Business context and reporting period
New Jersey Resources Corporation (NYSE: NJR) filed this Form 10-K for the fiscal year ended September 30, 2022; it is not a standalone fourth-quarter report. NJR is a diversified energy company with four reporting segments: regulated Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation. Its utility subsidiary served approximately 569,300 customers in New Jersey.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Operating revenue | $2.906 billion | $2.157 billion |
| Operating income | $406.5 million | $288.4 million |
| Net income | $274.9 million | $117.9 million |
| Diluted EPS | $2.85 | $1.22 |
| Net financial earnings (NFE; non-GAAP) | $240.3 million; $2.50 per basic share | $207.7 million; $2.16 per basic share |
| Cash from operations | $323.5 million | $391.0 million |
| Cash used in investing | $590.6 million | $622.1 million |
| Cash from financing | $262.5 million | $117.8 million |
Revenue increased 34.8% and net income more than doubled. Revenue growth reflects, in part, higher natural gas prices and related pass-through amounts; these do not translate directly into utility margin. NJNG’s non-GAAP Utility Gross Margin rose to $512.1 million from $432.8 million. Operating cash flow declined $67.5 million, primarily because of higher working-capital needs amid rising energy prices and the absence of Energy Services’ unusually strong February 2021 performance.
At September 30, 2022, total assets were $6.261 billion, common equity $1.817 billion, long-term debt $2.485 billion, current maturities of long-term debt $75.1 million, and short-term debt $424.0 million. Cash and cash equivalents were $1.1 million. NJR reported $440.2 million available under its credit facility and term loan; NJNG reported $175.5 million available under its facility. Management said expected cash flows, borrowing availability and equity proceeds should cover working capital, capital expenditures and dividends for at least 12 months. NJR and NJNG reported compliance with debt covenants.
Material changes and segment results
- Natural Gas Distribution: Net income increased to $140.1 million from $107.4 million, supported by a $79 million BPU-approved base-rate increase effective December 2021 and higher utility gross margin. Natural gas distribution revenue rose to $1.129 billion, substantially reflecting higher gas costs passed through to customers.
- Clean Energy Ventures: Net income rose to $39.4 million from $16.8 million, primarily on higher SREC and electricity sales. Solar capacity in service was approximately 386.6 MW.
- Energy Services: GAAP net income increased to $69.7 million from $59.0 million, while NFE decreased to $39.1 million from $71.1 million and Financial Margin fell to $94.8 million from $146.1 million. The comparison reflects market volatility and the timing of derivative and physical-gas results, as well as the new asset-management agreements (AMAs).
- Storage and Transportation: Net income was $26.6 million versus a $67.8 million loss. The prior year included a $92 million PennEast impairment; the project was discontinued, and the company’s remaining PennEast carrying value reached zero in FY2022 after distributions. Adelphia Gateway’s southern pipeline section entered service in September 2022.
Outlook, risks and unusual items
- Management expects NJNG customer growth of approximately 1.6% annually. Fiscal 2023 capital expenditure estimates include $352–$378 million for NJNG, $100–$200 million for solar projects, $12–$16 million for Adelphia Gateway, and $8–$12 million for Leaf River. These estimates may change; the filing provides no consolidated earnings guidance.
- Energy Services’ AMAs began in November 2021. NJR expects approximately $260 million in cash receipts over FY2022–FY2024 and $34 million annually in FY2025–FY2031. FY2022 included $53.0 million of AMA revenue; $33.8 million received in excess of recognized revenue was deferred.
- The Inflation Reduction Act restored the federal solar investment tax credit to 30% through 2032, subject to eligibility and other requirements. NJR was still assessing the law’s overall financial impact.
- NJNG estimated future remediation costs for former manufactured-gas-plant sites at $110.8–$167.1 million and recorded a $127.1 million liability with a corresponding regulatory asset. Recovery depends on BPU approval; changes to the recovery outlook or actual costs could affect earnings.
- Key risks include regulatory recovery and rate decisions, natural-gas price and derivative volatility, working-capital and financing needs, weather and supply disruptions, clean-energy project execution and incentive eligibility, environmental obligations, credit/counterparty risk, and cybersecurity. Management reported no material COVID-19 impact through year-end. Deloitte issued unqualified opinions on the financial statements and internal controls; rate regulation was identified as a critical audit matter.
Important facts for investors to verify
- Reconcile GAAP net income growth with NFE growth, focusing on derivative timing effects, PennEast-related items and other nonrecurring adjustments.
- Track cash conversion, working capital, gas-storage and broker-margin requirements, and debt levels as commodity prices and seasonal demand change.
- Monitor delivery and financing of the stated FY2023 capital program, particularly NJNG infrastructure and solar investments.
- Follow BPU decisions on NJNG rates, regulatory assets and MGP remediation recovery, including the requested increase in annual remediation recovery.
- Assess whether Energy Services can sustain AMA-related earnings and cash receipts while managing market, liquidity and counterparty exposures.