Business context and reporting period
New Jersey Resources Corporation (NJR) filed this unaudited Form 10-Q for its fiscal quarter ended June 30, 2020, covering the three and nine months ended that date. Its businesses include regulated natural gas distribution through NJNG, clean energy, wholesale and retail energy services, midstream assets, and home services. Results are seasonal and interim performance may not indicate full-year results.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding 2019 periods.
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Operating revenue | $299.0 vs. $434.9 | $1,553.6 vs. $2,113.0 |
| Operating income (loss) | $(20.2) vs. $(4.0) | $176.5 vs. $161.7 |
| Net income (loss) | $(27.2) vs. $(8.4) | $150.6 vs. $151.4 |
| Diluted EPS | $(0.28) vs. $(0.09) | $1.59 vs. $1.69 |
| Operating cash flow | Not presented as a standalone quarter figure | $182.8 vs. $165.8 |
Quarterly revenue fell mainly because Energy Services revenue declined with lower gas prices, demand and market volatility; the segment also recorded derivative timing effects. For nine months, lower Energy Services revenue and the absence of prior-year wind operations reduced consolidated revenue. Nine-month net income was nearly flat: stronger NJNG results were offset principally by weaker Clean Energy Ventures and Energy Services results.
- Margins: NJNG utility gross margin, a non-GAAP measure, was $75.0 million for the quarter and $354.6 million for nine months, versus $59.5 million and $295.5 million. Energy Services financial margin, also non-GAAP, was $(4.7) million for the quarter and $3.1 million for nine months, versus $(14.2) million and $36.3 million.
- Cash flow and investment: Nine-month investing cash outflow was $891.0 million, including acquisitions and capital spending; financing cash inflow was $749.4 million. Capital expenditures were $367.2 million. Cash and cash equivalents were $42.8 million at June 30; cash, cash equivalents and restricted cash totaled $45.2 million.
- Debt and liquidity: At June 30, short-term debt was $553.1 million, long-term debt $1,664.5 million, and current maturities of long-term debt $26.0 million. NJR reported $250.2 million available under its revolving facilities, plus $249.3 million available under NJNG’s facility. Management said liquidity was sufficient for current needs and expected available borrowing, equity proceeds and operating cash flow to cover the next 12 months.
- Capital structure: Equity represented 45% of capitalization, long-term debt 41%, and short-term debt 14%, compared with 50%, 49% and 1% at September 30, 2019.
Material changes versus the prior comparable period
- NJNG nine-month net income rose to $142.2 million from $96.5 million, supported by a $62.2 million annual base-rate increase effective November 2019 and infrastructure-related returns.
- Energy Services reported nine-month net loss of $1.3 million, versus net income of $25.0 million. Management attributed the decline to warmer weather, lower gas prices and reduced wholesale-market volatility. Consolidated nine-month NFE, a non-GAAP measure, declined to $141.5 million from $149.0 million.
- Clean Energy Ventures had a nine-month net loss of $2.3 million versus income of $17.1 million, reflecting lower revenue from SREC timing and the prior-year wind-asset sale, plus increased depreciation and changes in tax-credit expectations.
- Midstream assets and revenues expanded following the October 2019 Leaf River storage acquisition and January 2020 Adelphia pipeline acquisition. Total assets increased to $5.28 billion from $4.37 billion.
- Cash dividends declared were $0.3125 per share in each of the first three fiscal quarters, versus $0.2925 per share in the comparable 2019 quarters.
Outlook, commentary, risks and contingencies
- COVID-19: Management reported no material adverse impact on results through June 30 and said operations remained fundamentally unchanged, while noting uncertainty about the pandemic’s duration and future effects. The BPU subsequently authorized utilities to defer incremental COVID-related costs as regulatory assets.
- Investment plans: Management estimated NJNG capital expenditures of $388 million for fiscal 2020 and $396 million for fiscal 2021; fiscal 2020 solar spending of $125–$135 million; Adelphia investment of $180–$200 million; and PennEast investment of $7–$8 million. These are estimates, not earnings guidance, and may change.
- Regulatory matters: NJNG requested a $7.1 million annual rate increase for SAFE II and NJ RISE investments, anticipated to take effect October 1, 2020, subject to approval. Its annual BGSS/CIP filing also proposed rate changes for that date.
- Financing after quarter-end: NJR repaid the remaining $137.1 million Bridge Facility borrowing on July 23, 2020. On that date NJR issued $260 million of senior notes and NJNG issued the remaining $75 million of notes under previously signed purchase agreements.
- Contingencies and project risk: NJNG recorded a $128.9 million MGP remediation liability, with estimated total future site expenditures ranging from $115.9 million to $186.2 million. Recovery depends on regulatory approval. PennEast faces permitting and eminent-domain litigation; management recorded no impairment but said adverse developments or delays could require one.
- Other risks: Commodity-price and derivative volatility, counterparty credit exposure, access to capital, regulatory cost recovery, clean-energy tax-credit and SREC assumptions, and acquisition/project execution may affect results. NJNG remained investment grade, though Moody’s lowered its secured and commercial-paper ratings in March 2020; the outlook was stable.
Important facts for investors to verify
- Whether Energy Services’ weak nine-month performance and lower market volatility persist, and how derivative timing affects reported GAAP earnings relative to NFE.
- Progress and actual costs for Leaf River, Adelphia, PennEast, NJNG infrastructure, and solar investments, including regulatory and permitting outcomes.
- Whether planned rate filings are approved and whether NJNG’s MGP remediation costs remain recoverable through regulatory mechanisms.
- Debt, seasonal short-term borrowing, liquidity availability, and the effect of credit-rating changes or market conditions on financing costs.
- Whether solar project timing, SREC prices and federal investment tax-credit eligibility support management’s expected tax benefits and capital plans.