and other business operations:

Revenue Recognized Over Time:
Segment/ Operations			Performance Obligation			Description
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 natural gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period. Payment is due each month for the previous month's deliveries. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates. NJNG is entitled to be compensated for performance completed until service is terminated. Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers. As NJNG is acting as an agent on behalf of the third-party supplier, revenue is recorded for the delivery of natural gas to the customer.
Clean Energy Ventures			Commercial solar 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. 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			Renewable energy certificates			Certain Clean Energy Ventures projects generate TRECs and SREC IIs under the established administratively determined incentive program. A TREC or SREC II is created for every MWh of electricity produced by a solar generator. The performance obligation of Clean Energy Ventures is to generate electricity. TRECs and SREC IIs under the administratively determined incentive program are purchased monthly by a REC Administrator. Revenue is recognized upon generation.
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 in line with the terms of the contract and based on the services provided. Payment is due upon receipt of the invoice. For temporary releases of pipeline capacity, revenue is recognized on a straight-line basis over the agreed upon term.
Storage and Transportation			Natural gas services			The performance obligation of Storage and Transportation is to provide the customer with storage and transportation services. Storage and Transportation generates revenues from firm storage contracts and transportation contracts, injection and withdrawal at the storage facility and the delivery of natural gas to customers. Revenue is recognized over time as customers receive the benefits of its service as it is performed on their behalf using an output method based on actual deliveries. Demand fees are recognized as revenue over the term of the related agreement.
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. NJR Retail enters into warranty contracts with homeowners for various appliances. All services provided relate to a distinct performance obligation which is to provide services for the specific equipment over the term of the contract. Revenue is recognized on a straight-line basis over the term of the contract and payment is due upon receipt of the invoice.

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Revenue Recognized at a Point in Time:
Segment/ Operations			Performance Obligation			Description
Energy Services			Natural gas services			For a permanent release of pipeline capacity, the performance obligation of Energy Services is the release of the pipeline capacity associated with certain natural gas transportation contracts and the transfer of the underlying contractual rights to the counterparty. Revenue is recognized upon the transfer of the underlying contractual rights.
Storage and Transportation			Natural gas services			The performance obligation of Storage and Transportation is to provide the customer with storage and transportation services. Storage and Transportation generates revenues from usage fees and hub services for the use of storage space, injection and withdrawal from the storage facility. Hub services include park and loan transactions and wheeling. Usage fees and hub services revenues are recognized as services are performed.
Home Services and Other			Installations			Home Services installs appliances, including but not limited to, furnaces, air conditioning units, boilers and generators for customers. The distinct performance obligation is the installation of the contracted appliance, which is satisfied at the point in time the item is installed. The transaction price for each installation differs accordingly. Revenue is recognized at a point in time upon completion of the installation, which is when the customer is billed.

Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during the three months ended December 31, 2022 and 2021, are as follows:

(Thousands)			Natural Gas Distribution			Clean Energy Ventures						Energy Services			Storage and Transportation			Home Services and Other			Total
2022
Natural gas utility sales (1)			$	288,167		—						—			—			—			$	288,167
Natural gas services			—			—						27,848			26,838			—			54,686
Service contracts			—			—						—			—			8,661			8,661
Installations and maintenance			—			—						—			—			5,605			5,605
Renewable energy certificates			—			1,202						—			—			—			1,202
Electricity sales			—			7,704						—			—			—			7,704
Eliminations (2)			(337)			—						—			(1,124)			(13)			(1,474)
Revenues from contracts with customers			287,830			8,906						27,848			25,714			14,253			364,551
Alternative revenue programs (3)			(3,465)			—						—			—			—			(3,465)
Derivative instruments			73,044			3,886			(4)			293,934			—			—			370,864
Eliminations (2)			—			—						(8,383)			—			—			(8,383)
Revenues out of scope			69,579			3,886						285,551			—			—			359,016
Total operating revenues			$	357,409		12,792						313,399			25,714			14,253			$	723,567
2021
Natural gas utility sales			$	223,796		—						—			—			—			$	223,796
Natural gas services			—			—						27,879			12,143			—			40,022
Service contracts			—			—						—			—			8,467			8,467
Installations and maintenance			—			—						—			—			5,484			5,484
Renewable energy certificates			—			846						—			—			—			846
Electricity sales			—			6,470						—			—			—			6,470
Eliminations (1)			(337)			—						—			(559)			(99)			(995)
Revenues from contracts with customers			223,459			7,316						27,879			11,584			13,852			284,090
Alternative revenue programs (3)			10,654			—						—			—			—			10,654
Derivative instruments			40,322			2,867			(4)			341,365			—			—			384,554
Eliminations (2)			—			—						(3,456)			—			—			(3,456)
Revenues out of scope			50,976			2,867						337,909			—			—			391,752
Total operating revenues			$	274,435		10,183						365,788			11,584			13,852			$	675,842

(1)Includes building rent related to the Wall headquarters, which is eliminated in consolidation.

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

(3)Includes CIP revenue.

(4)Includes SREC revenue.

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Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the three months ended December 31, 2022 and 2021, are as follows:

(Thousands)			Natural Gas Distribution			Clean Energy Ventures			Energy Services			Storage and Transportation			Home Services and Other			Total
2022
Residential			$	216,938		3,293			—			—			14,180			$	234,411
Commercial and industrial			43,795			5,613			27,848			25,714			73			103,043
Firm transportation			26,199			—			—			—			—			26,199
Interruptible and off-tariff			898			—			—			—			—			898
Revenues out of scope			69,579			3,886			285,551			—			—			359,016
Total operating revenues			$	357,409		12,792			313,399			25,714			14,253			$	723,567
2021
Residential			$	151,308		2,972			—			—			13,775			$	168,055
Commercial and industrial			47,184			4,344			27,879			11,584			77			91,068
Firm transportation			22,675			—			—			—			—			22,675
Interruptible and off-tariff			2,292			—			—			—			—			2,292
Revenues out of scope			50,976			2,867			337,909			—			—			391,752
Total operating revenues			$	274,435		10,183			365,788			11,584			13,852			$	675,842

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 three months ended December 31, 2022 and 2021, are as follows:

			Customer Accounts Receivable						Customers' Credit
(Thousands)			Billed			Unbilled			Balances and Deposits
Balance as of September 30, 2022			$	222,297		$	13,769		$	33,246
Increase			148,668			95,378			7,724
Balance as of December 31, 2022			$	370,965		$	109,147		$	40,970
Balance as of September 30, 2021			$	212,838		$	10,351		$	32,586
Increase			53,977			62,598			6,080
Balance as of December 31, 2021			$	266,815		$	72,949		$	38,666

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 December 31, 2022 and September 30, 2022:

(Thousands)			Natural Gas Distribution			Clean Energy Ventures			Energy Services			Storage and Transportation			Home Services and Other						Total
December 31, 2022
Customer accounts receivable
Billed			$	147,629		5,508			206,374			9,350			2,104						$	370,965
Unbilled			106,580			2,567			—			—			—						109,147
Customers' credit balances and deposits			(40,967)			—			—			(3)			—						(40,970)
Total			$	213,242		8,075			206,374			9,347			2,104						$	439,142
September 30, 2022
Customer accounts receivable
Billed			$	78,508		5,566			129,199			7,012			2,012						$	222,297
Unbilled			10,814			2,955			—			—			—						13,769
Customers' credit balances and deposits			(33,246)			—			—			—			—						(33,246)
Total			$	56,076		8,521			129,199			7,012			2,012						$	202,820

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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 filings to the BPU for review of its BGSS, CIP and other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. The current base rates include a weighted average cost of capital of 6.84 percent and a return on common equity of 9.6 percent. All rate and program changes are subject to proper notification and BPU review and approval. In addition, NJNG is permitted to implement certain BGSS rate changes on a provisional basis with proper notification to the BPU.

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

(Thousands)			December 31, 2022			September 30, 2022
Regulatory assets-current
New Jersey Clean Energy Program			$	14,090		$	15,697
Conservation Incentive Program			19,633			23,099
Derivatives at fair value, net			26,314			—
Other current regulatory assets			1,318			1,290
Total current regulatory assets			$	61,355		$	40,086
Regulatory assets-noncurrent
Environmental remediation costs:
Expended, net of recoveries			$	65,671		$	66,149
Liability for future expenditures			125,727			127,070
Deferred income taxes			40,732			40,520
SAVEGREEN			54,909			52,690
Postemployment and other benefit costs			55,972			56,021
Deferred storm damage costs			1,629			2,172
Cost of removal			106,645			104,850
Other noncurrent regulatory assets			39,249			45,828
Total noncurrent regulatory assets			$	490,534		$	495,300
Regulatory liability-current
Overrecovered natural gas costs			$	42,245		$	17,807
Derivatives at fair value, net			681			7,972
Total current regulatory liabilities			$	42,926		$	25,779
Regulatory liabilities-noncurrent
Tax Act impact (1)			$	184,112		$	185,367
Derivatives at fair value, net			—			116
Other noncurrent regulatory liabilities			628			151
Total noncurrent regulatory liabilities			$	184,740		$	185,634

(1)Reflects the re-measurement and subsequent amortization of NJNG's net deferred tax liabilities as a result of the change in federal tax rates enacted in the Tax Act.

Other noncurrent regulatory assets include deferred pandemic costs of approximately $3.9 million and $6.9 million as of December 31, 2022 and September 30, 2022, respectively, primarily related to a portion of bad debt associated with customer accounts receivable resulting from the impacts of the ongoing COVID-19 pandemic. These costs are eligible for future regulatory recovery. On January 5, 2023, NJNG advised the BPU that it will cease deferring COVID-19 costs as of December 31, 2022, and will seek recovery of its regulatory asset balance in its next base rate proceeding.

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

(Thousands)			December 31, 2022			September 30, 2022
Total noncurrent regulatory assets			$	5,316		$	5,366
Total current regulatory liabilities			6,456			5,311

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

5. DERIVATIVE INSTRUMENTS

The Company is subject primarily to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company is exposed to foreign currency and interest rate risk and may utilize foreign currency derivatives to hedge Canadian dollar denominated natural gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations in interest rates. All of these types of contracts are accounted for as derivatives, unless the Company elects NPNS, which is done on a contract-by-contract election. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. For a more detailed discussion of the Company’s fair value measurement policies and level disclosures associated with the Company’s derivative instruments, see Note 6. Fair Value.

Energy Services

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 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.

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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 a portfolio basis. However, since NPNS is a contract-by-contract election, where it makes sense to do so, NJNG can and may elect to treat certain contracts as normal. Because NJNG recovers these amounts through future BGSS rates as increases or decreases to the cost of natural gas in NJNG’s tariff for natural gas service, the changes in fair value of these contracts are deferred as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets.

Clean Energy Ventures

The Company elects NPNS accounting treatment on PPA contracts executed by Clean Energy Ventures that meet the definition of a derivative and accounts for the contract on an accrual basis. Accordingly, electricity sales are recognized in revenues throughout the term of the PPA as electricity is delivered. NPNS is a contract-by-contract election and where it makes sense to do so, the Company can and may elect to treat certain contracts as normal.

Fair Value of Derivatives

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

									Derivatives at Fair Value
									December 31, 2022												September 30, 2022
(Thousands)			Balance Sheet Location			Assets						Liabilities						Assets						Liabilities
Derivatives not designated as hedging instruments:
Natural Gas Distribution:
Physical commodity contracts			Derivatives - current						$	710					$	29					$	252					$	11
Financial commodity contracts			Derivatives - current						4,893						7,352						85						6,281
Energy Services:
Physical commodity contracts			Derivatives - current						7,888						14,549						9,857						17,051
			Derivatives - noncurrent						7						15,354						376						13,561
Financial commodity contracts			Derivatives - current						31,187						26,174						14,423						26,488
			Derivatives - noncurrent						3,438						8,123						6,009						630
Foreign currency contracts			Derivatives - current						—						—						18						17
Total fair value of derivatives									$	48,123					$	71,581					$	31,020					$	64,039

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Offsetting of Derivatives

The Company transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets and liabilities with the same counterparty. However, the Company’s policy is to present its derivative assets and liabilities on a gross basis at the contract level unit of account on the Unaudited Condensed Consolidated Balance Sheets.

The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but elects not to, financial collateral and the net amounts the Company could present on the Unaudited Condensed Consolidated Balance Sheets but elects not to.

(Thousands)			Amounts Presented on Balance Sheets (1)						Offsetting Derivative Instruments (2)						Financial Collateral Received/Pledged (3)						Net Amounts (4)
As of December 31, 2022:
Derivative assets:
Energy Services
Physical commodity contracts						$	7,895					$	(1,698)					$	(1,310)					$	4,887
Financial commodity contracts						34,625						(14,224)						—						20,401
Total Energy Services						$	42,520					$	(15,922)					$	(1,310)					$	25,288
Natural Gas Distribution
Physical commodity contracts						$	710					$	—					$	—					$	710
Financial commodity contracts						4,893						(4,893)						—						—
Total Natural Gas Distribution						$	5,603					$	(4,893)					$	—					$	710
Derivative liabilities:
Energy Services
Physical commodity contracts						$	29,903					$	(1,698)					$	—					$	28,205
Financial commodity contracts						34,297						(14,224)						—						20,073
Total Energy Services						$	64,200					$	(15,922)					$	—					$	48,278
Natural Gas Distribution
Physical commodity contracts						$	29					$	—					$	—					$	29
Financial commodity contracts						7,352						(4,893)						—						2,459
Total Natural Gas Distribution						$	7,381					$	(4,893)					$	—					$	2,488
As of September 30, 2022:
Derivative assets:
Energy Services
Physical commodity contracts						$	10,233					$	(404)					$	(200)					$	9,629
Financial commodity contracts						20,432						(12,198)						—						8,234
Foreign currency contracts						18						(17)						—						1
Total Energy Services						$	30,683					$	(12,619)					$	(200)					$	17,864
Natural Gas Distribution
Physical commodity contracts						$	252					$	—					$	—					$	252
Financial commodity contracts						85						(85)						—						—
Total Natural Gas Distribution						$	337					$	(85)					$	—					$	252
Derivative liabilities:
Energy Services
Physical commodity contracts						$	30,612					$	(404)					$	—					$	30,208
Financial commodity contracts						27,118						(12,198)						—						14,920
Foreign currency contracts						17						(17)						—						—
Total Energy Services						$	57,747					$	(12,619)					$	—					$	45,128
Natural Gas Distribution
Physical commodity contracts						$	11					$	—					$	—					$	11
Financial commodity contracts						6,281						(85)						—						6,196
Total Natural Gas Distribution						$	6,292					$	(85)					$	—					$	6,207

(1)Derivative assets and liabilities are presented on a gross basis on the condensed consolidated balance sheets as the Company does not elect balance sheet offsetting under ASC 210-20.

(2)Includes transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with ISDA netting.

(3)Financial collateral includes cash balances at FCMs as well as cash received from or pledged to other counterparties.

(4)Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.

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Energy Services utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical natural gas to be used for storage injection and its subsequent sale at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased natural gas are recognized prior to the gains or (losses) on the physical transaction, which are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged along with fair value changes in derivative instruments, creates volatility in the results of Energy Services, although the Company's intended economic results relating to the entire transaction are unaffected.

The following table presents the effect of derivative instruments recognized on the Unaudited Condensed Consolidated Statements of Operations for the periods set forth below:

(Thousands)			Location of gain (loss) recognized in income on derivatives												Amount of gain (loss) recognized in income on derivatives
									Three Months Ended
									December 31,
Derivatives not designated as hedging instruments:															2022						2021
Energy Services:
Physical commodity contracts			Operating revenues												$	10,038					$	150
Physical commodity contracts			Natural gas purchases												(670)						1,505
Financial commodity contracts			Natural gas purchases												41,611						61,189
Total unrealized and realized loss															$	50,979					$	62,844

NJNG’s derivative contracts are part of the Company's risk management activities that relate to its natural gas purchases and BGSS incentive programs. At settlement, the resulting gains and/or losses are payable to or recoverable from utility customers and are deferred in regulatory assets or liabilities resulting in no impact to earnings. The following table reflects the gains (losses) associated with NJNG's derivative instruments for the periods set forth below:

						Three Months Ended
						December 31,
(Thousands)												2022						2021
Natural Gas Distribution:
Physical commodity contracts												$	(28,031)					$	1,696
Financial commodity contracts												(31,663)						(14,647)
Total unrealized and realized loss												$	(59,694)					$	(12,951)

During fiscal 2020, NJR entered into treasury lock transactions to fix the benchmark treasury rate associated with debt issuances that were finalized in 2020. NJR designates its treasury lock contracts as cash flow hedges; therefore, changes in fair value of the effective portion of the hedges are recorded in OCI and upon settlement of the contracts, realized gains and (losses) are reclassified from OCI to interest expense on the Consolidated Statements of Operations ratable over the term of the associated debt. The following table reflects the effect of derivative instruments designated as cash flow hedges in OCI for the periods set forth below:

(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
			December 31,									December 31,
Derivatives in cash flow hedging relationships:			2022			2021						2022			2021
Interest rate contracts			$	—		$	—		Interest expense			$	(343)		$	(343)

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NJNG and Energy Services had the following outstanding long (short) derivatives as of:

															Volume (Bcf)
						Transaction Type									December 31, 2022						September 30, 2022
Natural Gas Distribution						Futures									23.1						30.5
						Physical Commodity									1.8						6.8
Energy Services						Futures									(10.7)						(0.7)
						Physical Commodity									(5.2)						2.7

Not included in the above table are 1.4 million and 1.2 million SRECs that were open as of December 31, 2022 and September 30, 2022, respectively, and the notional amount of foreign currency transactions for the periods were immaterial.

Broker Margin

Futures exchanges have contract specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily marked-to-market relative to maintenance margin requirements. The Company maintains separate broker margin accounts for Natural Gas Distribution and Energy Services. The balances by reporting segment are as follows:

(Thousands)			Balance Sheet Location			December 31, 2022			September 30, 2022
Natural Gas Distribution			Restricted broker margin accounts-current assets			$	23,846		$	26,138
Energy Services			Restricted broker margin accounts-current assets			$	69,327		$	68,123
			Restricted broker margin accounts-current liabilities			$	7,297		$	—

Wholesale Credit Risk

NJNG, Energy Services, Clean Energy Ventures and Storage and Transportation are exposed to credit risk as a result of their sales/wholesale marketing activities. As a result of the inherent volatility in the prices of natural gas commodities, derivatives and SRECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty fails to perform the obligations under its contract then the Company could sustain a loss.

The Company monitors and manages the credit risk of its wholesale operations through credit policies and procedures that management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties' financial statements and/or credit ratings, daily monitoring of counterparties' credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to the Company's election not to extend credit or because exposure exceeds defined thresholds. Most of the Company's wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due.

Internally-rated exposure applies to counterparties that are not rated by Fitch or Moody's. In these cases, the counterparty's or guarantor's financial statements are reviewed, and similar methodologies and ratios used by Fitch and/or Moody's are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received.

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The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of December 31, 2022. The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services and Clean Energy Ventures residential solar installations.

(Thousands)			Gross Credit Exposure
Investment grade						$	263,489
Noninvestment grade						75,575
Internally rated investment grade						34,871
Internally rated noninvestment grade						46,725
Total						$	420,660

Conversely, certain of NJNG's and Energy Services' derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG's credit rating were to fall below its current level. Specifically, most, but not all, of these additional payments will be triggered if NJNG's debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings but are based on certain financial metrics.

Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company's credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed applicable threshold limits. There was approximately $258,000 of derivative instruments with credit-risk-related contingent features that were in a liability position for which collateral is required as of December 31, 2022. These amounts differ from the respective net derivative liabilities reflected on the Unaudited Condensed Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.

6. FAIR VALUE

Fair Value of Assets and Liabilities

The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loans receivable are recorded based on what the Company expects to receive, which approximates fair value, in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.

The estimated fair value of long-term debt, including current maturities, excluding finance leases, debt issuance costs and solar asset financing obligations, is as follows:

(Thousands)			December 31, 2022			September 30, 2022
Carrying value (1) (2) (3)			$	2,537,845		$	2,362,845
Fair market value			$	2,153,688		$	1,946,356

(1)Excludes finance leases of $37.0 million and $30.3 million as of December 31, 2022 and September 30, 2022, respectively.

(2)Excludes NJNG's debt issuance costs of $10.0 million and $9.5 million as of December 31, 2022 and September 30, 2022, respectively.

(3)Excludes NJR's debt issuance costs of $4.2 million and $3.8 million as of December 31, 2022 and September 30, 2022, respectively.

Clean Energy Ventures enters into transactions to sell certain commercial solar assets and lease the assets back for a term specified in the lease. These transactions are considered financing obligations for accounting purposes and are recorded within long-term debt on the Unaudited Condensed Consolidated Balance Sheets. The estimated fair value of solar asset financing obligations as of December 31, 2022 and September 30, 2022 was $154.9 million and $124.1 million, respectively.

The Company utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate for the maturity of the specific issue and the Company's credit rating. As of December 31, 2022, the Company discloses its debt within Level 2 of the fair value hierarchy.

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Fair Value Hierarchy

The Company applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, investments in equity securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and includes the following:

Level 1Unadjusted quoted prices for identical assets or liabilities in active markets. The Company's Level 1 assets and liabilities include exchange traded natural gas futures and options contracts, listed equities and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that the Company refers to internally as basis swaps, fixed swaps, futures and financial options that are cleared through an FCM.

Level 2Other significant observable inputs such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. The Company's Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:

•widely accepted and public;

•non-proprietary and sourced from an independent third party; and

•observable and published.

These additional adjustments are generally not considered to be significant to the ultimate recognized values.

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

Assets and liabilities measured at fair value on a recurring basis are summarized as follows:

			Quoted Prices in Active Markets for Identical Assets									Significant Other Observable Inputs									Significant Unobservable Inputs
(Thousands)			(Level 1)									(Level 2)									(Level 3)									Total
As of December 31, 2022:
Assets:
Physical commodity contracts						$	—								$	8,605								$	—					$	8,605
Financial commodity contracts						39,518									—									—						39,518
Money market funds						82									—									—						82
Other						2,720									—									—						2,720
Total assets at fair value						$	42,320								$	8,605								$	—					$	50,925
Liabilities:
Physical commodity contracts						$	—								$	29,932								$	—					$	29,932
Financial commodity contracts						41,649									—									—						41,649
Total liabilities at fair value						$	41,649								$	29,932								$	—					$	71,581

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7. INVESTMENTS IN EQUITY INVESTEES

Steckman Ridge

The Company holds a 50 percent equity method investment in Steckman Ridge, a jointly owned and controlled natural gas storage facility located in Bedford County, Pennsylvania. The Company's investment in Steckman Ridge was $106.2 million and $106.6 million as of December 31, 2022 and September 30, 2022, respectively, which include loans with a total outstanding principal balance of $70.4 million for both December 31, 2022 and September 30, 2022. These loans accrue interest at a variable rate that resets quarterly and are due October 1, 2023.

NJNG and Energy Services have entered into storage and park and loan agreements with Steckman Ridge. See Note 15. Related Party Transactions for more information on these intercompany transactions.

PennEast

The Company, through its subsidiary NJR Midstream Company, is a 20 percent investor in PennEast, a partnership whose purpose was to construct and operate a 120-mile natural gas pipeline that would have extended from northeast Pennsylvania to western New Jersey.

During the third quarter of fiscal 2021, the Company recognized an other-than-temporary impairment charge of $92.0 million, or approximately $74.5 million, net of income taxes, which represented the best estimate of the salvage value of the remaining assets of the project and was recorded in equity in earnings of affiliates in the Unaudited Condensed Consolidated Statements of Operations. In September 2021, the PennEast partnership determined that this project was no longer supported, and all further development ceased.

In March 2022, the PennEast board of managers approved cash distributions to members of the partnership following the sale of certain project-related assets and refunds of interconnection fees received from interstate pipelines. The return of capital received by the Company from March 2022 through September 2022, totaled $11.0 million and reduced the remaining carrying value of its equity method investment in PennEast to zero in the Unaudited Condensed Consolidated Balance Sheet, with the excess recorded in equity in earnings of affiliates in the Unaudited Condensed Consolidated Statements of Operations.

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8. EARNINGS PER SHARE

The following table presents the calculation of the Company's basic and diluted earnings per share for:

						Three Months Ended
						December 31,
(Thousands, except per share amounts)									2022			2021
Net income, as reported									$	115,921		$	111,312
Basic earnings per share
Weighted average shares of common stock outstanding-basic									96,485			95,944
Basic earnings per common share									$1.20			$1.16
Diluted earnings per share
Weighted average shares of common stock outstanding-basic									96,485			95,944
Incremental shares (1)									598			412
Weighted average shares of common stock outstanding-diluted									97,083			96,356
Diluted earnings per common share									$1.19			$1.16

(1)Incremental shares consist primarily of unvested stock awards and performance shares.

9. DEBT

NJR and NJNG finance working capital requirements and capital expenditures through various short-term debt and long-term financing arrangements, including a commercial paper program and committed unsecured credit facilities.

Credit Facilities and Short-term Debt

A summary of NJR's credit facility and term loan credit agreement and NJNG's commercial paper program and credit facility are as follows:

(Thousands)			December 31, 2022						September 30, 2022						Expiration Dates
NJR
Bank revolving credit facility (1)			$	650,000					$	650,000					September 2027
Notes outstanding at end of period			$	202,650					$	200,150
Weighted average interest rate at end of period			5.54		%				3.97		%
Amount available at end of period (2)			$	427,677					$	440,177
Bank term loan credit agreement			$	150,000					$	150,000					February 2023
Loans outstanding at end of period			$	150,000					$	150,000
Weighted average interest rate at end of period			5.17		%				3.81		%
Amount available at end of period			$	—					$	—
NJNG
Bank revolving credit facility (3)			$	250,000					$	250,000					September 2027
Commercial paper and notes outstanding at end of period			$	111,800					$	73,800
Weighted average interest rate at end of period			4.60		%				3.34		%
Amount available at end of period (4)			$	137,469					$	175,469

(1)Committed credit facilities, which require commitment fees of 0.10 percent on the unused amounts.

(2)Letters of credit outstanding total $19.7 million at December 31, 2022 and $9.7 million at September 30, 2022, which reduces the amount available by the same amount.

(3)Committed credit facilities, which require commitment fees of 0.075 percent on the unused amounts.

(4)Letters of credit outstanding total $731,000 at both December 31, 2022 and September 30, 2022, which reduces the amount available by the same amount.

Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit facility or term loan.

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Long-term Debt

NJR

On October 24, 2022, NJR entered into a Note Purchase Agreement, which closed on December 15, 2022, under which NJR issued $50 million, Series 2022B senior notes at a fixed rate of 6.14 percent, maturing in 2032. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR.

NJNG

On October 24, 2022, NJNG entered into a Note Purchase Agreement for $125 million of its senior notes at an interest rate of 5.47 percent, maturing in 2052.

NJNG received $8.4 million and $17.3 million during the three months ended December 31, 2022 and 2021, respectively, in connection with the sale leaseback of its natural gas meters. NJNG records a financing 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 an early purchase option with respect to meter leases by making a final principal payment of $1.1 million during the three months ended December 31, 2021. There was no early purchase option exercised during the three months ended December 31, 2022.

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 treated as financing obligations for accounting purposes and are typically secured by the renewable energy facility asset and its future cash flows from SRECs, TRECs and energy sales. ITCs and other tax benefits associated with these solar projects are transferred to the buyer, if applicable; however, the lease payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Clean Energy Ventures continues to operate the solar assets, including related expenses, and retain the revenue generated from SRECs, TRECs and energy sales, and has the option to renew the lease or repurchase the assets sold at the end of the lease term. During the three months ended December 31, 2022 and 2021, Clean Energy Ventures received proceeds of $33.2 million and $3.3 million, respectively, in connection with the sale leaseback of commercial solar assets. The proceeds received were recognized as a financing obligation on the Unaudited Condensed Consolidated Balance Sheets.

10. EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans

The components of the net periodic cost for pension benefits, including the Company's Pension Equalization Plan, and OPEB costs (principally health care and life insurance) for employees and covered dependents were as follows:

									Pension												OPEB
						Three Months Ended									Three Months Ended
						December 31,									December 31,
(Thousands)									2022			2021									2022			2021
Service cost									$	1,350		$	2,073								$	618		$	1,076
Interest cost									3,794			2,408									2,286			1,589
Expected return on plan assets									(4,993)			(5,319)									(1,680)			(1,894)
Recognized actuarial loss									75			2,186									—			1,421
Prior service cost (credit) amortization									25			25									—			(36)
Net periodic benefit cost									$	251		$	1,373								$	1,224		$	2,156

The Company does not expect to be required to make additional contributions to fund the pension plans during fiscal 2023 based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents. In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans. There were no discretionary contributions made during the three months ended December 31, 2022 and 2021.

There are no federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts due to regulatory agreements with the BPU and estimates that it will contribute between $5 million and $10 million over each of the next five years. Additional contributions may be required based on market conditions and changes to assumptions.

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11. INCOME TAXES

ASC Topic 740, Income Taxes requires the use of an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating its estimated annual effective tax rate, the Company considers forecasted annual pre-tax income and estimated permanent book versus tax differences. Adjustments to the effective tax rate and management's estimates will occur as information and assumptions change.

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

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

Effective Tax Rate

The estimated annual effective tax rates were 22.5 percent and 21.6 percent, for the three months ended December 31, 2022 and 2021, respectively.

To the extent there are discrete tax items that are not included in the estimated annual effective tax rate, the actual reported effective tax rate may differ from the estimated annual effective tax rate. During the three months ended December 31, 2022 and 2021, discrete items totaled approximately $(554,000) and $166,000, respectively, related to excess tax (benefit) provision associated with the vesting of share-based awards. NJR’s actual reported effective tax rate was 22.2 percent and 21.7 percent during the three months ended December 31, 2022 and 2021, respectively.

Inflation Reduction Act

On August 16, 2022, the President of the U.S. signed the Inflation Reduction Act, which contains provisions addressing inflation, clean energy, healthcare and taxes beginning in 2023. The Inflation Reduction Act imposes a 15 percent minimum tax rate on corporations with higher than $1 billion of annual income, along with a 1 percent excise tax on corporate stock repurchases. The Inflation Reduction Act raised the ITC from 26 percent to 30 percent through the end of 2032, dropping to 26 percent for property under construction before the end of 2033 and to 22 percent for property under construction before the end of 2034. The ITC expires starting in 2035 unless it is renewed. There are additional opportunities to increase the credit amount for certain facilities that are placed in service after December 31, 2022. The credit amount can be increased by 10 percent if certain domestic content requirements are satisfied or if the facility is located in an energy community, such as a brownfield site. ITCs are also expanded to include stand-alone energy storage projects without being integrated into a solar facility, allowing solar to claim PTCs that are a production-based credit extending for 10 years following the placed-in-service date of the facility and introduced the concept of transferability of tax credits, providing an additional option to monetize such credits.

The Company evaluated the impacts of the Inflation Reduction Act on its financial position, results of operations and cash flows, noting the corporate alternative minimum tax does not impact the Company as the applicable income thresholds have not been met. Upon the repurchase of common stock through the Company’s share repurchase program, the Company would be subject to the 1 percent excise tax. It is expected the ITC revisions of the Inflation Reduction Act could result in potential opportunities, however the Company cannot reasonably estimate the future impacts at this time.

Other Tax Items

As of December 31, 2022 and September 30, 2022, the Company has tax credit carryforwards of approximately $177.8 million and $211.8 million, respectively, which each have a life of 20 years. The Company expects to utilize this entire carryforward prior to expiration, which would begin in fiscal 2035.

As of December 31, 2022 and September 30, 2022, the Company has state income tax net operating losses of approximately $515.1 million and $544.4 million, respectively. These state net operating losses have varying carry-forward periods dictated by the state in which they were incurred; these state carry-forward periods range from seven to 20 years, with the majority expiring after 2035. The Company expects to utilize this entire carryforward, other than as described below.

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The impairment of the equity method investment in PennEast created net capital loss attributes, which can only be utilized to offset capital gains income and can be carried back three years and forward five years prior to expiration. These attributes totaled approximately $56.6 million as of both December 31, 2022 and September 30, 2022.

As of December 31, 2022, the Company has a valuation allowance totaling $21.9 million comprised of approximately $16.9 million, related to the recognition of state net operating loss carryforwards and approximately $5.1 million related to capital loss carryforwards resulting from the impairment of the equity method investment in PennEast, which the Company believes are not more likely than not to be fully utilized prior to expiration. As of September 30, 2022, the Company had a valuation allowance totaling $22.2 million comprised of approximately $17.2 million, related to the recognition of state net operating loss carryforwards, which primarily relate to New Jersey and approximately $5.1 million related to capital loss carryforwards resulting from the impairment of the equity method investment in PennEast.

The Consolidated Appropriations Act extended the 30 percent ITC for solar property that is under construction on or before December 31, 2019. Projects placed in service after December 31, 2019, may also qualify for a 30 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 Internal Revenue Service guidance around ITC safe harbor determination. The credit declined to 26 percent for property under construction before the end of 2020. The Consolidated Appropriations Act of 2021 extended the 26 percent tax credit for property under construction during 2021 and 2022. The Inflation Reduction Act raised the ITC from 26 percent to 30 percent through the end of 2032, as previously stated.

12. LEASES

Lessee Accounting

The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. After the criteria is satisfied, the Company accounts for these arrangements as leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases.

The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of its natural gas meters.

Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. The variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.

Generally, the Company’s solar land lease terms are between 20 and 50 years and may include multiple options to extend the terms for an additional five to 20 years. The Company’s office leases vary in duration, ranging from two to 17 years and may or may not include extension or early purchase options. The Company’s meter lease terms are between seven and ten years with purchase options available prior to the end of the term. Equipment leases include general office equipment that also vary in duration, with an average term of eight years. The Company's storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases.

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The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with various NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation.

The following table presents the Company's lease costs included in the Unaudited Condensed Consolidated Statements of Operations:

									Three Months Ended
									December 31,
(Thousands)			Income Statement Location									2022			2021
Operating lease cost (1)			Operation and maintenance									$	2,417		$	2,119
Finance lease cost
Amortization of right-of-use assets			Depreciation and amortization									485			$	396
Interest on lease liabilities			Interest expense, net of capitalized interest									235			$	80
Total finance lease cost												720			$	476
Short-term lease cost			Operation and maintenance									—			$	11
Variable lease cost			Operation and maintenance									223			$	191
Total lease cost												$	3,360		$	2,797

(1)Net of capitalized costs.

The following table presents supplemental cash flow information related to leases:

			Three Months Ended
			December 31,
(Thousands)			2022			2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases			$	1,231		$	2,037
Operating cash flows for finance leases			$	235		$	170
Financing cash flows for finance leases			$	1,699		$	2,275

Assets obtained or modified for operating lease liabilities totaled approximately $120,000 and $808,000 during the three months ended December 31, 2022 and 2021, respectively.

Assets obtained or modified through finance lease liabilities totaled $8.4 million and $17.3 million during the three months ended December 31, 2022 and 2021, respectively.

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The following table presents the balance and classifications of the Company's right of use assets and lease liabilities included in the Unaudited Condensed Consolidated Balance Sheets:

(Thousands)			Balance Sheet Location			December 31, 2022			September 30, 2022
Assets
Noncurrent
Operating lease assets			Operating lease assets			$	167,129		$	168,520
Finance lease assets			Utility plant			29,868			21,913
Total lease assets						$	196,997		$	190,433
Liabilities
Current
Operating lease liabilities			Operating lease liabilities			$	4,661		$	4,562
Finance lease liabilities			Current maturities of long-term debt			8,920			6,538
Noncurrent
Operating lease liabilities			Operating lease liabilities			137,627			138,382
Finance lease liabilities			Long-term debt			28,112			23,752
Total lease liabilities						$	179,320		$	173,234

For operating lease assets and liabilities, the weighted average remaining lease term was 29.1 years and 29.2 years as of December 31, 2022 and September 30, 2022, respectively, and the weighted average discount rate used in the valuation over the remaining lease term was 3.2 percent for both December 31, 2022 and September 30, 2022.

For finance lease assets and liabilities as of December 31, 2022 and September 30, 2022, the weighted average remaining lease term was 3.9 years and 4.0 years, respectively, and the weighted average discount rate used in the valuation over the remaining lease term is 2.8 percent and 2.7 percent as of December 31, 2022 and September 30, 2022, respectively.

13. COMMITMENTS AND CONTINGENT LIABILITIES

Cash Commitments

NJNG has entered into long-term contracts, expiring at various dates through September 2039, for the supply, transportation and storage of natural gas. These contracts include annual fixed charges of approximately $191.4 million at current contract rates and volumes for the remainder of the fiscal year, which are recoverable through BGSS.

For the purpose of securing storage and pipeline capacity, Energy Services enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by Energy Services to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to 10 years. Demand charges are established by interstate storage and pipeline operators and are regulated by FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and/or transport natural gas utilizing their respective assets.

Commitments as of December 31, 2022, for natural gas purchases and future demand fees for the next five fiscal year periods are as follows:

(Thousands)			2023			2024			2025			2026			2027			Thereafter
Energy Services:
Natural gas purchases			$	91,458		$	1,888		$	—		$	—		$	—		$	—
Storage demand fees			15,844			14,434			8,278			4,714			2,207			818
Pipeline demand fees			41,076			43,235			32,380			32,280			23,087			20,717
Sub-total Energy Services			$	148,378		$	59,557		$	40,658		$	36,994		$	25,294		$	21,535
NJNG:
Natural gas purchases			$	9,152		$	—		$	—		$	—		$	—		$	—
Storage demand fees			32,951			33,815			16,848			10,164			9,541			4,772
Pipeline demand fees			110,006			142,093			140,934			127,564			124,160			1,057,937
Sub-total NJNG			$	152,109		$	175,908		$	157,782		$	137,728		$	133,701		$	1,062,709
Total			$	300,487		$	235,465		$	198,440		$	174,722		$	158,995		$	1,084,244

Certain pipeline demand fees totaling approximately $4.0 million per year, for which Energy Services is the responsible party, are being paid for by the counterparty to a capacity release transaction beginning November 1, 2021 for a period of 10 years.

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Legal Proceedings

Manufactured Gas Plant Remediation

NJNG is responsible for the remedial cleanup of certain former MGP sites, dating back to gas operations in the late 1800s and early 1900s, which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative proceedings with the NJDEP and participating in various studies and investigations by outside consultants, to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under NJDEP regulations.

NJNG periodically, and at least annually, performs an environmental review of former MGP sites located in Atlantic Highlands, Berkeley, Long Branch, Manchester, Toms River, Freehold and Aberdeen, New Jersey, including a review of potential liability for investigation and remedial action. NJNG estimates the total future expenditures at the former MGP sites for which it is responsible, including potential liabilities for natural resource damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites will range from approximately $110.8 million to $167.1 million. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, as of December 31, 2022, NJNG recorded a MGP remediation liability and a corresponding regulatory asset of approximately $125.7 million on the Unaudited Condensed Consolidated Balance Sheets based on the most likely amount. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and insurance recoveries, if any.

In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership and if former MGP operations were active at the location. The preliminary assessment and site investigation activities are ongoing at the Aberdeen, New Jersey site location. The estimated costs to complete the preliminary assessment and site investigation phase are included in the MGP remediation liability and corresponding regulatory asset on the Unaudited Condensed Consolidated Balance Sheets at December 31, 2022 and September 30, 2022. NJNG will continue to gather information to determine whether the obligation exists to undertake remedial action, if any, and refine its estimate of potential costs for this site as more information becomes available.

NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC approved by the BPU. On March 23, 2022, the BPU approved an increase in the RAC, which increased the pre-tax annual recovery from $11.1 million to $11.7 million, effective April 1, 2022. On September 13, 2022, NJNG submitted its annual filing to the BPU requesting approval of RAC expenditures through June 30, 2022, as well as an increase to the RAC annual recoveries of $3.8 million, which will increase the pre-tax annual recovery to $15.5 million, effective April 1, 2023. As of December 31, 2022, $65.7 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Unaudited Condensed Consolidated Balance Sheets. NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination.

General

The Company is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory and arbitration proceedings relating to matters that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, the Company cannot state with confidence what the eventual outcome of the pending litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, the Company establishes accruals for litigation for those matters that present loss contingencies as to which it is both probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company also discloses contingent matters for which there is a reasonable possibility of a loss. Based upon currently available information, the Company believes that the results of litigation that are currently pending, taken together, will not have a materially adverse effect on the Company’s financial condition, results of operations or cash flows. The actual results of resolving the pending litigation matters may be substantially higher than the amounts accrued.

The foregoing statements about the Company’s litigation are based upon the Company’s judgments, assumptions and estimates and are necessarily subjective and uncertain. The Company has a number of threatened and pending litigation matters at various stages.

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14. REPORTING SEGMENT AND OTHER OPERATIONS DATA

The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other operations: Natural Gas Distribution consists of regulated energy and off-system, capacity and storage management operations; Clean Energy Ventures consists of capital investments in clean energy projects; Energy Services consists of unregulated wholesale and retail energy operations; Storage and Transportation consists of the Company’s investments in natural gas transportation and storage facilities; the Home Services and Other business operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.

Information related to the Company's various reporting segments and other operations is detailed below:

						Three Months Ended
						December 31,
(Thousands)									2022			2021
Operating revenues
Natural Gas Distribution
External customers									$	357,409		$	274,435
Intercompany									337			337
Clean Energy Ventures
External customers									12,792			10,183
Energy Services
External customers (1)									313,399			365,788
Intercompany									8,383			3,456
Storage and Transportation
External customers									25,714			11,584
Intercompany									1,124			559
Subtotal									719,158			666,342
Home Services and Other
External customers									14,253			13,852
Intercompany									13			99
Eliminations									(9,857)			(4,451)
Total									$	723,567		$	675,842
Depreciation and amortization
Natural Gas Distribution									$	24,890		$	22,893
Clean Energy Ventures									5,576			5,233
Energy Services (2)									57			28
Storage and Transportation									5,942			2,133
Subtotal									36,465			30,287
Home Services and Other									218			204
Eliminations									—			(98)
Total									$	36,683		$	30,393
Interest income (3)
Natural Gas Distribution									$	413		$	193
Energy Services									269			—
Storage and Transportation									1,401			377
Subtotal									2,083			570
Home Services and Other									654			155
Eliminations									(778)			(224)
Total									$	1,959		$	501

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

(2)The amortization of acquired wholesale energy contracts is excluded above and is included in natural gas purchases - nonutility on the Unaudited Condensed Consolidated Statements of Operations.

(3)Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations.

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The Company's assets for the various reporting segments and business operations are detailed below:

(Thousands)			December 31, 2022			September 30, 2022
Assets at end of period:
Natural Gas Distribution			$	4,226,035		$	4,030,686
Clean Energy Ventures			1,047,726			1,015,065
Energy Services			446,017			333,064
Storage and Transportation			1,009,567			999,520
Subtotal			6,729,345			6,378,335
Home Services and Other			145,887			159,068
Intercompany assets (1)			(265,138)			(275,987)
Total			$	6,610,094		$	6,261,416

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

The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company's reporting segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income is as follows:

						Three Months Ended
						December 31,
(Thousands)									2022			2021
Net financial earnings									$	110,284		$	65,770
Less:
Unrealized (gain) on derivative instruments and related transactions									(31,503)			(82,191)
Tax effect									7,487			19,536
Effects of economic hedging related to natural gas inventory									23,972			23,577
Tax effect									(5,697)			(5,603)
NFE tax adjustment									104			(861)
Net income									$	115,921		$	111,312

The Company uses derivative instruments as economic hedges of purchases and sales of physical natural gas inventory. For GAAP purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues and cost of natural gas related to physical natural gas flow are recognized when the natural gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical natural gas flows. Timing differences occur in two ways:

•unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical natural gas inventory flows; and

•unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in the same period as physical natural gas inventory movements occur.

NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of natural gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Realized derivative gains and losses are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical natural gas flows. Included in the tax effects are current and deferred income tax expense corresponding with the components of NFE. The Company also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.

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15. RELATED PARTY TRANSACTIONS

Effective April 1, 2020, NJNG entered into a 5-year agreement for 3 Bcf of firm storage capacity with Steckman Ridge, which expires on March 31, 2025. Under the terms of the agreement, NJNG incurs demand fees, at market rates, of approximately $9.3 million annually, a portion of which is eliminated in consolidation. These fees are recoverable through NJNG’s BGSS mechanism and are included as a component of regulatory assets.

Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-jurisdictional natural gas storage facility, Steckman Ridge. As of December 31, 2022, Energy Services entered into transactions with Steckman Ridge for varying terms, all of which expire by March 31, 2024.

Demand fees, net of eliminations, associated with Steckman Ridge were as follows:

						Three Months Ended
						December 31,
(Thousands)									2022			2021
Natural Gas Distribution									$	1,655		$	1,558
Energy Services									172			288
Total									$	1,827		$	1,846

The following table summarizes demand fees payable to Steckman Ridge as of:

(Thousands)			December 31, 2022			September 30, 2022
Natural Gas Distribution			$	775		$	775
Energy Services			87			76
Total			$	862		$	851

NJNG and Energy Services have entered into various AMAs, the effects of which are eliminated in consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to Energy Services. As of December 31, 2022, NJNG and Energy Services had one AMA with an expiration date of March 31, 2023.

NJNG entered into a 5-year transportation agreement with Adelphia Gateway for committed capacity of 130,000 Dekatherms per day in Zone South, which began on August 9, 2022.

Energy Services has a 5-year agreement for 3 Bcf of firm storage capacity with Leaf River, which is eliminated in consolidation and expires in March 2024.

In March 2021, NJNG and Clean Energy Ventures entered into a 15-year sublease and PPA agreement related to an onsite solar array and the related energy output at the Company’s headquarters in Wall, New Jersey, the effects of which are immaterial to the consolidated financial statements.

In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with various NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation.

In June 2022, NJNG and Clean Energy Ventures entered into a 20-year sublease and PPA agreement related to an onsite solar array and the related energy output at the Company’s liquefied natural gas plant in Howell, New Jersey, the effects of which are immaterial to the consolidated financial statements.

NJNG entered into a 15-year transportation precedent agreement with Adelphia Gateway for committed capacity of 130,000 Dekatherms per day in Zone North, beginning November 1, 2023; however, the agreement term will automatically be reduced to 7 years if Transcontinental Gas Pipe Line Corporation has not placed its Regional Energy Access Expansion project into service by October 31, 2030.

The intercompany profit for certain transactions between NJNG and Energy Services and NJNG and Adelphia Gateway is not eliminated in accordance with ASC 980, Regulated Operations.

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