New Jersey Resources Corporation — Fiscal 2021 Second-Quarter 10-Q
Business context and period. This unaudited Form 10-Q covers the quarter and six months ended March 31, 2021, the second quarter of NJR’s fiscal year. NJR operates a regulated New Jersey natural-gas utility and businesses in energy services, clean energy, and storage and transportation. Utility and wholesale energy results are seasonal; interim results are not necessarily indicative of the full year.
Financial results and liquidity
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Operating revenue | $802.2 million, vs. $639.6 million | $1,256.5 million, vs. $1,254.7 million |
| Operating income | $201.2 million, vs. $98.5 million | $312.7 million, vs. $203.1 million |
| Net income | $149.8 million, vs. $73.8 million | $230.9 million, vs. $149.6 million |
| Diluted EPS | $1.55, vs. $0.77 | $2.39, vs. $1.59 |
| Operating margin | 25.1%, vs. 15.4% | 24.9%, vs. 16.2% |
Quarterly revenue rose about 25%, while six-month revenue was essentially flat. Management attributed the earnings increase primarily to Energy Services’ results amid extreme cold and natural-gas price volatility in February 2021. Non-GAAP net financial earnings (NFE) were $170.6 million for the quarter and $215.3 million for six months, compared with $84.3 million and $119.2 million, respectively. NFE adjusts for derivative and inventory-hedging timing effects and should be considered alongside GAAP results. NJNG’s non-GAAP utility gross margin was $173.3 million for the quarter and $299.0 million for six months, versus $167.6 million and $279.7 million.
- Cash flow: Operating cash flow was $356.3 million for six months, versus $179.1 million. Investing used $245.5 million, including $152.5 million for utility plant and $40.9 million for solar equipment. Financing used $171.2 million; cash and restricted cash ended at $59.0 million.
- Debt and liquidity: At March 31, long-term debt was $2.265 billion, current maturities $22.6 million, and short-term debt $8.5 million. Cash and cash equivalents were $57.7 million. NJR reported $406.2 million available under its $425 million credit facility; NJNG reported $249.3 million available under its separate $250 million facility. Management said liquidity and borrowing availability were sufficient for the next 12 months and reported compliance with debt covenants.
- Capital structure: Common equity was 44% of capitalization, long-term debt 55%, and short-term debt 1% at March 31, 2021.
Material changes and management commentary
- Energy Services reported six-month net income of $114.5 million, versus $27.6 million, driven mainly by February market volatility; its results remain sensitive to weather, commodity prices, counterparties, and derivative timing. The company recorded a $5.2 million expected-credit-loss reserve for Energy Services counterparties and cautioned that further impairment charges are possible.
- NJNG six-month net income was $130.0 million, nearly unchanged from $130.2 million. Utility gross margin increased, but higher O&M, depreciation, and interest costs weighed on earnings. Customer count increased to 561,486 from 554,036 a year earlier.
- Clean Energy Ventures’ six-month net loss widened to $19.1 million from $17.0 million. TREC revenue supported sales, while higher O&M partly offset lower depreciation.
- Storage and Transportation six-month net income increased to $8.2 million from $7.3 million, reflecting higher revenue, partly offset by higher O&M and lower affiliate earnings.
- Comparative 2020 results were retrospectively revised after NJR changed its accounting for investment tax credits from the flow-through to the deferral method. The change reduced 2020 net income by $14.7 million for the quarter and $28.3 million for six months; reported comparative figures above reflect the revised method.
Outlook, risks, and contingencies
- NJR gave no consolidated full-year earnings guidance in the provided filing text. It expects 28,000–30,000 new NJNG customers over fiscal 2021–2023 and estimates fiscal 2021 capital spending of $424–$454 million for NJNG, $96–$118 million for solar, $110–$130 million for Adelphia Gateway, and $22–$23 million for Leaf River.
- NJNG filed a base-rate case requesting a $165.7 million annual natural-gas revenue increase, including recovery for the Southern Reliability Link and other infrastructure investments; this was a request, not an approved increase. The company expects the Southern Reliability Link to enter service during fiscal 2021.
- The BPU approved a three-year SAVEGREEN program effective July 1, 2021, including approximately $126.1 million of direct investment, $109.4 million in financing options, and $23.4 million in O&M expenses. The BPU also approved $150 million of NJNG transmission and distribution investment under the five-year IIP.
- NJNG’s estimated MGP remediation costs range from $143.1 million to $181.7 million; the recorded liability was $143.5 million and is matched by a regulatory asset. Recovery depends on regulatory approval, and actual costs may differ.
- PennEast faces unresolved permitting and eminent-domain issues. The Supreme Court granted review and heard argument on April 28, 2021; NJR reported no impairment but said adverse legal or project developments could require one. Potential impairment also remains a risk for Steckman Ridge if storage contracts or expected economics weaken.
- Management said COVID-19 had not materially adversely affected results through March 31, 2021, but the duration and future effects remained uncertain. Other disclosed risks include natural-gas price and weather volatility, counterparty credit and liquidity, regulatory cost recovery, project approvals and execution, environmental obligations, and access to capital.
Key facts for investors to verify
- How much of the exceptional Energy Services earnings reflects sustainable operating economics versus weather-driven volatility and derivative timing; monitor NFE alongside GAAP earnings.
- Recovery and collectability of Energy Services receivables following the February 2021 market disruption and the $5.2 million reserve.
- Outcome and timing of NJNG’s $165.7 million rate request, and execution and financing of the disclosed infrastructure and solar capital plans.
- Developments in PennEast’s legal and permitting proceedings, potential impairment exposure, and MGP remediation costs and regulatory recovery.
- Impact of the retrospective tax-credit accounting change when comparing reported 2020 results with earlier company disclosures.