New Jersey Resources Corporation (NJR) — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020; comparisons are primarily with fiscal 2019. Although the request metadata says “2020 Q4,” this is an annual filing. The company operates a regulated New Jersey gas utility and unregulated clean-energy, energy-services, storage and transportation, and home-services businesses.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Operating revenue | $1.954 billion | $2.592 billion | Down 24.6% |
| Operating income | $216.4 million | $153.9 million | Up 40.6% |
| Net income | $193.9 million | $169.5 million | Up 14.4% |
| Diluted EPS | $2.04 | $1.89 | Up 7.9% |
| Net financial earnings (NFE, non-GAAP) | $196.2 million | $175.0 million | Up 12.2% |
| Operating cash flow | $213.5 million | $194.1 million | Up $19.3 million |
| Cash and cash equivalents at year-end | $117.0 million | $2.7 million | Up $114.3 million |
Revenue declined largely because lower natural-gas prices and reduced wholesale activity lowered Energy Services revenue; much of the commodity cost and related revenue is pass-through. Net income improved principally on higher NJNG base rates, partly offset by weaker Energy Services results and lower solar investment tax credits.
- Natural Gas Distribution: Net income was $126.9 million, versus $78.1 million. Utility gross margin, a company-defined non-GAAP measure, rose to $408.1 million from $340.4 million, mainly reflecting the base-rate settlement and infrastructure-program returns. NJNG’s reported operating revenue was $729.9 million.
- Clean Energy Ventures: Net income fell to $53.0 million from $77.5 million. Lower recognized investment tax credits and the absence of wind revenue following the prior-year wind-asset sale outweighed higher solar and electricity revenue.
- Energy Services: Net loss widened to $11.0 million from $1.3 million; financial margin, a non-GAAP measure, fell to $9.9 million from $28.8 million. Management cited warmer weather, lower demand and prices, and reduced wholesale-market volatility.
- Storage and Transportation: Net income was $18.3 million versus $14.7 million, with acquired Leaf River and Adelphia Gateway operations contributing revenue and additional expenses.
Capital spending and acquisitions drove investing cash outflow to $994.0 million, compared with $287.4 million in FY2019. Financing cash inflow was $895.9 million, including $660 million of long-term debt proceeds and $212.9 million net proceeds from an equity offering. The declared annual dividend was $1.27 per share, up from $1.19.
Balance sheet, liquidity and financing
- At September 30, 2020, total assets were $5.570 billion, common equity $1.845 billion and reported long-term debt $2.259 billion. The balance sheet also showed $125.4 million of short-term debt and $27.2 million of current maturities of long-term debt.
- Capital structure was 43% common equity, 53% long-term debt and 4% short-term debt. Management said NJR and NJNG were in compliance with debt covenants and expected available borrowing, equity proceeds and operating cash flow to cover working capital, capital spending and dividends for the next 12 months.
- NJR reported $539.4 million available under its $675 million revolving facilities at year-end. NJNG separately had $249.3 million available under its $250 million facility. The filing says a separate $250 million NJR facility was terminated after being unused on October 24, 2020.
- Cash flow from financing increased substantially to fund acquisitions and investment. NJNG and NJR issued long-term notes during the year; NJR also repaid its $350 million acquisition bridge facility in July 2020.
Material developments, outlook and risks
- Utility rates and investment: A November 2019 BPU settlement authorized a $62.2 million annual NJNG base-rate increase. The BPU approved $150 million of transmission and distribution investment over five years under the IIP on October 28, 2020; NJNG withdrew the IIP’s IT component and plans to seek its recovery in future rate cases. The SRL project was estimated to cost $250 million to $270 million.
- Growth and spending outlook: NJNG expected 28,000–30,000 customer additions during FY2021–FY2023. Projected NJNG capital expenditures were $443.4 million in FY2021 and $370.3 million in FY2022. Clean Energy Ventures estimated FY2021 solar projects placed in service at $155 million–$175 million. Adelphia Gateway FY2021 expenditures were estimated at $136 million–$156 million; PennEast spending at $7 million–$8 million. These are estimates, not guarantees.
- Acquisitions: NJR acquired Leaf River for $367.5 million in October 2019 and Adelphia Gateway for a $166 million base purchase price in January 2020. Adelphia’s southern pipeline conversion began in October 2020 after FERC authorization to proceed.
- Project and impairment uncertainty: NJR held a 20% PennEast interest and recorded no impairment, despite adverse court and permitting developments; the valuation depended on probability-weighted assumptions about legal outcomes, approvals, costs and timing. No impairment was recorded for Steckman Ridge after a major customer contract expired in FY2020, but replacement contracting and pricing remain important assumptions.
- Environmental contingency: NJNG estimated former manufactured-gas-plant remediation costs at $143.1 million–$181.7 million and recorded a $150.6 million liability with a corresponding regulatory asset. Recovery depends on BPU approval; the total cost for the Freehold site could not yet be reasonably estimated.
- COVID-19: Management reported no material impact on the company as of September 30, 2020 and said liquidity and operations remained sufficient, while emphasizing uncertainty. Risks include customer payment and demand changes, construction delays, counterparty credit deterioration, and financing or regulatory delays.
- Other exposures: Results are sensitive to weather, natural-gas price volatility, derivative accounting and counterparty performance, solar incentives and REC prices, regulatory cost recovery, pension assumptions, cyber risks, and access to capital. NJNG’s Moody’s secured rating was lowered to A1 and commercial-paper rating to P-2 in March 2020; the outlook was stable.
FY2020 Q4 selected data were operating revenue of $400.0 million and net income of $43.3 million, compared with $479.1 million and $18.1 million, respectively, in FY2019 Q4. Results are seasonal; FY2020’s third quarter reported a $27.2 million net loss.
Most important facts for investors to verify
- Whether NJNG’s authorized rate increases and infrastructure investments translate into sustained earnings and timely regulatory recovery.
- Execution, costs, approvals and expected returns for Adelphia Gateway, PennEast and major NJNG capital projects; reassess impairment assumptions as legal and commercial facts change.
- Whether Clean Energy Ventures can maintain project economics as tax credits decline and New Jersey transitions from SRECs to TRECs.
- Energy Services’ ability to restore financial margin amid weather-driven demand and commodity-market volatility.
- Whether the $150.6 million MGP liability and its matching regulatory asset remain recoverable, and how remediation estimates evolve.
- Debt, refinancing and liquidity needs against the large capital program, acquisition obligations, dividend commitments and stated credit covenants.
The filing reports an unqualified audit opinion on the consolidated financial statements and effective internal control over financial reporting. NFE, utility gross margin and financial margin are non-GAAP measures and should be considered alongside GAAP results.