Notes to Condensed Consolidated Financial Statements
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL - SJI provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:
▪SJIU is a holding company that owns SJG and ETG and, until its sale, owned ELK.
•SJG is a regulated natural gas utility which distributes natural gas in the seven southernmost counties of New Jersey.
•ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey.
•ELK is a regulated natural gas utility which distributes natural gas in northern Maryland. On July 31, 2020, SJI sold ELK to a third-party buyer (see "Sale of ELK" below).
▪SJE acquires and markets electricity to retail end users.
▪SJRG markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.
▪SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.
▪Marina develops and operates on-site energy-related projects. Marina includes the Catamaran joint venture that was entered into in August 2020, which owns Annadale and Bronx Midco, operators of fuel cell projects in New York. Marina, through Catamaran, owns 93% and 92% of Annadale and Bronx Midco, respectively, and records the remaining ownership percentages as noncontrolling interest in the condensed consolidated financial statements. Previously, Marina also included MTF and ACB, which were sold to a third-party buyer in February 2020 (see "Sale of MTF & ACB" below), and a solar project that was sold in March 2020 (see "Sale of Solar Assets" below). The principal wholly-owned subsidiaries of Marina are:
•ACLE, BCLE, SCLE and SXLE, which own and operate landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties, respectively, located in New Jersey. These landfill gas-to-energy production facilities have all ceased operations after receiving approval from their respective local governmental authorities to do so. ACLE ceased operations on September 30, 2021, while BCLE, SCLE and SXLE ceased operations on June 1, 2020.
•Entities which own and operate rooftop solar generation sites, located in New Jersey, including projects that were acquired in 2021 as discussed under "ITC" below.
▪SJESP receives commissions on appliance service contracts from a third party.
▪Midstream invests in infrastructure and other midstream projects, including PennEast. See Note 3.
▪SJEI provides energy procurement and cost reduction services. The significant wholly-owned subsidiaries of SJEI include:
•AEP, an aggregator, broker and consultant in the retail energy markets that matches end users with suppliers for the procurement of natural gas and electricity.
•EnerConnex, an aggregator, broker and consultant in the retail and wholesale energy markets that matches end users with suppliers for the procurement of natural gas and electricity. On August 7, 2020, SJEI acquired the remaining 75% of EnerConnex, of which SJEI previously held a 25% interest.
•SJI Renewable Energy Ventures, LLC and SJI RNG Devco, LLC, which hold our equity interest in REV and our renewable natural gas development rights in certain dairy farms, respectively.
BASIS OF PRESENTATION - SJI's condensed consolidated financial statements include the accounts of SJI, its direct and indirect wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. In management’s opinion, the condensed consolidated financial statements of SJI and SJG reflect all normal recurring adjustments needed to fairly present their respective financial positions, operating results and cash flows at the dates and for the periods presented. SJI’s and SJG's businesses are subject to seasonal fluctuations and, accordingly, this interim financial information should not be the basis for estimating the full year’s operating results.
As permitted by the rules and regulations of the SEC, the accompanying unaudited condensed consolidated financial statements of SJI and SJG contain certain condensed financial information and exclude certain footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with GAAP. These financial statements should be read in conjunction with SJI’s and SJG's Annual Reports on Form 10-K for the year ended December 31, 2020. There were no significant changes in or changes in the application of the Company’s significant or critical accounting policies or estimation procedures for the three and nine months ended September 30, 2021 as compared with the significant accounting policies described in the Company’s audited consolidated financial statements for the year ended December 31, 2020, except for the identification of our segments as discussed in Note 6.
Certain prior years' data presented in the financial statements and footnotes have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company's results of operations, financial position or cash flows.
ESTIMATES AND ASSUMPTIONS - The condensed consolidated financial statements were prepared to conform with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. Therefore, actual results could differ from those estimates. Significant estimates include amounts related to regulatory accounting, energy derivatives, environmental remediation costs, legal contingencies, pension and other postretirement benefit costs, revenue recognition, goodwill, evaluation of equity method investments for other-than-temporary impairment, and allowance for credit losses. Estimates may be subject to future uncertainties, including the continued evolution of the COVID-19 pandemic and its impact on our operations and economic conditions, which could affect the fair value of the ETG reporting unit and its goodwill balance (see Note 17), as well as the allowance for credit losses and the total impact and potential recovery of incremental costs associated with COVID-19 (see Notes 5 and 8).
ACQUISITIONS - Catamaran and a third party formed Bronx Midco, of which Catamaran owns 99%. On June 9, 2021, Bronx Midco purchased a fuel cell project in Bronx, NY, of which Marina, through its ownership in Catamaran, has a 92% ownership interest. See Note 16. For further discussion on prior acquisitions, refer to Note 1 "Summary of Significant Accounting Policies" of SJI's Annual Report on Form 10-K for the year ended December 31, 2020.
ITC - The U.S. federal government provides businesses with an ITC under Section 48 of the Internal Revenue Code, available to the owner of solar and fuel cell systems that are purchased and placed into service. Among other requirements, such credits require projects to have commenced construction by a certain date. Accordingly, projects were eligible for a 30% ITC if they commenced construction in 2019, 26% for projects that commence construction in 2020-2022, 22% for projects that commence construction in 2023, and 10% for projects that commence construction thereafter. During the three and nine months ended September 30, 2021, Marina recognized $2.3 million and $2.7 million, respectively, of ITC on recently acquired solar projects that will commence operations during the fourth quarter of 2021. During the three and nine months ended September 30, 2020, Marina recognized $12.0 million of ITC on solar and fuel cell projects.
SALE OF SOLAR ASSETS - On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its then-existing portfolio of solar energy projects (for this section, the "Projects"), along with the assets comprising the Projects. These sales occurred during 2018-2020, including one Project sold during the first quarter of 2020 for total consideration of $7.2 million. In connection with this transaction, Marina is leasing back from the buyer certain of the Projects that have not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes. The leaseback runs from the date each such Project was acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the Project. As of September 30, 2021, there are ten such Projects being leased back from the buyer through the end of 2021, which is the fifth anniversary of their placed-in-service date. The results of these Projects being leased back are not material.
SALE OF MTF & ACB - On February 18, 2020, the Company sold MTF and ACB to a third-party buyer for a final sales price of $97.0 million, including working capital.
SALE OF ELK - On July 31, 2020, the Company sold ELK to a third-party buyer. Total consideration received in 2020 was approximately $15.6 million. The working capital settlement finalized in the first quarter of 2021 was not material.
IMPAIRMENT OF LONG-LIVED ASSETS - See Note 1 to the Consolidated Financial Statements under "Impairment of Long-Lived Assets" in Item 8 of the Form 10-K for the year ended December 31, 2020 for additional information regarding the Company's policy on impairments of long-lived assets. No impairments of long-lived assets were identified at SJI or SJG for the three and nine months ended September 30, 2021 and 2020, respectively.
See discussion of impairment considerations related to goodwill and other intangible assets in Note 17.
REGULATION - The Utilities are subject to the rules and regulations of the BPU. See Note 7 for a discussion of the Utilities' rate structure and regulatory actions. The Utilities maintain their accounts according to the BPU's prescribed Uniform System of Accounts. The Utilities follow the accounting for regulated enterprises prescribed by ASC 980, Regulated Operations, which allows for the deferral of certain costs (regulatory assets) and creation of certain obligations (regulatory liabilities) when it is probable that such items will be recovered from or refunded to customers in future periods. See Note 8 for more information related to regulatory assets and liabilities.
OPERATING REVENUES - Gas and electric revenues are recognized in the period the commodity is delivered to customers. For retail customers (including SJG) that are not billed at the end of the month, we record an estimate to recognize unbilled revenues for gas and electricity delivered from the date of the last meter reading to the end of the month. The Utilities also have revenues that arise from alternative revenue programs, which are discussed in Note 15. For ETG and SJG, unrealized gains and losses on energy-related derivative instruments are recorded in Regulatory Assets or Regulatory Liabilities on the condensed consolidated balance sheets of SJI and SJG (see Note 12) until they become realized, in which case they are recognized in operating revenues. SJRG's gas revenues are recognized in the period the commodity is delivered, and operating revenues for SJRG include realized and unrealized gains and losses on energy-related derivative instruments. SJRG presents revenues and expenses related to its energy trading activities on a net basis in operating revenues. This net presentation has no effect on operating income or net income. The Company recognizes revenues on commissions received related to SJESP appliance service contracts from a third party, along with AEP and EnerConnex energy procurement service contracts from a third party, on a monthly basis as the commissions are earned. Marina recognizes revenue for renewable energy projects when output is generated and delivered to the customer, and when renewable energy credits have been transferred to the third party at an agreed upon price.
SJI and SJG have not seen a significant reduction in revenues as a result of the COVID-19 pandemic. This is due to the delivery of gas and electricity being considered an essential service, with delivery to customers continuing in a timely manner with no delays or operational shutdowns taking place to date. To the extent that the pandemic does impact our ability to deliver in the future, operating revenues could be impacted. Currently, the impact of the pandemic on the collectability of our accounts receivable continues to be monitored, but such receivables have traditionally been included in rate recovery (see Note 8).
INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with ASC 740, Income Taxes. Certain deferred income taxes are recorded with offsetting regulatory assets or liabilities by the Company to recognize that income taxes will be recovered or refunded through future rates.
A valuation allowance is recorded when it is more likely than not that any of SJI's or SJG's deferred tax assets will not be realized. During the nine months ended September 30, 2021, SJI recorded a valuation allowance of $14.2 million against the federal deferred tax asset related to the capital loss that resulted from the other-than-temporary impairment charge taken on the Company's investment in PennEast (see Note 3). SJG believes that they will generate sufficient future taxable income to realize the income tax benefits related to their net deferred tax assets.
The Company evaluates certain tax benefits that have been recorded in the financial statements for uncertainties. During the nine months ended September 30, 2021, SJG recorded a reserve of $13.9 million for a portion of tax benefits related to tax positions taken in prior years. The reserve is recorded in Other Noncurrent Liabilities in the condensed consolidated balance sheets as of September 30, 2021. The amount of income taxes we pay is subject to ongoing audits by federal and state tax authorities, which could result in proposed assessments. Future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period any assessments are determined or resolved or as such statutory audit periods are closed. We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the condensed consolidated balance sheet as of September 30, 2021.
TAX SETTLEMENT - In August 2021, ETG recognized a gain of $11.0 million from a UTUA settlement agreement with the New Jersey Division of Taxation. The gain is presented within Energy and Other Taxes in the SJI Condensed Consolidated Statements of (Loss)/Income.
GOODWILL - See Note 17.
LEASES - As part of the acquisition of the Bronx Midco fuel cell project (see Note 16), a land lease was acquired resulting in the recognition of an ROU asset and a lease liability upon acquisition each of $6.6 million, which are recorded in Other Noncurrent Assets and Other Current/Noncurrent Liabilities, respectively, on the condensed consolidated balance sheets as of September 30, 2021. This arrangement is classified as an operating lease with the lease cost associated with this lease recognized on a straight-line basis over the lease term of 35 years.
Also, as part of the acquisition of solar projects discussed under "ITC" above, a land lease was acquired resulting in the recognition of an ROU asset and a lease liability upon acquisition each of $2.6 million, which are recorded in Nonutility Property and Equipment and Long-Term Debt, respectively, on the condensed consolidated balance sheets as of September 30, 2021. This arrangement is classified as a finance lease, which will result in the recognition of interest expense on the lease liability per the effective interest model and amortization of the ROU asset on a straight-line basis over the 20-year lease term.
On July 1, 2021, SJG (the lessor) and SJI (the lessee) entered into an intercompany lease agreement for the Company's corporate headquarters in Folsom, NJ. This arrangement is classified as an operating lease with the rent income and the rent expense associated with this lease recognized on a straight-line basis over the lease term. The rent income and rent expense for SJG and SJI, respectively, for the three and nine months ended September 30, 2021 was $0.4 million. The rent income and rent expense as well as certain other balances related to this lease were eliminated in the Company’s condensed consolidated financial statements. Rent income of $0.4 million was recorded by SJG on the condensed statements of income for the three and nine months ended September 30, 2021.
There have been no other significant changes to the nature or balances of the Company's leases since December 31, 2020, which are described in Notes 1 and 9 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement had, or is expected to have, a material impact on the condensed consolidated financial statements of SJI, or the condensed financial statements of SJG.
Recently Adopted Standards:
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Standard
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Description
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Date of Adoption
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Application
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Effect on the Financial Statements of SJI and SJG
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ASU 2019-12:
Simplifying the Accounting for Income Taxes
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This ASU removes exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for changes in ownership of a foreign subsidiary or equity method investment, and the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss. The guidance also adds requirements to reflect changes to tax laws or rates in the annual effective tax rate computation in the interim period in which the changes were enacted, to recognize franchise or other similar taxes that are partially based on income as an income-based tax and any incremental amounts as non-income-based tax, and to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.
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January 1, 2021
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Modified retrospective for amendments related to changes in ownership of a foreign subsidiary or equity method investment; Modified retrospective or retrospective for amendments related to taxes partially based on income; Prospective for all other amendments
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Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG.
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ASU 2020-01:
Clarifying the Interactions between Topic 321 (Investments - Equity Securities), Topic 323 (Investments - Equity Method and Joint Ventures), and Topic 815 (Derivatives and Hedging)
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The amendments in this ASU clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments in this ASU also clarify that for the purposes of applying Topic 815, an entity should not consider whether, upon the settlement of a forward contract or exercise of a purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825.
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January 1, 2021
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Prospective
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Adoption of this guidance did not have a material impact on the financial statement results of SJI or SJG.
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Standards Not Yet Effective:
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Standard
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Description
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Date of Adoption
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Application
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Effect on the Financial Statements of SJI and SJG
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ASU 2020-04:
Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting
ASU 2021-01: Reference Rate Reform (Topic 848)
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The amendments in ASU 2020-04 provide various optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.
The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates (commonly referred to as the "discounting transition").
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March 12, 2020 through December 31, 2022
An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.
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Prospective for contract modifications and hedging relationships. Once elected for a Topic or an Industry Subtopic, the amendments in this Update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.
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Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG, including forming an implementation team that is evaluating the impact of the guidance on our current contracts. Management is also evaluating timing of adoption.
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ASU 2020-06: Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
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The amendments in this ASU simplify the accounting for convertible instruments by removing certain separation models in Subtopic 470-20. Under the amendments, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The amendments also add new convertible instrument disclosure requirements. Additionally, the amendments in this ASU remove certain conditions from the settlement guidance within the derivative scope exception guidance contained in Subtopic 815-40 and further clarify the derivative scope exception guidance. Finally, the amendments in this ASU align the diluted EPS calculation for convertible instruments by requiring that an entity use the if-converted method instead of the treasury stock method when calculated diluted EPS for convertible instruments.
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January 1, 2022; early adoption permitted, but not before January 1, 2021.
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Retrospective or Modified Retrospective
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Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG
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ASU 2021-08: Business Combinations (ASC 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers
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The new standard requires an acquirer to account for revenue contracts acquired in a business combination in accordance with ASC 606 as if it had originated the contracts. The acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired contracts. The standard also provides practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from a business combination.
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January 1, 2023; early adoption is permitted, including adoption in an interim period
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Prospectively to business combinations occurring on or after the effective date of the amendments
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Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG
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2. STOCK-BASED COMPENSATION PLAN:
Under SJI's Omnibus Equity Compensation Plan (Plan), shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. SJI grants time-based shares of restricted stock, one-third of which vest annually over a three-year period and which are limited to a 100% payout. The vesting and payout of time-based shares of restricted stock is solely contingent upon the service requirement being met in years one, two, and three of the grant. Performance-based restricted shares vest over a three-year period and are subject to SJI achieving certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted. During the nine months ended September 30, 2021 and September 30, 2020, SJI granted a total of 243,540 and 225,278 restricted shares, respectively, to Officers and other key employees under the Plan. No options were granted or outstanding during the nine months ended September 30, 2021 and 2020. No stock appreciation rights have been issued under the Plan.
Grants containing market-based performance targets use SJI's TSR relative to a peer group to measure performance. As TSR-based grants are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant on a straight-line basis over the requisite three-year period of each award. In addition, SJI identifies specific forfeitures of share-based awards, and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of market goals. The fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.
Earnings-based performance targets include pre-defined EGR goals to measure performance. Performance targets include pre-defined CEGR for SJI. As EGR-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.
During the nine months ended September 30, 2021 and September 30, 2020, SJI granted 54,419 and 38,456 restricted shares, respectively, to its Directors. Shares issued to Directors vest over twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.
The following table summarizes the nonvested restricted stock awards outstanding at September 30, 2021, and the assumptions used to estimate the fair value of the awards:
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Grants
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Shares Outstanding
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Fair Value Per Share
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Expected Volatility
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Risk-Free Interest Rate
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Officers & Key Employees -
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2019 - TSR
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32,292
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$
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32.88
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23.2
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%
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2.40
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%
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2019 - CEGR, Time
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69,265
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$
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31.38
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N/A
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N/A
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2020 - TSR
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38,813
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$
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25.51
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34.8
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%
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0.21
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%
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2020 - CEGR, Time
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123,686
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$
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25.19
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N/A
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N/A
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2021 - TSR
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42,716
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$
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28.11
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39.9
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%
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0.27
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%
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2021 - CEGR, Time
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186,746
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$
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25.33
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N/A
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N/A
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Directors -
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2021
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54,419
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$
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24.75
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N/A
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N/A
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Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers’ and other key employees’ restricted shares. As notional dividend equivalents are credited to the holders during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the twelve month service period, the fair value of these awards is equal to the market value of the shares on the date of grant.
The following table summarizes the total stock-based compensation cost to SJI for the three and nine months ended September 30, 2021 and 2020 (in thousands):
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2021
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2020
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2021
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2020
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Officers & Key Employees
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$
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1,123
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$
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1,220
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$
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3,804
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$
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3,671
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Directors
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317
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302
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561
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899
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Total Cost
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1,440
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1,522
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4,365
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4,570
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Capitalized
|
(33)
|
|
(12)
|
|
|
(101)
|
|
|
(35)
|
|
|
Net Expense
|
$
|
1,407
|
|
$
|
1,510
|
|
|
$
|
4,264
|
|
|
$
|
4,535
|
|
The table above does not reflect the reversal of approximately $1.3 million in 2020 of previously recorded costs associated with TSR and CEGR-based grants for which performance goals were not met.
As of September 30, 2021, there was $7.6 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.7 years.
The following table summarizes information regarding restricted stock award activity for SJI during the nine months ended September 30, 2021, excluding accrued dividend equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers and Other Key Employees
|
|
Directors
|
|
Weighted
Average
Fair Value
|
|
Nonvested Shares Outstanding, January 1, 2021
|
449,786
|
|
|
38,456
|
|
|
$
|
28.88
|
|
|
Granted
|
243,540
|
|
|
54,419
|
|
|
$
|
25.66
|
|
|
Cancelled/Forfeited
|
(27,790)
|
|
|
—
|
|
|
$
|
25.72
|
|
|
Vested
|
(172,019)
|
|
|
(38,456)
|
|
|
$
|
30.37
|
|
|
Nonvested Shares Outstanding, September 30, 2021
|
493,517
|
|
|
54,419
|
|
|
$
|
26.71
|
|
SJI has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming non-forfeitable or immediately payable in cash. At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods. These deferred shares are included in Treasury Stock on the condensed consolidated balance sheets.
During the nine months ended September 30, 2021, SJI issued 146,270 shares to its Officers and other key employees at a market value of $3.6 million. During the nine months ended September 30, 2020, SJI issued 72,470 shares at a market value of $2.1 million. These issued shares include shares deferred for payout in prior periods.
SJI also issued 38,456 and 30,961 service-based award shares to its Directors at a market value of $1.2 million and $0.8 million during the nine months ended September 30, 2021 and September 30, 2020, respectively.
SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the nine months ended September 30, 2021 and 2020, SJG Officers and other key employees were granted 23,010 and 7,902 shares of SJI restricted stock, respectively, which had an immaterial impact to SJG's financial statements for both periods.
3. AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:
AFFILIATIONS — The following affiliated entities are accounted for under the equity method:
PennEast - Midstream has a 20% investment in PennEast. The following events have occurred with respect to PennEast:
•On September 10, 2019, the U.S. Court of Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. A Petition for Rehearing En Banc was denied by the U.S. Court of Appeals for the Third Circuit on November 5, 2019.
•On October 8, 2019, the NJDEP denied and closed PennEast’s application for several permits without prejudice, citing the Third Circuit decision. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.
•In December 2019, PennEast asked the FERC for a two-year extension to construct the pipeline.
•On January 30, 2020, the FERC voted to approve PennEast’s petition for a declaratory order and expedited action requesting that FERC issue an order interpreting the Natural Gas Act’s eminent domain authority. On the same day, PennEast filed an amendment with the FERC to construct PennEast in two phases. Phase one consists of construction of a pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction is expected to begin following approval by the FERC of the phased approach and receipt of any remaining governmental and regulatory permits.
•On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States ("petition") to review the September 10, 2019 Third Circuit decision.
•On February 20, 2020, the FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline.
•On April 14, 2020, The U.S. Supreme Court ordered the state of New Jersey to respond to PennEast's petition. The court directed NJ respondents, including state agencies and the NJ Conservation Foundation, to answer the petition by PennEast. The state responded on June 2, 2020.
•On June 29, 2020, the U.S. Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the United States.
•On December 9, 2020 the Solicitor General filed a brief supporting PennEast's petition for a Writ of Certiorari.
•On December 23, 2020 the NJ Attorney General filed a brief with the Supreme Court in response to the brief of the Solicitor General.
•On February 3, 2021, the Supreme Court granted PennEast's petition for a Writ of Certiorari.
•On June 29, 2021, the Supreme Court ruled that PennEast can sue New Jersey to secure key land-use rights for the project.
•On September 27, 2021, the PennEast partners announced that further development of the project is no longer supported.
Despite the favorable outcome from the Supreme Court, PennEast continued to experience regulatory and legal challenges resulting in continued delays preventing the commencement of construction and commercial operation of the project. As a result, the Company evaluated its investment in PennEast for an other-than-temporary impairment as of June 30, 2021. Our impairment assessment used a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our significant estimates and assumptions included development options and the likelihoods of success of such options, potential regulatory and legal outcomes, construction costs, timing of in-service dates, revenues (including forecasted volumes and rates), and discount rates. The Company estimated the fair value of its investment in PennEast using probability weighted scenarios assigned to discounted future cash flows. Based upon this analysis, in the second quarter of 2021, the Company recognized an other-than-temporary impairment charge of $87.4 million, which is recorded in Equity in (Losses) Earnings from Affiliates in the condensed consolidated statements of (loss)/income for the nine months ended September 30, 2021. After this charge, the Company’s investment in PennEast totaled $8.0 million as of September 30, 2021 as compared to $91.3 million as of December 31, 2020. The impairment did not result in a tax benefit during the nine months ended September 30, 2021, as a valuation allowance had been established for the federal deferred tax asset related to the capital loss (see Note 1).
In September 2021, the PennEast partners, following extensive evaluation and discussion, determined that further development of the project is no longer supported, and thus all further development of the project has ceased. Given that construction of the pipeline will not continue, the Company re-evaluated its investment for an additional other-than temporary impairment as of September 30, 2021. It was determined that no additional impairment was needed as the current value of the investment noted above represents the best estimate of the salvage value of the remaining assets of the project. It is possible that future developments could impact the fair value and could result in the recognition of additional impairment charges.
Summarized financial information for PennEast as derived from its unaudited condensed financial statements is below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
Revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
Gross Profit
|
$
|
—
|
|
|
$
|
—
|
|
|
(Loss) Income from Continuing Operations
|
$
|
(414,593)
|
|
|
$
|
26,375
|
|
|
Net (Loss) Income
|
$
|
(414,593)
|
|
|
$
|
26,375
|
|
|
Net (Loss) Income Attributable to South Jersey Industries, Inc.
|
$
|
(82,919)
|
|
|
$
|
5,275
|
|
Energenic - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects. Energenic currently does not have any projects that are operational.
Millennium - SJI and a joint venture partner formed Millennium, in which SJI has a 50% equity interest. Millennium reads utility customers’ meters on a monthly basis for a fee.
Potato Creek - SJEX and a joint venture partner formed Potato Creek, in which SJEX has a 30% equity interest. Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.
EnergyMark - SJE has a 33% investment in EnergyMark, an entity that acquires and markets natural gas to retail end users.
SJRG had net sales to EnergyMark of $5.0 million and $1.8 million for the three months ended September 30, 2021 and 2020, respectively, and $15.9 million and $10.4 million for the nine months ended September 30, 2021 and 2020, respectively.
REV - SJI Renewable Energy Ventures, LLC has a 35% equity interest in REV, an LNG distributor and developer of LNG and RNG assets and projects.
AFFILIATE TRANSACTIONS - SJI made net investments in and net advances to unconsolidated affiliates of $39.8 million for the nine months ended September 30, 2021, and received net repayments from unconsolidated affiliates of $1.2 million for the nine months ended September 30, 2020.
As of September 30, 2021 and December 31, 2020, the outstanding balance of Notes Receivable – Affiliate was $59.3 million and $33.9 million, respectively. These Notes Receivable-Affiliates balances are comprised of:
•As of September 30, 2021 and December 31, 2020, $11.4 million and $12.1 million, respectively, of notes are related to Energenic; such notes are secured by Energenic's cogeneration assets for energy service projects, accrue interest at 7.5% and are to be repaid through 2025. Current losses at Energenic are offset against the Notes Receivable – Affiliate balance as our investment in the Energenic affiliate has been reduced to zero as a result of previous losses.
•As of September 30, 2021 and December 31, 2020, $44.0 million and $19.3 million, respectively, of the notes related to REV, which accrue interest at variable rates.
•As of September 30, 2021 and December 31, 2020, $3.9 million and $2.5 million, respectively, of unsecured notes which accrue interest at variable rates.
SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of September 30, 2021 and December 31, 2020, SJI had a net asset of approximately $36.2 million and $106.2 million, respectively, included in Investment in Affiliates on the condensed consolidated balance sheets related to equity method investees; the decrease from prior year is due to the impairment charge related to PennEast noted above. SJI’s maximum exposure to loss from these entities as of September 30, 2021 and December 31, 2020 is limited to its combined investments in these entities and the Notes Receivable-Affiliate in the aggregate amount of $95.5 million and $140.1 million, respectively.
DISCONTINUED OPERATIONS - There have been no significant changes to the nature or balances of SJI's discontinued operations since December 31, 2020, which are defined and described in Note 3 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
SJG RELATED-PARTY TRANSACTIONS - There have been no significant changes in the nature of SJG’s related-party transactions since December 31, 2020, other than an intercompany lease agreement between SJG and SJI for the Company's corporate headquarters in Folsom, NJ (see Note 1). See Note 3 to the Financial Statements in Item 8 of SJI's and SJG’s Annual Report on Form 10-K for the year ended December 31, 2020 for a description of related parties and associated transactions.
A summary of related-party transactions involving SJG, excluding pass-through items, included in SJG's Operating Revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating Revenues/Affiliates:
|
|
|
|
|
|
|
|
|
SJRG
|
$
|
907
|
|
|
$
|
595
|
|
|
$
|
7,662
|
|
|
$
|
2,192
|
|
|
Marina
|
—
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
Other
|
21
|
|
|
20
|
|
|
62
|
|
|
59
|
|
|
Total Operating Revenue/Affiliates
|
$
|
928
|
|
|
$
|
615
|
|
|
$
|
7,724
|
|
|
$
|
2,311
|
|
Related-party transactions involving SJG, excluding pass-through items, included in SJG's Cost of Sales and Operating Expenses were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Costs of Sales/Affiliates (Excluding depreciation and amortization)
|
|
|
|
|
|
|
|
|
SJRG
|
$
|
954
|
|
|
$
|
1,808
|
|
|
$
|
4,924
|
|
|
$
|
3,404
|
|
|
|
|
|
|
|
|
|
|
|
Operations Expense/Affiliates:
|
|
|
|
|
|
|
|
|
SJI (parent company only)
|
$
|
5,832
|
|
|
$
|
5,909
|
|
|
$
|
17,082
|
|
|
$
|
17,463
|
|
|
SJIU
|
1,045
|
|
|
743
|
|
|
2,957
|
|
|
2,616
|
|
|
Millennium
|
857
|
|
|
814
|
|
|
2,598
|
|
|
2,461
|
|
|
Other
|
18
|
|
|
453
|
|
|
163
|
|
|
1,335
|
|
|
Total Operations Expense/Affiliates
|
$
|
7,752
|
|
|
$
|
7,919
|
|
|
$
|
22,800
|
|
|
$
|
23,875
|
|
4. COMMON STOCK:
The following shares were issued and outstanding for SJI:
|
|
|
|
|
|
|
|
|
2021
|
|
Beginning Balance, January 1
|
100,591,940
|
|
|
New Issuances During the Period:
|
|
|
Public Equity Offering
|
11,694,984
|
|
|
Stock-Based Compensation Plan
|
161,571
|
|
|
Ending Balance, September 30
|
112,448,495
|
|
The par value ($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value was recorded in Premium on Common Stock.
There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of September 30, 2021. SJG did not issue any new shares during the period. SJIU owns all of the outstanding common stock of SJG.
COMMON STOCK PUBLIC OFFERING -
•On March 22, 2021, SJI offered 10,250,000 shares of its common stock, par value $1.25 per share, at a public offering price of $22.25 per share. Of the offered shares, 362,359 shares were issued at closing. The remaining 9,887,641 shares of common stock ("Forward Shares") are to be sold by Bank of America, N.A., as forward seller, pursuant to a forward sale agreement. The Company received no proceeds from the sale of the Forward Shares in the first nine months of 2021. SJI has an option to settle the forward sale agreement by delivering newly issued shares of SJI
common stock and receive proceeds, subject to certain adjustments, from the sale of those shares, assuming one or more future physical settlements of the forward sale agreement, no later than March 2022. SJI may also choose to settle the forward sale contract with a cash payment, or multiple cash payments, no later than March 2022. In the event SJI elects to settle all or a portion of the forward sale contract with a cash payment, no additional shares of SJI common stock would be issued under the forward sale contract for the portions that were cash settled.
•On March 25, 2021, 1,537,500 shares pursuant to the underwriters’ option as part of the underwriting agreement for the above offering of shares were issued at the same public offering price of $22.25.
•The issuance of a total 1,899,859 shares in March 2021 resulted in gross proceeds of $42.3 million, with net proceeds, after deducting underwriting discounts and commissions as well as legal fees, totaling $40.6 million.
EQUITY UNITS PUBLIC OFFERING -
•On March 22, 2021, SJI issued and sold 6,000,000 Equity Units, initially consisting of Corporate Units ("2021 Corporate Units"). Each 2021 Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company for a price in cash of $50, on the purchase contract settlement date, or April 1, 2024, subject to earlier termination or settlement, a certain number of shares of Common Stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of the Company’s 2021 Series B 1.65% Remarketable Junior Subordinated Notes due 2029 (for this section, the “Notes”). In addition to interest payable under the Notes, holders of the 2021 Corporate Units will be entitled to receive quarterly contract adjustment payments at a rate of 7.10% per year on the stated amount of $50 per 2021 Corporate Unit, subject to the Company’s right to defer such contract adjustment payments. No deferral period will extend beyond the purchase contract settlement date. The contract adjustment payments are payable quarterly on January 1, April 1, July 1 and October 1 of each year. The contract adjustment payments will be subordinated to all of the Company's existing and future “Priority Indebtedness” and will be structurally subordinated to all liabilities of our subsidiaries. The present value of the contract adjustment payments due through April 1, 2024 are initially charged to Shareholders’ Equity, with an offsetting credit to Other Current and Noncurrent Liabilities on the condensed consolidated balance sheet. These liabilities are accreted over the life of the purchase contract by interest charges to the condensed consolidated income statement based on a constant rate calculation. Subsequent contract adjustment payments reduce this liability. This offering resulted in gross proceeds of approximately $300.0 million, with net proceeds, after deducting underwriting discounts and commissions, of $291.0 million. As of September 30, 2021, the net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.
•On April 1, 2021, the underwriters purchased an additional 700,000 Equity Units as part of their option under the above offering to purchase an additional 900,000 Equity Units. Gross proceeds were approximately $35.0 million, with net proceeds, after deducting underwriting discounts and commissions, of approximately $34.0 million. As of September 30, 2021, the net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the condensed consolidated balance sheets.
CONVERTIBLE UNITS -
•In 2018, SJI issued and sold 5,750,000 Equity Units, initially in the form of Corporate Units ("2018 Corporate Units"), which included 750,000 of 2018 Corporate Units pursuant to the underwriters’ option. Each 2018 Corporate Unit had a stated amount of $50 and was comprised of (a) a purchase contract obligating the holder to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, on the purchase contract settlement date, or April 15, 2021, subject to earlier termination or settlement, a certain number of shares of common stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of SJI’s 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031 (the "Series A Junior Subordinated Notes"). SJI paid the holder quarterly contract adjustment payments at a rate of 3.55% per year on the stated amount of $50 per Equity Unit, in respect of each purchase contract, subject to the Company's right to defer these payments. The net proceeds, after amortization of the underwriting discounts, were recorded as Long-Term Debt on the condensed consolidated balance sheets.
•On March 25, 2021, the Company finalized the remarketing of the $287.5 million of Series A Junior Subordinated Notes. The interest rate on the Series A Junior Subordinated Notes has been reset to 5.020% per year, and this reset rate became effective on April 15, 2021 (see below). Interest on the Series A Junior Subordinated Notes will be payable semi-annually on April 15 and October 15, commencing on April 15, 2021, and at maturity. As a result, these
notes continue to be recorded as Long-Term Debt on the condensed consolidated balance sheets as of September 30, 2021.
•On April 1, 2021, the Company announced the settlement rate for the stock purchase contracts that are components of the 2018 Corporate Units with holders of the 2018 Corporate Units to receive 1.7035 shares of SJI common stock for each stock purchase contract that they hold, with cash to be paid in lieu of any fractional shares. The settlement rate was set to be based upon the original settlement rate of 1.6949 shares, as adjusted for certain corporate events since original issuance. Consequently, on April 15, 2021, each holder of the 2018 Corporate Units on that date, following payment of $50.00 for each unit held, received 1.7035 shares of the Company’s common stock for each such unit. As a result of settlement of the outstanding stock purchase contracts, on April 15, 2021, the Company received approximately $287.5 million in exchange for approximately 9.8 million shares of common stock. Additionally, each 2018 Corporate Unit holder of record on April 1, 2021, received the final quarterly cash distribution of $0.90625 per 2018 Corporate Unit and received any remaining amounts from the treasury portfolio that was purchased in connection with the remarketing described above, as well as any earnings from the reinvestment of that treasury portfolio when it matured.
The convertible units consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
December 31, 2020
|
|
Principal amount:
|
2021 Series B Remarketable Junior Subordinated Notes due 2029
|
|
|
2018 Series A Remarketable Junior Notes due 2031
|
|
Principal (A)
|
$
|
335,000
|
|
|
|
$
|
287,500
|
|
|
Unamortized debt discount and issuance costs (A)
|
9,418
|
|
|
|
7,181
|
|
|
Net carrying amount
|
$
|
325,582
|
|
|
|
$
|
280,319
|
|
|
Carrying amount of the equity component (B)
|
$
|
—
|
|
|
|
$
|
—
|
|
(A) Included in the condensed consolidated balance sheets within Long-Term Debt.
(B) There is no equity portion as of September 30, 2021 and December 31, 2020 for these Notes.
During the three months ended September 30, 2021 and 2020, the Company recognized $5.0 million and $2.7 million, respectively, of coupon interest expense, and during the nine months ended September 30, 2021 and 2020, the Company recognized $12.8 million and $8.0 million, respectively, of coupon interest expense, all of which was included in Interest Charges on the condensed consolidated statements of (loss)/income. During those periods, the amortization of debt discount and issuance costs was not material. As of September 30, 2021, the effective interest rate was 2.1% on the 2021 Notes and 5.0% on the 2018 Notes.
SJI's EPS — SJI's basic EPS is based on the weighted-average number of common shares outstanding. SJI's diluted EPS includes consideration of the effect of SJI's restricted stock as discussed in Note 2, along with the impact of the Forward Shares, Equity Units and Convertible Units discussed above, accounted for under the treasury stock method. For the nine months ended September 30, 2021 and 2020, the shares required for inclusion in the denominator for the diluted EPS calculation were 1,481,770 and 124,705, respectively. For the three months ended September 30, 2021 and 2020, shares of 1,469,623 and 141,062, respectively, were not included in the denominator for the diluted EPS calculation because they would have had an antidilutive effect on EPS.
DRP — SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases. SJI currently purchases shares on the open market to fund share purchases by DRP participants, and as a result SJI did not raise any equity capital through the DRP in first nine months of 2021.
RETAINED EARNINGS — The Utilities are limited by their regulatory authorities on the amount of cash dividends or other distributions they are able to transfer to their parent, specifically if such dividends or other distributions could impact their capital structure. In addition, SJG's First Mortgage Indentures contain a restriction regarding the amount of cash dividends or other distributions that they may pay. As of September 30, 2021, this loan restriction does not affect the amount that may be distributed from SJG's retained earnings.
ADDITIONAL INVESTMENT BY SHAREHOLDER - SJG received $100.0 million and $109.5 million in equity infusions from SJI during the three and nine months ended September 30, 2020, respectively. There were no equity infusions during the three and nine months ended September 30, 2021. Future equity contributions will occur on an as-needed basis.
5. FINANCIAL INSTRUMENTS:
RESTRICTED INVESTMENTS — SJI and SJG maintain margin accounts with certain counterparties to support their risk management activities associated with hedging commodities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease.
The following table provides SJI's (including SJG) and SJG's balances of Restricted Investments as well as presents a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that total to the amounts shown in the condensed consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
Balance Sheet Line Item
|
|
SJI
|
SJG
|
|
Cash and Cash Equivalents
|
|
$
|
25,415
|
|
$
|
1,986
|
|
|
Restricted Investments
|
|
34
|
|
34
|
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
$
|
25,449
|
|
$
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
Balance Sheet Line Item
|
|
SJI
|
SJG
|
|
Cash and Cash Equivalents
|
|
$
|
34,045
|
|
$
|
1,598
|
|
|
Restricted Investments
|
|
7,786
|
|
4,826
|
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
$
|
41,831
|
|
$
|
6,424
|
|
The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at September 30, 2021 and December 31, 2020, which would be included in Level 1 of the fair value hierarchy (see Note 13).
ALLOWANCE FOR CREDIT LOSSES - Accounts receivable are recorded gross on the condensed consolidated balance sheets with allowance for credit losses shown as a separate line item titled Provision for Uncollectibles. A summary of changes in the allowance for credit losses for the three and nine months ended September 30, 2021 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
42,233
|
|
|
$
|
30,410
|
|
|
$
|
30,582
|
|
|
$
|
19,829
|
|
|
Provision for expected credit losses
|
2,375
|
|
|
5,416
|
|
|
7,621
|
|
|
19,994
|
|
|
Regulated assets (a)
|
(293)
|
|
|
—
|
|
|
8,982
|
|
|
—
|
|
|
Recoveries of accounts previously written off
|
414
|
|
|
126
|
|
|
772
|
|
|
688
|
|
|
Uncollectible accounts written off
|
(1,664)
|
|
|
(2,935)
|
|
|
(4,892)
|
|
|
(7,494)
|
|
|
Balance at end of period
|
$
|
43,065
|
|
|
$
|
33,017
|
|
|
$
|
43,065
|
|
|
$
|
33,017
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
21,706
|
|
|
$
|
14,472
|
|
|
$
|
17,359
|
|
|
$
|
14,032
|
|
|
Provision for expected credit losses
|
1,411
|
|
|
4,783
|
|
|
5,529
|
|
|
8,255
|
|
|
Regulated assets (a)
|
1,059
|
|
|
—
|
|
|
3,030
|
|
|
—
|
|
|
Recoveries of accounts previously written off
|
400
|
|
|
4
|
|
|
503
|
|
|
295
|
|
|
Uncollectible accounts written off
|
(702)
|
|
|
(2,422)
|
|
|
(2,547)
|
|
|
(5,745)
|
|
|
Balance at end of period
|
$
|
23,874
|
|
|
$
|
16,837
|
|
|
$
|
23,874
|
|
|
$
|
16,837
|
|
(a) Deferral of incremental costs related to the COVID-19 pandemic as a regulatory asset, resulting from a July 2, 2020 BPU Order (see Note 8). ETG’s incremental costs were lower during the third quarter 2021 resulting from lower allowance for credit losses due to seasonality, resulting in the negative balance for SJI during the three months ended September 30, 2021.
NOTES RECEIVABLE-AFFILIATES - The carrying amounts of the Note Receivable-Affiliates balances approximate their fair values at September 30, 2021 and December 31, 2020, which would be included in Level 2 of the fair value hierarchy. See Note 3 for information about these balances and Note 13 for information about the fair value hierarchy.
CONTRACT RECEIVABLES - SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources. The terms of these loans call for customers to make monthly payments over periods ranging from five to ten years, with no interest. The carrying amounts of such loans were $1.8 million and $2.5 million as of September 30, 2021 and December 31, 2020, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the condensed consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest. The amount of such discounts and the annualized amortization to interest is not material to SJI's or SJG's consolidated financial statements.
In addition, as part of the EET program, SJG provides funding to customers to upgrade equipment for the purpose of promoting energy efficiency. The terms of these loans range from two to ten years. The carrying amounts of such loans were $53.0 million and $46.4 million as of September 30, 2021 and December 31, 2020, respectively. On the condensed consolidated balance sheets of SJI and SJG, the current portion of EET loans receivable totaled $7.1 million and $6.4 million as of September 30, 2021 and December 31, 2020, respectively, and is reflected in Accounts Receivable; and the non-current portion totaled $45.9 million and $40.0 million as of September 30, 2021 and December 31, 2020, respectively, and is reflected in Contract Receivables.
Given the risk of uncollectibility is low due to the oversight and preapproval required by the BPU, no allowance for credit loss has been recognized on the above-mentioned receivables. There have been no material impacts to this risk of uncollectibility as a result of COVID-19.
The carrying amounts of these receivables approximate their fair value at September 30, 2021 and December 31, 2020, which would be included in Level 2 of the fair value hierarchy (see Note 13).
CREDIT RISK - As of September 30, 2021, SJI had approximately $10.5 million, or 5.9%, of the current and noncurrent Derivatives – Energy Related Assets transacted with one counterparty. This counterparty is investment-grade rated.
FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's and SJG's financial instruments approximate their fair values at September 30, 2021 and December 31, 2020, except as noted below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
SJI (includes SJG and all consolidated entities)
|
|
|
|
|
Estimated fair values of long-term debt
|
$
|
3,604,517
|
|
|
$
|
3,152,224
|
|
|
|
|
|
|
|
Carrying amounts of long-term debt, including current maturities (A)
|
$
|
3,261,945
|
|
|
$
|
2,919,201
|
|
|
Net of:
|
|
|
|
|
Unamortized debt issuance costs
|
$
|
39,465
|
|
|
$
|
29,574
|
|
|
Unamortized debt discounts
|
$
|
5,157
|
|
|
$
|
5,224
|
|
|
|
|
|
|
|
SJG
|
|
|
|
|
Estimated fair values of long-term debt
|
$
|
1,171,515
|
|
|
$
|
1,197,052
|
|
|
|
|
|
|
|
Carrying amounts of long-term debt, including current maturities
|
$
|
1,049,551
|
|
|
$
|
1,069,089
|
|
|
Net of:
|
|
|
|
|
Unamortized debt issuance costs
|
$
|
8,895
|
|
|
$
|
9,357
|
|
(A) SJI Long-Term Debt on the consolidated balance sheet as of September 30, 2021 and December 31, 2020 includes $5.6 million and $3.1 million of finance leases, respectively.
For Long-Term Debt (including current maturities), in estimating the fair value, SJI and SJG use the present value of remaining cash flows at the balance sheet date. SJI and SJG based the estimates on interest rates available at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy, see Note 13).
6. SEGMENTS OF BUSINESS:
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments and requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the CODM in deciding how to allocate resources and in assessing performance.
Beginning with the first quarter of 2021, our internal management reporting, specifically around our nonutility businesses, changed primarily due to recent acquisitions and divestitures, and new product lines entered into. These were primarily within the fuel cell, solar, RNG, and retail businesses. Refer to Item 1, along with Note 1 to the Consolidated Financial Statements in Item 8, of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020 for information about these acquisitions and divestitures.
As a result of these changes in our businesses, the Company realigned its operating segments. The realigned segments reflect the financial information regularly evaluated by the CODM, which for SJI is the Company's Chief Executive Officer.
The operating segments are as follows:
•SJG utility operations consist primarily of natural gas distribution to residential, commercial and industrial customers in southern New Jersey.
•ETG utility operations consist of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.
•ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland. On July 31, 2020, SJI sold ELK to a third-party buyer.
•Wholesale energy operations include the activities of SJRG and SJEX.
•Retail services operations includes the activities of SJE, SJESP and SJEI, as well as our equity interest in Millennium.
•Renewables consists of:
◦The Catamaran joint venture, which owns Annadale and Bronx Midco.
◦Solar-generation sites located in New Jersey, and three legacy solar projects, one of which was sold during the first quarter of 2020.
◦The activities of ACLE, BCLE, SCLE and SXLE, which have all ceased operations (see Note 1).
◦MTF and ACB, which were sold in the first quarter of 2020.
•Decarbonization consists of
◦SJI Renewables Energy Ventures, LLC, which includes our equity interest in REV, which is included in Equity in (Loss)/Earnings of Affiliated Companies on the condensed consolidated statements of (loss)/income.
◦SJI RNG Devco, LLC, which includes the renewable natural gas development rights in certain dairy farms; the operating results from this entity are not material at this time.
•Midstream invests in infrastructure and other midstream projects, including an investment in PennEast (see Note 3).
•Corporate & Services segment includes costs related to financing, acquisitions and divestitures, and other unallocated costs. Intersegment represents intercompany transactions among the above SJI consolidated entities.
SJI groups its utility businesses under its wholly-owned subsidiary SJIU. This group consists of gas utility operations of SJG and ETG and, until its sale, ELK. SJI groups its nonutility operations into separate categories: Energy Management; Energy Production; Midstream; and Corporate & Services. Energy Management includes wholesale energy and retail services. Energy Production includes renewables and decarbonization. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
Information about SJI’s operations in different reportable operating segments is presented below (in thousands). All prior periods were revised to conform to the new segment alignment noted above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
$
|
69,958
|
|
|
$
|
66,190
|
|
|
$
|
412,572
|
|
|
$
|
394,066
|
|
|
ETG Utility Operations
|
37,072
|
|
|
37,503
|
|
|
248,098
|
|
|
239,503
|
|
|
ELK Utility Operations
|
—
|
|
|
285
|
|
|
—
|
|
|
4,792
|
|
|
Subtotal SJI Utilities
|
107,030
|
|
|
103,978
|
|
|
660,670
|
|
|
638,361
|
|
|
Energy Management:
|
|
|
|
|
|
|
|
|
Wholesale Energy Operations
|
247,402
|
|
|
143,338
|
|
|
669,067
|
|
|
373,308
|
|
|
Retail Services
|
5,360
|
|
|
8,836
|
|
|
13,382
|
|
|
32,735
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Management
|
252,762
|
|
|
152,174
|
|
|
682,449
|
|
|
406,043
|
|
|
Energy Production:
|
|
|
|
|
|
|
|
|
Renewables
|
7,352
|
|
|
6,317
|
|
|
17,980
|
|
|
15,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Production
|
7,352
|
|
|
6,317
|
|
|
17,980
|
|
|
15,459
|
|
|
Corporate and Services
|
13,577
|
|
|
10,835
|
|
|
39,416
|
|
|
36,740
|
|
|
Subtotal
|
380,721
|
|
|
273,304
|
|
|
1,400,515
|
|
|
1,096,603
|
|
|
Intersegment Sales
|
(15,090)
|
|
|
(11,755)
|
|
|
(48,756)
|
|
|
(40,978)
|
|
|
Total Operating Revenues
|
$
|
365,631
|
|
|
$
|
261,549
|
|
|
$
|
1,351,759
|
|
|
$
|
1,055,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating (Loss) Income:
|
|
|
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
$
|
(1,961)
|
|
|
$
|
(6,080)
|
|
|
$
|
133,350
|
|
|
$
|
108,297
|
|
|
ETG Utility Operations
|
5,634
|
|
|
(3,163)
|
|
|
66,521
|
|
|
57,274
|
|
|
ELK Utility Operations
|
—
|
|
|
(374)
|
|
|
—
|
|
|
373
|
|
|
Subtotal SJI Utilities
|
3,673
|
|
|
(9,617)
|
|
|
199,871
|
|
|
165,944
|
|
|
Energy Management:
|
|
|
|
|
|
|
|
|
Wholesale Energy Operations
|
(15,534)
|
|
|
2,768
|
|
|
(5,393)
|
|
|
16,272
|
|
|
|
|
|
|
|
|
|
|
|
Retail Services
|
849
|
|
|
(1,573)
|
|
|
763
|
|
|
(2,238)
|
|
|
Subtotal Energy Management
|
(14,685)
|
|
|
1,195
|
|
|
(4,630)
|
|
|
14,034
|
|
|
Energy Production:
|
|
|
|
|
|
|
|
|
Renewables
|
1,787
|
|
|
2,455
|
|
|
4,920
|
|
|
143
|
|
|
Decarbonization
|
(63)
|
|
|
—
|
|
|
(71)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Production
|
1,724
|
|
|
2,455
|
|
|
4,849
|
|
|
143
|
|
|
Corporate and Services
|
315
|
|
|
(2,527)
|
|
|
(626)
|
|
|
(2,662)
|
|
|
Total Operating (Loss) Income
|
$
|
(8,973)
|
|
|
$
|
(8,494)
|
|
|
$
|
199,464
|
|
|
$
|
177,459
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
$
|
30,252
|
|
|
$
|
25,762
|
|
|
$
|
89,786
|
|
|
$
|
76,216
|
|
|
ETG Utility Operations
|
14,665
|
|
|
10,391
|
|
|
53,657
|
|
|
30,370
|
|
|
ELK Utility Operations
|
—
|
|
|
52
|
|
|
—
|
|
|
354
|
|
|
Subtotal SJI Utilities
|
44,917
|
|
|
36,205
|
|
|
143,443
|
|
|
106,940
|
|
|
Energy Management:
|
|
|
|
|
|
|
|
|
Wholesale Energy Operations
|
25
|
|
|
14
|
|
|
69
|
|
|
44
|
|
|
Retail Services
|
117
|
|
|
—
|
|
|
353
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Management
|
142
|
|
|
14
|
|
|
422
|
|
|
44
|
|
|
Energy Production:
|
|
|
|
|
|
|
|
|
Renewables
|
1,172
|
|
|
30
|
|
|
3,573
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Production
|
1,172
|
|
|
30
|
|
|
3,573
|
|
|
36
|
|
|
Corporate and Services
|
1,858
|
|
|
1,267
|
|
|
4,271
|
|
|
3,704
|
|
|
Total Depreciation and Amortization
|
$
|
48,089
|
|
|
$
|
37,516
|
|
|
$
|
151,709
|
|
|
$
|
110,724
|
|
|
|
|
|
|
|
|
|
|
|
Interest Charges:
|
|
|
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
$
|
9,444
|
|
|
$
|
8,271
|
|
|
$
|
28,782
|
|
|
$
|
23,832
|
|
|
ETG Utility Operations
|
8,651
|
|
|
7,398
|
|
|
25,098
|
|
|
22,321
|
|
|
ELK Utility Operations
|
—
|
|
|
2
|
|
|
—
|
|
|
21
|
|
|
Subtotal SJI Utilities
|
18,095
|
|
|
15,671
|
|
|
53,880
|
|
|
46,174
|
|
|
Energy Management:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Services
|
36
|
|
|
—
|
|
|
135
|
|
|
—
|
|
|
Subtotal Energy Management
|
36
|
|
|
—
|
|
|
135
|
|
|
—
|
|
|
Energy Production:
|
|
|
|
|
|
|
|
|
Renewables
|
1,078
|
|
|
277
|
|
|
3,491
|
|
|
2,974
|
|
|
Decarbonization
|
286
|
|
|
—
|
|
|
853
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Production:
|
1,364
|
|
|
277
|
|
|
4,344
|
|
|
2,974
|
|
|
Midstream
|
322
|
|
|
677
|
|
|
1,627
|
|
|
1,837
|
|
|
Corporate and Services
|
13,406
|
|
|
12,490
|
|
|
39,744
|
|
|
43,332
|
|
|
Subtotal
|
33,223
|
|
|
29,115
|
|
|
99,730
|
|
|
94,317
|
|
|
Intersegment Borrowings
|
(1,755)
|
|
|
(1,353)
|
|
|
(5,618)
|
|
|
(5,430)
|
|
|
Total Interest Charges
|
$
|
31,468
|
|
|
$
|
27,762
|
|
|
$
|
94,112
|
|
|
$
|
88,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Income Taxes:
|
|
|
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
$
|
(2,460)
|
|
|
$
|
(3,293)
|
|
|
$
|
26,683
|
|
|
$
|
23,157
|
|
|
ETG Utility Operations
|
132
|
|
|
(2,475)
|
|
|
11,320
|
|
|
7,869
|
|
|
ELK Utility Operations
|
—
|
|
|
(4)
|
|
|
—
|
|
|
186
|
|
|
Subtotal SJI Utilities
|
(2,328)
|
|
|
(5,772)
|
|
|
38,003
|
|
|
31,212
|
|
|
Energy Management:
|
|
|
|
|
|
|
|
|
Wholesale Energy Operations
|
(4,043)
|
|
|
858
|
|
|
(907)
|
|
|
4,583
|
|
|
Retail Services
|
248
|
|
|
40
|
|
|
542
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Management
|
(3,795)
|
|
|
898
|
|
|
(365)
|
|
|
4,751
|
|
|
Energy Production:
|
|
|
|
|
|
|
|
|
Renewables
|
(2,134)
|
|
|
(11,191)
|
|
|
(2,301)
|
|
|
(10,897)
|
|
|
Decarbonization
|
205
|
|
|
—
|
|
|
329
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Production
|
(1,929)
|
|
|
(11,191)
|
|
|
(1,972)
|
|
|
(10,897)
|
|
|
Midstream
|
(107)
|
|
|
(58)
|
|
|
(197)
|
|
|
(174)
|
|
|
Corporate and Services
|
(3,568)
|
|
|
(3,344)
|
|
|
(10,129)
|
|
|
(11,167)
|
|
|
Total Income Taxes
|
$
|
(11,727)
|
|
|
$
|
(19,467)
|
|
|
$
|
25,340
|
|
|
$
|
13,725
|
|
|
|
|
|
|
|
|
|
|
|
Property Additions:
|
|
|
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
$
|
64,988
|
|
|
$
|
73,481
|
|
|
$
|
186,948
|
|
|
$
|
181,440
|
|
|
ETG Utility Operations
|
58,923
|
|
|
45,452
|
|
|
158,953
|
|
|
149,578
|
|
|
ELK Utility Operations
|
—
|
|
|
112
|
|
|
—
|
|
|
971
|
|
|
Subtotal SJI Utilities
|
123,911
|
|
|
119,045
|
|
|
345,901
|
|
|
331,989
|
|
|
Energy Management:
|
|
|
|
|
|
|
|
|
Wholesale Energy Operations
|
4
|
|
|
2
|
|
|
6
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Energy Management
|
4
|
|
|
2
|
|
|
6
|
|
|
2
|
|
|
Energy Production:
|
|
|
|
|
|
|
|
|
Renewables
|
6,471
|
|
|
59,866
|
|
|
24,458
|
|
|
62,751
|
|
|
Decarbonization
|
8,140
|
|
|
—
|
|
|
10,014
|
|
|
—
|
|
|
Subtotal Energy Production
|
14,611
|
|
|
59,866
|
|
|
34,472
|
|
|
62,751
|
|
|
Midstream
|
11
|
|
|
29
|
|
|
19
|
|
|
115
|
|
|
Corporate and Services
|
747
|
|
|
715
|
|
|
3,105
|
|
|
2,076
|
|
|
Total Property Additions
|
$
|
139,284
|
|
|
$
|
179,657
|
|
|
$
|
383,503
|
|
|
$
|
396,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Identifiable Assets:
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
SJG Utility Operations
|
$
|
3,637,046
|
|
|
$
|
3,522,265
|
|
|
ETG Utility Operations
|
2,717,842
|
|
|
2,561,067
|
|
|
|
|
|
|
|
Subtotal SJI Utilities
|
6,354,888
|
|
|
6,083,332
|
|
|
Energy Management:
|
|
|
|
|
Wholesale Energy Operations
|
272,955
|
|
|
195,882
|
|
|
|
|
|
|
|
Retail Services
|
26,581
|
|
|
29,687
|
|
|
Subtotal Energy Management
|
299,536
|
|
|
225,569
|
|
|
Energy Production:
|
|
|
|
|
Renewables
|
164,486
|
|
|
153,018
|
|
|
Decarbonization
|
89,910
|
|
|
40,482
|
|
|
|
|
|
|
|
Subtotal Energy Production
|
254,396
|
|
|
193,500
|
|
|
Midstream
|
8,795
|
|
|
92,208
|
|
|
Discontinued Operations
|
1,811
|
|
|
1,775
|
|
|
Corporate and Services
|
320,268
|
|
|
318,095
|
|
|
Intersegment Assets
|
(215,683)
|
|
|
(225,331)
|
|
|
Total Identifiable Assets
|
$
|
7,024,011
|
|
|
$
|
6,689,148
|
|
7. RATES AND REGULATORY ACTIONS:
SJG and ETG are subject to the rules and regulations of the BPU.
Except as described below, there have been no significant regulatory actions or changes to the Utilities' rate structures since December 31, 2020. See Note 10 to the Consolidated Financial Statements in Item 8 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
SJG:
Periodic Rate Mechanisms:
In January 2021, the BPU approved SJG’s request from its June 2020 filing for an increase in its EET rate. The approval reflected a $5.9 million increase in revenues, effective February 1, 2021.
In March 2021, the BPU approved and made final the credit rate proposed in SJG’s September 2020 filing associated with Tax Reform, which was already in effect on a provisional basis. It is anticipated that the approved rate will result in SJG returning approximately $14.9 million in excess deferred income tax to its ratepayers.
In April 2021, the BPU approved the stipulation resolving SJG's July 2020 Compliance Filing for its SBC (this rider to SJG's tariff adjusts SJG's rates related to RAC, CLEP & USF). All rate changes were approved as requested, and the stipulated rates reflect a $5.5 million increase in revenues. The approved stipulation also contains authority to defer costs related to Natural Resource Defense claims, plus carrying costs.
In April 2021, the BPU also approved a stipulation for expansion of SJG's EEP program for three years, effective July 1, 2021, authorizing a total budget of $133.3 million which would initially increase annual revenue by $5.4 million.
In May 2021, the BPU approved the final rates for SJG’s 2020-2021 BGSS and CIP filings, which were previously in effect on a provisional basis. The provisional BGSS rate was increased, effective June 1, 2021, to include recovery over a two-year period of $22.9 million of costs related to a previous pricing dispute on a long-term gas supply contract (see Note 8). The provisional CIP rate was approved as a final rate.
In September 2021, the BPU approved SJG's request from its April 2021 SHARP II filing to increase base rates. The increase, effective October 1, 2021, allows for the recovery of $2.2 million in annual revenue requirement on $22.6 million of SHARP II investment placed in service during the period July 1, 2020 to June 30, 2021.
In September 2021, the BPU approved a statewide USF rate increase and no change to the current statewide Lifeline rate, each with effective dates of October 1, 2021, resulting in an increase to the combined rates. SJG's portion of the proposed revenue increase is approximately $3.8 million.
The following activity is currently pending BPU approval:
•SJG submitted a request to implement an IIP and associated cost recovery mechanism of a five-year $742.5 million program that commenced June 2021.
•SJG submitted its annual BGSS/CIP filing. For the BGSS component, SJG requested a $59.5 million increase in gas cost recoveries for the period October 1, 2021 through September 30, 2022. For the CIP component, SJG requested a $15.3 million increase in revenues for the period October 1, 2021 through September 30, 2022.
•SJG filed its annual AIRP II filing, seeking recovery of an annual revenue requirement of $5.7 million on AIRP II investments placed into service during the period July 1, 2020 to September 30, 2021, totaling $58.7 million. The filing seeks approval to recover these investments through a base rate adjustment effective January 1, 2022.
•SJG submitted its annual filing associated with Tax Reform, which proposed an $11.6 million refund to customers through the Rider H credit rate for the period of October 1, 2021 through September 30, 2022.
•SJG filed its annual EET filing, seeking to recover $12.8 million in revenue during the period October 1, 2021 to September 30, 2022.
•SJG submitted its annual SBC and TIC filing, seeking to recover $0.9 million in revenue during the period of November 2021 to October 2022.
ETG:
In the first quarter of 2021, final rates were approved by the BPU for ETG's 2020-2021 WNC and CEP filings, effective February 27, 2021, which were already in effect on a provisional basis. The BPU also approved the requested RAC rate reflecting a $3.2 million decrease in revenues related to the recovery of costs of remediation, effective April 1, 2021.
In April 2021, the BPU approved the stipulation for ETG's new EEP program to expand its EEPs for three years effective July 1, 2021 authorizing a total budget of $83.4 million which would initially increase annual revenues by $2.8 million. This new EEP program will replace the one currently in effect. In April 2021, the BPU also approved the stipulation to establish a CIP similar to SJG's CIP, which eliminates the link between usage and margin and includes a weather-related component. The CIP will become effective July 1, 2021.
In June 2021, the BPU approved the final rate for ETG’s 2020-2021 BGSS filing, effective July 1, 2021, which was already in effect on a provisional basis. The BPU also approved a stipulation to resolve ETG’s annual EEP filing from July 2020. The approval reflected a $0.5 million decrease in revenues, also effective July 1, 2021.
In September 2021, the BPU approved a statewide USF rate increase and no change to the current statewide Lifeline rate, each with effective dates as of October 1, 2021, resulting in an increase in the combined rates. ETG's portion of the proposed revenue increase is approximately $3.5 million.
In September 2021, the BPU approved the increases to IIP rates effective October 1, 2021. The approval reflected an increase to annual revenues by approximately $7.1 million to reflect the roll-in of approximately $63.8 million of IIP investments placed in service from July 1, 2020 through June 30, 2021.
In September 2021, the BPU approved provisional rates for ETG's WNC and CEP filings submitted in July 2021, effective October 1, 2021. The net effect of these approvals was an increase of $5.3 million in revenues.
The following activity is currently pending BPU approval:
•ETG submitted its annual BGSS filing, requesting a $14.0 million increase in gas cost recoveries for the period October 1, 2021 through September 30, 2022.
•ETG submitted its annual RAC filing, requesting a $7.9 million decrease in revenues related to the recovery of remediation costs, with an effective date of October 1, 2021.
•ETG submitted its annual filing for its legacy EEP program, requesting a $1.6 million decrease in revenues, with an effective date of October 1, 2021
8. REGULATORY ASSETS AND REGULATORY LIABILITIES:
Except as described below, there have been no significant changes to the nature or balances of the Utilities' regulatory assets and liabilities since December 31, 2020, which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
The Utilities' Regulatory Assets as of September 30, 2021 and December 31, 2020 consisted of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
SJG
|
ETG
|
Total SJI
|
|
Environmental Remediation Costs:
|
|
|
|
|
Expended - Net
|
$
|
153,080
|
|
$
|
13,909
|
|
$
|
166,989
|
|
|
Liability for Future Expenditures
|
100,209
|
|
77,565
|
|
177,774
|
|
|
Insurance Recovery Receivables
|
—
|
|
(6,807)
|
|
(6,807)
|
|
|
Deferred ARO Costs
|
46,412
|
|
30,807
|
|
77,219
|
|
|
Deferred Pension Costs - Unrecognized Prior Service Cost
|
—
|
|
31,692
|
|
31,692
|
|
|
Deferred Pension and Other Postretirement Benefit Costs
|
77,426
|
|
8,466
|
|
85,892
|
|
|
Deferred Gas Costs - Net
|
20,301
|
|
—
|
|
20,301
|
|
|
CIP Receivable
|
6,827
|
|
—
|
|
6,827
|
|
|
SBC Receivable (excluding RAC)
|
5,018
|
|
—
|
|
5,018
|
|
|
Deferred Interest Rate Contracts
|
8,027
|
|
—
|
|
8,027
|
|
|
EET/EEP
|
17,764
|
|
5,472
|
|
23,236
|
|
|
Pipeline Supplier Service Charges
|
365
|
|
—
|
|
365
|
|
|
Pipeline Integrity Cost
|
6,612
|
|
—
|
|
6,612
|
|
|
AFUDC - Equity Related Deferrals
|
12,155
|
|
—
|
|
12,155
|
|
|
WNC
|
—
|
|
5,497
|
|
5,497
|
|
|
Other Regulatory Assets
|
25,888
|
|
22,802
|
|
48,690
|
|
|
Total Regulatory Assets
|
$
|
480,084
|
|
$
|
189,403
|
|
$
|
669,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
SJG
|
ETG
|
Total SJI
|
|
Environmental Remediation Costs:
|
|
|
|
|
Expended - Net
|
$
|
157,340
|
|
$
|
5,196
|
|
$
|
162,536
|
|
|
Liability for Future Expenditures
|
101,243
|
|
91,837
|
|
193,080
|
|
|
Insurance Recovery Receivables
|
—
|
|
(6,807)
|
|
(6,807)
|
|
|
Deferred ARO Costs
|
42,365
|
|
25,453
|
|
67,818
|
|
|
Deferred Pension Costs - Unrecognized Prior Service Cost
|
—
|
|
33,898
|
|
33,898
|
|
|
Deferred Pension and Other Postretirement Benefit Costs
|
77,426
|
|
8,466
|
|
85,892
|
|
|
Deferred Gas Costs - Net
|
19,178
|
|
—
|
|
19,178
|
|
|
CIP Receivable
|
21,013
|
|
—
|
|
21,013
|
|
|
SBC Receivable (excluding RAC)
|
3,453
|
|
—
|
|
3,453
|
|
|
Deferred Interest Rate Contracts
|
9,938
|
|
—
|
|
9,938
|
|
|
EET/EEP
|
18,725
|
|
3,062
|
|
21,787
|
|
|
Pipeline Supplier Service Charges
|
434
|
|
—
|
|
434
|
|
|
Pipeline Integrity Cost
|
6,091
|
|
—
|
|
6,091
|
|
|
AFUDC - Equity Related Deferrals
|
11,822
|
|
—
|
|
11,822
|
|
|
WNC
|
—
|
|
7,444
|
|
7,444
|
|
|
Other Regulatory Assets
|
26,056
|
|
10,359
|
|
36,415
|
|
|
|
|
|
|
|
Total Regulatory Assets
|
$
|
495,084
|
|
$
|
178,908
|
|
$
|
673,992
|
|
Except where noted below, all regulatory assets are or are expected to be recovered through utility rate charges, as detailed in the following discussion. The Utilities are currently permitted to recover interest on Environmental Remediation Costs, SBC Receivable, EET and Pipeline Integrity Costs, while the other assets are being recovered without a return on investment.
ENVIRONMENTAL REMEDIATION COSTS - SJG and ETG have regulatory assets associated with environmental costs related to the cleanup of environmental sites as discussed in Note 15 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2020. The BPU allows SJG and ETG to recover the deferred costs not recovered from insurance carriers through their RAC mechanisms over seven-year periods after the costs are incurred.
DEFERRED ARO COSTS - The Utilities record AROs primarily related to the legal obligation to cut and cap gas distribution pipelines when taking those pipelines out of service. Deferred ARO costs represent the period to period passage of time (accretion) and the revision of originally estimated cash flows to settle the retirement obligation. The increase from December 31, 2020 to September 30, 2021 is due to retirement costs, inflation and discount rates used to measure the expected retirement costs. There is no impact on earnings as a result of these changes.
DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through SJG's and ETG's BGSS clause. SJG's balance as of December 31, 2020 included $22.9 million of costs related to a previous pricing dispute on a long-term gas supply contract. As of June 1, 2021, SJG has begun to recover these costs from its customers through the BGSS clause. SJG’s deferred gas costs-net are currently in an under-collected position, resulting in a regulatory asset. ETG's deferred gas costs-net are over-recovered at September 30, 2021, resulting in a regulatory liability.
CIP RECEIVABLE - The CIP tracking mechanism at SJG adjusts earnings when the actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was more than the established baseline during the first nine months of 2021, resulting in a reduction of the regulatory asset at September 30, 2021 as compared to December 31, 2020. This is primarily the result of colder than normal weather experienced in the region.
OTHER REGULATORY ASSETS - The increase from December 31, 2020 to September 30, 2021 is primarily related to incremental costs incurred related to the impacts to our business from the COVID-19 pandemic. On July 2, 2020, the BPU issued an Order authorizing New Jersey's regulated utilities to create a COVID-19-related regulatory asset by deferring on their books and records the prudently incurred incremental costs related to COVID-19 beginning on March 9, 2020 and continuing through September 30, 2021, or 60 days after the termination of the public health emergency, whichever is later. On September 14, 2021, the BPU extended this period to December 31, 2022. The Company is required to file quarterly reports with the BPU,
along with a petition of recovery of such incremental costs with the BPU by December 31, 2022 or within 60 days of the close of the tracking period, whichever is later. As of September 30, 2021 and December 31, 2020, ETG deferred $12.3 million and $5.8 million, respectively, and SJG deferred $7.6 million and $4.7 million, respectively, of incremental costs principally related to expected credit losses from uncollectibles as a result of the COVID-19 pandemic, specifically related to changes in payment patterns observed to date and consideration of macroeconomic factors. We have deemed these costs to be probable of recovery.
The Utilities Regulatory Liabilities as of September 30, 2021 and December 31, 2020 consisted of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
SJG
|
ETG
|
Total SJI
|
|
Excess Plant Removal Costs
|
$
|
12,160
|
|
$
|
33,992
|
|
$
|
46,152
|
|
|
Excess Deferred Taxes
|
211,020
|
|
111,724
|
|
322,744
|
|
|
Deferred Gas Costs - Net
|
—
|
|
44,482
|
|
44,482
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be Refunded to Customers
|
—
|
|
3,379
|
|
3,379
|
|
|
Other Regulatory Liabilities
|
—
|
|
1,665
|
|
1,665
|
|
|
Total Regulatory Liabilities
|
$
|
223,180
|
|
$
|
195,242
|
|
$
|
418,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
SJG
|
ETG
|
Total SJI
|
|
|
Excess Plant Removal Costs
|
$
|
12,666
|
|
$
|
37,953
|
|
$
|
50,619
|
|
|
|
Excess Deferred Taxes
|
232,694
|
|
113,888
|
|
346,582
|
|
|
|
Deferred Gas Costs - Net
|
—
|
|
15,322
|
|
15,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts to be Refunded to Customers
|
—
|
|
6,969
|
|
6,969
|
|
|
|
Other Regulatory Liabilities
|
—
|
|
1,085
|
|
1,085
|
|
|
|
|
|
|
|
|
|
Total Regulatory Liabilities
|
$
|
245,360
|
|
$
|
175,217
|
|
$
|
420,577
|
|
|
EXCESS DEFERRED TAXES - This liability is recognized as a result of Tax Reform enacted into law on December 22, 2017. The decrease in these liabilities for SJI and SJG from December 31, 2020 to September 30, 2021 is related to excess tax amounts returned to customers through customer billings. See Note 10 of SJI's and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
DEFERRED GAS COSTS - NET - Over/under collections of gas costs are monitored through ETG's BGSS mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchase are also included in the BGSS, subject to BPU approval. The increase from December 31, 2020 to September 30, 2021 is primarily driven by the change in the value of the energy related derivative contracts.
9. PENSION AND OTHER POSTRETIREMENT BENEFITS:
For the three and nine months ended September 30, 2021 and 2020, net periodic benefit cost related to the SJI employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service Cost
|
$
|
1,519
|
|
|
$
|
974
|
|
|
$
|
4,701
|
|
|
$
|
4,349
|
|
|
Interest Cost
|
3,404
|
|
|
3,862
|
|
|
9,876
|
|
|
11,388
|
|
|
Expected Return on Plan Assets
|
(6,154)
|
|
|
(5,569)
|
|
|
(17,821)
|
|
|
(16,473)
|
|
|
Amortizations:
|
|
|
|
|
|
|
|
|
Prior Service Cost
|
25
|
|
|
26
|
|
|
73
|
|
|
79
|
|
|
Actuarial Loss
|
3,325
|
|
|
2,647
|
|
|
9,713
|
|
|
8,077
|
|
|
Net Periodic Benefit Cost
|
2,119
|
|
|
1,940
|
|
|
6,542
|
|
|
7,420
|
|
|
Capitalized Benefit Cost
|
(577)
|
|
|
(410)
|
|
|
(1,708)
|
|
|
(1,470)
|
|
|
Deferred Benefit Cost
|
(339)
|
|
|
(377)
|
|
|
(971)
|
|
|
(1,193)
|
|
|
Total Net Periodic Benefit Expense
|
$
|
1,203
|
|
|
$
|
1,153
|
|
|
$
|
3,863
|
|
|
$
|
4,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service Cost
|
$
|
212
|
|
|
$
|
182
|
|
|
$
|
638
|
|
|
$
|
511
|
|
|
Interest Cost
|
475
|
|
|
560
|
|
|
1,424
|
|
|
1,775
|
|
|
Expected Return on Plan Assets
|
(1,436)
|
|
|
(1,345)
|
|
|
(4,308)
|
|
|
(4,036)
|
|
|
Amortizations:
|
|
|
|
|
|
|
|
|
Prior Service Cost
|
(156)
|
|
|
(180)
|
|
|
(468)
|
|
|
(468)
|
|
|
Actuarial Loss
|
273
|
|
|
255
|
|
|
817
|
|
|
640
|
|
|
Net Periodic Benefit Cost
|
(632)
|
|
|
(528)
|
|
|
(1,897)
|
|
|
(1,578)
|
|
|
Capitalized Benefit Cost
|
(108)
|
|
|
57
|
|
|
(320)
|
|
|
(157)
|
|
|
Deferred Benefit Cost
|
337
|
|
|
(90)
|
|
|
1,010
|
|
|
701
|
|
|
Total Net Periodic Benefit Expense
|
$
|
(403)
|
|
|
$
|
(561)
|
|
|
$
|
(1,207)
|
|
|
$
|
(1,034)
|
|
The Pension Benefits Net Periodic Benefit Cost incurred by SJG was approximately $1.6 million of the totals presented in the table above for both the three months ended September 30, 2021 and 2020, and $4.7 million and $5.4 million of the totals presented in the table above for the nine months ended September 30, 2021 and 2020, respectively. The weighted average expected long term rate of return on plan assets used to determine the net benefit cost was 7.25%.
The Other Postretirement Benefits Net Periodic Benefit Cost incurred by SJG was approximately $(0.6) million and $(0.1) million of the totals presented in the table above for the three months ended September 30, 2021 and 2020, respectively, and $(1.6) million and $(1.5) million of the totals presented in the table above for the nine months ended September 30, 2021 and 2020, respectively. The weighted average expected long term rate of return on plan assets used to determine the net benefit cost was 6.75%.
Capitalized benefit costs reflected in the table above relate to the Utilities' construction programs.
No contributions were made to the pension plans by either SJI or SJG during the nine months ended September 30, 2021 or 2020. Future pension contributions by SJI cannot be determined at this time. Payments related to the unfunded SERP for SJG are expected to be approximately $3.7 million in 2021.
See Note 12 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020 for additional information related to SJI’s and SJG's pension and other postretirement benefits.
10. LINES OF CREDIT & SHORT-TERM BORROWINGS:
Credit facilities and available liquidity as of September 30, 2021 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Total Facility
|
|
Usage
|
|
Available Liquidity
|
|
Expiration Date
|
|
|
SJI:
|
|
|
|
|
|
|
|
|
|
|
SJI Syndicated Revolving Credit Facility
|
|
$
|
500,000
|
|
|
$
|
61,300
|
|
(A)
|
$
|
438,700
|
|
|
September 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper Program/Revolving Credit Facility
|
|
250,000
|
|
|
82,900
|
|
(B)
|
167,100
|
|
|
September 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETG:
|
|
|
|
|
|
|
|
|
|
|
ETG Revolving Credit Facility
|
|
250,000
|
|
|
11,000
|
|
(C)
|
239,000
|
|
|
September 2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,000,000
|
|
|
$
|
155,200
|
|
|
$
|
844,800
|
|
|
|
|
(A) Includes letters of credit outstanding in the amount of $9.8 million, which is used to enable SJE to market retail electricity as well as for various construction and operating activities.
(B) Includes letters of credit outstanding in the amount of $1.9 million, which supports the remediation of environmental conditions at certain locations in SJG's service territory.
(C) Includes letters of credit outstanding in the amount of $1.0 million, which supports ETG's construction activity.
For SJI and SJG, the amount of usage shown in the table above, less the letters of credit noted in (A)-(C) for SJI and (B) for SJG above, equals the amounts recorded as Notes Payable on the respective condensed consolidated balance sheets as of September 30, 2021.
During the first quarter of 2021, SJI paid off its $150.0 million term loan agreement at maturity.
On September 1, 2021, SJI, SJG and ETG (collectively, the "Borrowers") entered into an unsecured, five-year master revolving credit facility (the "Credit Facility") with a syndicate of banks, which expires on September 1, 2026, unless earlier terminated or extended in accordance with its terms.
The Credit Facility provides for maximum borrowings in a total aggregate amount of $1.0 billion, including the issuance of swingline loans (in an amount not to exceed an aggregate of $100.0 million) and letters of credit (in an amount not to exceed an aggregate of $350.0 million, of which $50.0 million has been initially committed by various lenders), each at the applicable interest rates specified in the Credit Facility. The Borrowers each have access to a portion of the facility (a “Sublimit”) under which it can borrow, with the Sublimits of SJI, SJG and ETG initially being $500.0 million, $250.0 million and $250.0 million, respectively. The Sublimits may be changed from time to time at the request of the Borrowers, but with maximum and minimum Sublimits, which are subject to change upon certain events, including if the amount of available credit is increased. Borrowings under the Credit Facility are at market rates.
Subject to certain conditions set forth in the Credit Facility, the Borrowers may increase the amount of the borrowings available under the Credit Facility by up to a maximum aggregate amount of $250.0 million (for a total facility of up to $1.25 billion), although no lender is obligated to increase its commitment.
The Credit Facility contains customary representations, warranties and covenants, including a financial covenant limiting the ratio of Indebtedness of each Borrower and its subsidiaries on a consolidated basis to Consolidated Total Capitalization of each Borrower of not more than 0.70 to 1.0 (as such terms are defined in the Credit Facility). SJI, SJG and ETG were all in compliance with these covenants as of September 30, 2021.
In connection with entry into the Credit Facility, the following revolving credit facilities were terminated effective September 1, 2021: (a) SJI's credit agreement, dated as of August 7, 2017, which provided for a revolving credit facility of up to $500.0 million; (b) SJG's credit agreement, dated as of August 14, 2017, which provided for a revolving credit facility of up to $200.0 million; and (c) ETG's credit agreement, dated as of June 29, 2018, which provided for a revolving credit facility of up to $200.0 million.
SJG has a commercial paper program under which it may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $250.0 million. The notes have fixed maturities which may vary by note, but cannot exceed 270 days from the date of issue. Proceeds from the notes are used for general corporate purposes. SJG's commercial paper program is backstopped by its Sublimit allocation of the SJI Credit Facility of $250.0 million. The principal amount of borrowings outstanding under the commercial paper program and the Sublimit allocation credit facility cannot exceed an aggregate of $250.0 million.
Although there can be no assurance, management believes that actions presently being taken to pay off or refinance the short-term debt and borrowings that are due within the next year will be successful, as the Company has been successful in refinancing debt in the past. No adjustments have been made to the financial statements to account for this uncertainty.
The weighted average interest rate on these borrowings, which changes daily, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Weighted average interest rate on borrowings:
|
|
|
|
|
SJI (inclusive of SJG, ETG and SJIU)
|
0.69
|
%
|
|
1.26
|
%
|
|
SJG
|
0.18
|
%
|
|
0.23
|
%
|
Average borrowings and maximum amounts outstanding on these facilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
2020
|
|
2021
|
2020
|
|
Average borrowings outstanding, not including LOC:
|
|
|
|
|
|
|
|
|
SJI (inclusive of all subsidiaries' facilities)
|
$
|
83,500
|
|
|
$
|
359,600
|
|
|
$
|
169,000
|
|
|
$
|
516,800
|
|
|
SJG
|
$
|
47,000
|
|
|
$
|
154,400
|
|
|
$
|
24,200
|
|
|
$
|
149,000
|
|
|
|
|
|
|
|
|
|
|
|
Maximum amounts outstanding, not including LOC:
|
|
|
|
|
|
|
|
|
SJI (inclusive of all subsidiaries' facilities)
|
$
|
159,800
|
|
|
$
|
546,700
|
|
|
$
|
452,900
|
|
|
$
|
872,200
|
|
|
SJG
|
$
|
87,300
|
|
|
$
|
187,000
|
|
|
$
|
87,300
|
|
|
$
|
187,000
|
|
11. COMMITMENTS AND CONTINGENCIES:
Except as described below, there have been no significant changes to the Company's commitments and contingencies since December 31, 2020, which are described in Note 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
GUARANTEES — As of September 30, 2021, SJI had issued $10.5 million of parental guarantees on behalf of EnergyMark, an unconsolidated subsidiary. These guarantees generally expire within one year and were issued to enable the subsidiary to market retail natural gas.
AFFILIATE LOANS - SJI has provided $44.0 million and $19.3 million in capital contribution loans to REV, which are recorded in Notes Receivable - Affiliates on the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively (see Note 3). The amount of capital contribution loans may be amended upward from time to time at the sole discretion of SJI.
LONG-TERM DEBT - As discussed in Note 14, ETG issued three tranches of Series 2020A-2 Bonds, that are part of the November 2020 BPA, on June 15, 2021.
AMA - ETG has an AMA with SJRG for transportation and storage capacity to meet natural gas demands. The AMA is in effect through March 31, 2022. It also requires SJRG to pay minimum annual fees of $4.25 million to ETG and includes tiered margin sharing levels between ETG and SJRG.
COLLECTIVE BARGAINING AGREEMENTS — As of September 30, 2021, SJI and its subsidiaries employed 1,167 employees compared with 1,130 employees as of December 31, 2020. As of September 30, 2021, 289 of the total number of employees were represented by labor unions at SJG, and 163 were represented by a labor union at ETG. As of December 31, 2020, 303 of the total number of employees were represented by labor unions at SJG, and 167 were represented by a labor union at ETG. SJI has collective bargaining agreements with unions that represent these employees: IBEW Local 1293, IAM Local 76 and UWUA Local 424. SJG employees represented by the IBEW operate under a collective bargaining agreement that runs through February 2022. SJG's remaining unionized employees are represented by the IAM Local 76 and operate under a collective bargaining agreement that was finalized with the IAM Local 76 during the third quarter 2021 and now runs through August 2025. ETG employees represented by the UWUA operate under a collective bargaining agreement that runs through November 2022.
EQUITY AND CONVERTIBLE UNITS - The Company has a contract obligating the holder of the Equity Units to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, a certain number of shares of common stock. In April 2021, a similar contract related to SJI's Convertible Units was settled. See Note 4.
LITIGATION — SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of business. Neither SJI nor SJG can make any assurance as to the outcome of any of these actions but, based on an analysis of these claims and consultation with outside counsel, we do not believe that any of these claims, other than described below, would be reasonably likely to have a material impact on the business or financial statements of SJI or SJG. Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated.
In August 2018, the State of New Jersey filed a civil enforcement action in the New Jersey Superior Court, Atlantic County, against SJG and several other current and former owners of certain property in Atlantic City, NJ alleging damage to the State's natural resources and seeking payment for damages to those natural resources, where SJG and its predecessors previously operated a manufactured gas plant. Assessment of the nature and extent of the alleged damages requires substantial analysis from multiple experts. To date, discovery has not yet taken place and there is limited precedent on a number of the legal matters involved. As a result, SJG is currently evaluating the merits of the State of New Jersey’s allegations. All parties have agreed to and begun mediation efforts. SJG intends to vigorously defend itself in this matter, however, an adverse outcome in the litigation could have a material impact on SJI's and SJG's results of operations, financial condition and liquidity. SJG recorded a liability based on its best-estimate of the probable outcome of this matter as of September 30, 2021. This manufactured gas plant site has been fully remediated.
SJI has accrued approximately $13.6 million and $4.1 million related to all claims in the aggregate as of September 30, 2021 and December 31, 2020, respectively, of which SJG has accrued approximately $10.3 million and $1.2 million as of September 30, 2021 and December 31, 2020, respectively.
ENVIRONMENTAL REMEDIATION COSTS — Except as noted under "Litigation" above, there have been no significant changes to the status of SJI’s environmental remediation efforts since December 31, 2020, as described in Note 15 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
12. DERIVATIVE INSTRUMENTS:
Certain SJI subsidiaries, including SJG, are involved in buying, selling, transporting and storing natural gas and buying and selling retail electricity for their own accounts as well as managing these activities for third parties. These subsidiaries are subject to market risk on expected future purchases and sales due to commodity price fluctuations. SJI and SJG use a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines. These derivative instruments include forward contracts, swap agreements, options contracts and futures contracts.
As of September 30, 2021, SJI and SJG had outstanding derivative contracts as follows:
|
|
|
|
|
|
|
|
|
|
|
|
SJI Consolidated
|
SJG
|
|
Derivative contracts intended to limit exposure to market risk to:
|
|
|
|
Expected future purchases of natural gas (in MMdts)
|
72.8
|
|
12.5
|
|
|
Expected future sales of natural gas (in MMdts)
|
116.8
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis and Index related net purchase contracts (in MMdts)
|
82.6
|
|
1.3
|
|
The expected future purchases and sales of electricity are not material.
These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Energy Related Assets or Derivatives - Energy Related Liabilities on the condensed consolidated balance sheets of SJI and SJG. For SJE and SJRG contracts, the net unrealized pre-tax gains (losses) for these energy-related commodity contracts are included with realized gains (losses) in Operating Revenues – Nonutility on the condensed consolidated statements of (loss)/income for SJI. These unrealized pre-tax (losses) were $(19.8) million and $(6.2) million for the three months ended September 30, 2021 and 2020, respectively, and $(35.1) million and $(7.8) million for the nine months ended September 30, 2021 and 2020, respectively. For ETG's and SJG's contracts, the costs or benefits are recoverable through the BGSS clause, subject to BPU approval. As a result, the net unrealized pre-tax gains (losses) for SJG and ETG energy-related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the condensed consolidated balance sheets of SJI (ETG and SJG) and SJG. As of September 30, 2021 and December 31, 2020, SJI had $68.2 million and $2.4 million, respectively, and SJG had $29.4 million and $1.1 million, respectively, of unrealized gains included in its BGSS related to energy-related commodity contracts.
SJG has interest rate derivatives to mitigate exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives are measured at fair value and recorded in Derivatives - Other on the condensed consolidated balance sheets. For SJG interest rate derivatives, the fair value represents the amount SJG would have to pay the counterparty to terminate these contracts as of those dates.
As of September 30, 2021, SJG’s active interest rate swaps were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Fixed Interest Rate
|
|
Start Date
|
|
Maturity
|
|
$
|
12,500,000
|
|
|
3.530%
|
|
12/1/2006
|
|
2/1/2036
|
|
$
|
12,500,000
|
|
|
3.430%
|
|
12/1/2006
|
|
2/1/2036
|
For the unrealized gains and losses on interest rate derivatives at SJG, management believes that, subject to BPU approval, the market value upon termination can be recovered in rates and, therefore, these unrealized gains (losses) have been included in Other Regulatory Assets in the condensed consolidated balance sheets.
The fair values of all derivative instruments, as reflected in the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under GAAP
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Energy-related commodity contracts:
|
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related - Current
|
|
$
|
141,690
|
|
|
$
|
106,244
|
|
|
$
|
41,439
|
|
|
$
|
27,006
|
|
|
Derivatives - Energy Related - Non-Current
|
|
37,307
|
|
|
25,124
|
|
|
6,935
|
|
|
4,947
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
Derivatives - Other - Current
|
|
—
|
|
|
560
|
|
|
—
|
|
|
659
|
|
|
Derivatives - Other - Noncurrent
|
|
—
|
|
|
7,467
|
|
|
—
|
|
|
9,279
|
|
|
Total derivatives not designated as hedging instruments under GAAP
|
|
$
|
178,997
|
|
|
$
|
139,395
|
|
|
$
|
48,374
|
|
|
$
|
41,891
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
178,997
|
|
|
$
|
139,395
|
|
|
$
|
48,374
|
|
|
$
|
41,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under GAAP
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Energy-related commodity contracts:
|
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related – Current
|
|
$
|
30,758
|
|
|
$
|
2,834
|
|
|
$
|
4,053
|
|
|
$
|
2,868
|
|
|
Derivatives – Energy Related – Non-Current
|
|
1,458
|
|
|
—
|
|
|
87
|
|
|
190
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
Derivatives – Other - Current
|
|
—
|
|
|
560
|
|
|
—
|
|
|
659
|
|
|
Derivatives – Other - Noncurrent
|
|
—
|
|
|
7,467
|
|
|
—
|
|
|
9,279
|
|
|
Total derivatives not designated as hedging instruments under GAAP
|
|
$
|
32,216
|
|
|
$
|
10,861
|
|
|
$
|
4,140
|
|
|
$
|
12,996
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
32,216
|
|
|
$
|
10,861
|
|
|
$
|
4,140
|
|
|
$
|
12,996
|
|
SJI and SJG enter into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. These derivatives are presented at gross fair values on the condensed consolidated balance sheets. Information related to these offsetting arrangements were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of recognized assets/liabilities
|
|
Gross amount offset in the balance sheet
|
|
Net amounts of assets/liabilities in balance sheet
|
|
Gross amounts not offset in the balance sheet
|
|
Net amount
|
|
|
|
|
|
Financial Instruments
|
|
Cash Collateral Posted/(Received)
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
Derivatives - Energy Related Assets
|
|
$
|
178,997
|
|
|
$
|
—
|
|
|
$
|
178,997
|
|
|
$
|
(86,407)
|
|
(A)
|
$
|
(45,782)
|
|
|
$
|
46,808
|
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(131,368)
|
|
|
$
|
—
|
|
|
$
|
(131,368)
|
|
|
$
|
86,407
|
|
(B)
|
$
|
—
|
|
|
$
|
(44,961)
|
|
|
Derivatives - Other
|
|
$
|
(8,027)
|
|
|
$
|
—
|
|
|
$
|
(8,027)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8,027)
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related Assets
|
|
$
|
32,216
|
|
|
$
|
—
|
|
|
$
|
32,216
|
|
|
$
|
(1,025)
|
|
(A)
|
$
|
(13,661)
|
|
|
$
|
17,530
|
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(2,834)
|
|
|
$
|
—
|
|
|
$
|
(2,834)
|
|
|
$
|
1,025
|
|
(B)
|
$
|
—
|
|
|
$
|
(1,809)
|
|
|
Derivatives - Other
|
|
$
|
(8,027)
|
|
|
$
|
—
|
|
|
$
|
(8,027)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8,027)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of recognized assets/liabilities
|
|
Gross amount offset in the balance sheet
|
|
Net amounts of assets/liabilities in balance sheet
|
|
Gross amounts not offset in the balance sheet
|
|
Net amount
|
|
|
|
|
|
Financial Instruments
|
|
Cash Collateral Posted/(Received)
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
Derivatives - Energy Related Assets
|
|
$
|
48,374
|
|
|
$
|
—
|
|
|
$
|
48,374
|
|
|
$
|
(24,027)
|
|
(A)
|
$
|
—
|
|
|
$
|
24,347
|
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(31,953)
|
|
|
$
|
—
|
|
|
$
|
(31,953)
|
|
|
$
|
24,027
|
|
(B)
|
$
|
2,176
|
|
|
$
|
(5,750)
|
|
|
Derivatives - Other
|
|
$
|
(9,938)
|
|
|
$
|
—
|
|
|
$
|
(9,938)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(9,938)
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related Assets
|
|
$
|
4,140
|
|
|
$
|
—
|
|
|
$
|
4,140
|
|
|
$
|
(716)
|
|
(A)
|
$
|
—
|
|
|
$
|
3,424
|
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(3,058)
|
|
|
$
|
—
|
|
|
$
|
(3,058)
|
|
|
$
|
716
|
|
(B)
|
$
|
2,176
|
|
|
$
|
(166)
|
|
|
Derivatives - Other
|
|
$
|
(9,938)
|
|
|
$
|
—
|
|
|
$
|
(9,938)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(9,938)
|
|
(A) The balances at September 30, 2021 and December 31, 2020 were related to derivative liabilities which can be net settled against derivative assets.
(B) The balances at September 30, 2021 and December 31, 2020 were related to derivative assets which can be net settled against derivative liabilities.
The effect of derivative instruments on the condensed consolidated statements of (loss)/income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Derivatives Previously in Cash Flow Hedging Relationships under GAAP
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts:
|
|
|
|
|
|
|
|
|
|
Losses reclassified from AOCL into income (a)
|
|
$
|
(12)
|
|
|
$
|
(12)
|
|
|
$
|
(35)
|
|
|
$
|
(35)
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts:
|
|
|
|
|
|
|
|
|
|
Losses reclassified from AOCL into income (a)
|
|
$
|
(12)
|
|
|
$
|
(12)
|
|
|
$
|
(35)
|
|
|
$
|
(35)
|
|
(a) Included in Interest Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Derivatives Not Designated as Hedging Instruments under GAAP
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
SJI (no balances for SJG; includes all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
Losses on energy-related commodity contracts (a)
|
|
$
|
(19,815)
|
|
|
$
|
(6,246)
|
|
|
$
|
(35,089)
|
|
|
$
|
(7,807)
|
|
|
Gains (Losses) on interest rate contracts (b)
|
|
—
|
|
|
342
|
|
|
—
|
|
|
(4,040)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(19,815)
|
|
|
$
|
(5,904)
|
|
|
$
|
(35,089)
|
|
|
$
|
(11,847)
|
|
(a) Included in Operating Revenues - Nonutility
(b) Included in Interest Charges
Certain of SJI’s derivative instruments contain provisions that require immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions in the event of a material adverse change in the credit standing of SJI. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on September 30, 2021 is not material. The amount SJI would have been required to pay to settle the instruments immediately or post collateral to its counterparties if the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2021 after offsetting asset positions with the same counterparties under master netting arrangements, is also not material.
13. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:
•Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.
For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities (A)
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivatives – Energy Related Assets (B)
|
178,997
|
|
|
112,683
|
|
|
55,409
|
|
|
10,905
|
|
|
|
$
|
179,029
|
|
|
$
|
112,715
|
|
|
$
|
55,409
|
|
|
$
|
10,905
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Assets (B)
|
$
|
32,216
|
|
|
$
|
21,020
|
|
|
$
|
3,938
|
|
|
$
|
7,258
|
|
|
|
$
|
32,216
|
|
|
$
|
21,020
|
|
|
$
|
3,938
|
|
|
$
|
7,258
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
131,368
|
|
|
$
|
39,306
|
|
|
$
|
71,031
|
|
|
$
|
21,031
|
|
|
Derivatives – Other (C)
|
8,027
|
|
|
—
|
|
|
8,027
|
|
|
—
|
|
|
|
$
|
139,395
|
|
|
$
|
39,306
|
|
|
$
|
79,058
|
|
|
$
|
21,031
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
2,834
|
|
|
$
|
1,025
|
|
|
$
|
1,668
|
|
|
$
|
141
|
|
|
Derivatives – Other (C)
|
8,027
|
|
|
—
|
|
|
8,027
|
|
|
—
|
|
|
|
$
|
10,861
|
|
|
$
|
1,025
|
|
|
$
|
9,695
|
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities (A)
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivatives – Energy Related Assets (B)
|
48,374
|
|
|
11,447
|
|
|
23,527
|
|
|
13,400
|
|
|
|
$
|
48,406
|
|
|
$
|
11,479
|
|
|
$
|
23,527
|
|
|
$
|
13,400
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Assets (B)
|
$
|
4,140
|
|
|
$
|
715
|
|
|
$
|
32
|
|
|
$
|
3,393
|
|
|
|
$
|
4,140
|
|
|
$
|
715
|
|
|
$
|
32
|
|
|
$
|
3,393
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
31,953
|
|
|
$
|
8,605
|
|
|
$
|
20,954
|
|
|
$
|
2,394
|
|
|
Derivatives – Other (C)
|
9,938
|
|
|
—
|
|
|
9,938
|
|
|
—
|
|
|
|
$
|
41,891
|
|
|
$
|
8,605
|
|
|
$
|
30,892
|
|
|
$
|
2,394
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
3,058
|
|
|
$
|
2,891
|
|
|
$
|
159
|
|
|
$
|
8
|
|
|
Derivatives – Other (C)
|
9,938
|
|
|
—
|
|
|
9,938
|
|
|
—
|
|
|
|
$
|
12,996
|
|
|
$
|
2,891
|
|
|
$
|
10,097
|
|
|
$
|
8
|
|
Counterparty credit risk and the credit risk of SJI are incorporated and considered in the valuation of all derivative instruments as appropriate. The effect of counterparty credit risk and the credit risk of SJI on the derivative valuations is not significant.
(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy.
(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy. Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. Management reviews and corroborates the price quotations with at least one additional source to ensure the prices are observable market information, which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 in the fair value hierarchy as the model inputs generally are not observable.
Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in these values from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.
(C) Derivatives – Derivative instruments that are used to limit our exposure to changes in interest rates on variable-rate, long-term debt are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment, as a result, these instruments are categorized in Level 2 in the fair value hierarchy.
The following table provides quantitative information regarding significant unobservable inputs in Level 3 fair value measurements (in thousands, except for ranges):
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at September 30, 2021
|
Valuation Technique
|
Significant Unobservable Input
|
Range
[Weighted Average]
|
|
|
|
Assets
|
Liabilities
|
|
|
|
|
|
Forward Contract - Natural Gas
|
$10,729
|
$20,745
|
Discounted Cash Flow
|
Forward price (per dt)
|
$1.85 - $12.31 [$5.12]
|
(A)
|
Forward Contract - Electric
|
$176
|
$286
|
Discounted Cash Flow
|
Fixed electric load profile (on-peak)
|
45.16% - 100.00% [93.20%]
|
(B)
|
|
Fixed electric load profile (off-peak)
|
0.00% - 54.84% [6.80%]
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2020
|
Valuation Technique
|
Significant Unobservable Input
|
Range
[Weighted Average]
|
|
|
|
Assets
|
Liabilities
|
|
|
|
|
|
Forward Contract - Natural Gas
|
$12,824
|
$1,764
|
Discounted Cash Flow
|
Forward price (per dt)
|
$1.44 - $6.77 [$2.67]
|
(A)
|
|
Forward Contract - Electric
|
$576
|
$630
|
Discounted Cash Flow
|
Fixed electric load profile (on-peak)
|
40.34% - 100.00% [65.69%]
|
(B)
|
|
Fixed electric load profile (off-peak)
|
0.00% - 59.66% [34.31%]
|
(B)
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at September 30, 2021
|
Valuation Technique
|
Significant Unobservable Input
|
Range
[Weighted Average]
|
|
|
|
Assets
|
Liabilities
|
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
7,258
|
|
$
|
141
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$4.51 - $9.97 [$7.49]
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2020
|
Valuation Technique
|
Significant Unobservable Input
|
Range
[Weighted Average]
|
|
|
|
Assets
|
Liabilities
|
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
3,393
|
|
$
|
8
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$2.48 - $3.63 [$3.16]
|
(A)
|
(A) Represents the range, along with the weighted average, of forward prices for the sale and purchase of natural gas.
(B) Represents the range, along with the weighted average, of the percentage of contracted usage that is loaded during on-peak hours versus off-peak.
The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities, using significant unobservable inputs (Level 3), are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2021
|
|
Nine Months Ended September 30, 2021
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
Balance at beginning of period
|
$
|
4,956
|
|
|
$
|
11,006
|
|
|
Other Changes in Fair Value from Continuing and New Contracts, Net
|
(13,860)
|
|
|
(12,547)
|
|
|
Settlements
|
(1,222)
|
|
|
(8,585)
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
(10,126)
|
|
|
$
|
(10,126)
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
Balance at beginning of period
|
$
|
4,721
|
|
|
$
|
3,385
|
|
|
Other Changes in Fair Value from Continuing and New Contracts, Net
|
2,396
|
|
|
7,117
|
|
|
Settlements
|
—
|
|
|
(3,385)
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
7,117
|
|
|
$
|
7,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020
|
|
Nine Months Ended
September 30, 2020
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
Balance at beginning of period
|
$
|
12,251
|
|
|
$
|
17,574
|
|
|
Other Changes in Fair Value from Continuing and New Contracts, Net
|
(3,198)
|
|
|
3,819
|
|
|
Settlements
|
(2,644)
|
|
|
(14,984)
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
6,409
|
|
|
$
|
6,409
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
Balance at beginning of period
|
$
|
4,365
|
|
|
$
|
5,035
|
|
|
Other Changes in Fair Value from Continuing and New Contracts, Net
|
(61)
|
|
|
4,304
|
|
|
Settlements
|
—
|
|
|
(5,035)
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
4,304
|
|
|
$
|
4,304
|
|
14. LONG-TERM DEBT:
SJI and SJG had the following long-term debt-related activity during the nine months ended September 30, 2021:
As discussed in Note 4, in March 2021, SJI completed a public offering of Equity Units for gross proceeds of $300.0 million, with net proceeds, after deducting underwriting discounts and commissions, of $291.0 million. On April 1, 2021, additional proceeds were received as the underwriters exercised their option to purchase additional Equity Units. Gross proceeds were approximately $35.0 million, with net proceeds, after deducting underwriting discounts and commissions, of $34.0 million. As of September 30, 2021, these Equity Units were not converted into equity; as such, the net proceeds, after amortization of the underwriting discounts and commissions, are recorded as Long-Term Debt on the condensed consolidated balance sheets.
In March 2021, the Company finalized the remarketing of the $287.5 million of Series A Junior Subordinated Notes.
In March 2021, SJG paid $2.5 million of 4.84% MTNs due annually beginning March 2021.
In April 2021, SJI repaid the $90.0 million principal amount outstanding on its 3.43% Series 2018-A Notes at maturity.
In June 2021, SJG paid $7.5 million of 4.93% MTNs due annually beginning June 2021.
In June 2021, ETG issued an aggregate principal amount of $125.0 million of first mortgage bonds (the “Series 2020A-2 Bonds”), in three Tranches, as follows: (a) 2.26% First Mortgage Bonds, Series 2020A-2, Tranche A due June 15, 2031 in the aggregate principal amount of $50.0 million, (b) 3.08% First Mortgage Bonds, Series 2020A-2, Tranche B due June 15, 2041 in the aggregate principal amount of $25.0 million, and (c) 3.36% First Mortgage Bonds, Series 2020A-2, Tranche C due June 15, 2051 in the aggregate principal amount of $50.0 million. The Series 2020A-2 Bonds were issued pursuant to a Bond Purchase Agreement, dated as of November 10, 2020, which provided for ETG to issue a series of first mortgage bonds in an aggregate principal amount of $250.0 million, in five Tranches, two Tranches of which were issued prior to December 31, 2020 as further described in Note 14 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020. The proceeds from the sale of the Series 2020A-2 Bonds will be used for general corporate purposes.
In September 2021, SJG paid $10.0 million of 3.00% MTNs due annually beginning September 2020.
15. REVENUE:
There have been no significant changes to the nature of the Company's revenues or the revenue recognition policies and practices of the Company since December 31, 2020, which are described in Note 19 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020.
Disaggregated revenues from contracts with customers are disclosed below, by operating segment (in thousands). The presentation of disaggregated revenues for the prior periods has been revised to conform to the realignment of our operating segments as discussed in Note 6.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2021
|
|
|
SJG Utility Operations
|
ETG Utility Operations
|
Wholesale Energy Operations
|
Retail Services
|
Renewables
|
|
Corporate Services and Intersegment
|
Total
|
|
Customer Type:
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
33,075
|
|
$
|
18,993
|
|
$
|
—
|
|
$
|
488
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
52,556
|
|
|
Commercial & Industrial
|
27,538
|
|
18,269
|
|
406,985
|
|
2,846
|
|
7,352
|
|
|
(1,333)
|
|
461,657
|
|
|
OSS & Capacity Release
|
2,504
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
2,504
|
|
|
Other
|
668
|
|
376
|
|
—
|
|
1,502
|
|
—
|
|
|
(180)
|
|
2,366
|
|
|
|
$
|
63,785
|
|
$
|
37,638
|
|
$
|
406,985
|
|
$
|
4,836
|
|
$
|
7,352
|
|
|
$
|
(1,513)
|
|
$
|
519,083
|
|
|
Product/Service Line:
|
|
|
|
|
|
|
|
|
|
Gas
|
$
|
63,785
|
|
$
|
37,638
|
|
$
|
406,985
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
(1,294)
|
|
$
|
507,114
|
|
|
Electric
|
—
|
|
—
|
|
—
|
|
2,846
|
|
—
|
|
|
(39)
|
|
2,807
|
|
|
Solar
|
—
|
|
—
|
|
—
|
|
—
|
|
1,961
|
|
|
—
|
|
1,961
|
|
|
|
|
|
|
|
|
|
|
|
|
Landfills
|
—
|
|
—
|
|
—
|
|
—
|
|
328
|
|
|
—
|
|
328
|
|
|
Fuel Cells
|
—
|
|
—
|
|
—
|
|
—
|
|
5,063
|
|
|
—
|
|
5,063
|
|
|
Other
|
—
|
|
—
|
|
—
|
|
1,990
|
|
—
|
|
|
(180)
|
|
1,810
|
|
|
|
$
|
63,785
|
|
$
|
37,638
|
|
$
|
406,985
|
|
$
|
4,836
|
|
$
|
7,352
|
|
|
$
|
(1,513)
|
|
$
|
519,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
SJG Utility Operations
|
ETG Utility Operations
|
|
Wholesale Energy Operations
|
Retail Services
|
Renewables
|
|
Corporate Services and Intersegment
|
Total
|
|
Customer Type:
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
250,697
|
|
$
|
156,254
|
|
|
|
$
|
1,482
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
408,433
|
|
|
Commercial & Industrial
|
119,565
|
|
89,464
|
|
|
1,032,181
|
|
6,409
|
|
17,980
|
|
|
(8,955)
|
|
1,256,644
|
|
|
OSS & Capacity Release
|
7,053
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
7,053
|
|
|
Other
|
2,086
|
|
748
|
|
|
—
|
|
3,469
|
|
—
|
|
|
(385)
|
|
5,918
|
|
|
|
$
|
379,401
|
|
$
|
246,466
|
|
|
$
|
1,032,181
|
|
$
|
11,360
|
|
$
|
17,980
|
|
|
$
|
(9,340)
|
|
$
|
1,678,048
|
|
|
Product/Service Line:
|
|
|
|
|
|
|
|
|
|
|
Gas
|
$
|
379,401
|
|
$
|
246,466
|
|
|
$
|
1,032,181
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
(8,790)
|
|
$
|
1,649,258
|
|
|
Electric
|
—
|
|
—
|
|
|
—
|
|
6,409
|
|
—
|
|
|
(165)
|
|
6,244
|
|
|
Solar
|
—
|
|
—
|
|
|
—
|
|
—
|
|
4,776
|
|
|
—
|
|
4,776
|
|
|
CHP
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Landfills
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,037
|
|
|
—
|
|
1,037
|
|
|
Fuel Cells
|
—
|
|
—
|
|
|
—
|
|
—
|
|
12,167
|
|
|
—
|
|
12,167
|
|
|
Other
|
—
|
|
—
|
|
|
—
|
|
4,951
|
|
—
|
|
|
(385)
|
|
4,566
|
|
|
|
$
|
379,401
|
|
$
|
246,466
|
|
|
$
|
1,032,181
|
|
$
|
11,360
|
|
$
|
17,980
|
|
|
$
|
(9,340)
|
|
$
|
1,678,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020
|
|
|
SJG Utility Operations
|
ETG Utility Operations
|
ELK Utility Operations
|
Wholesale Energy Operations
|
|
Retail Services
|
Renewables
|
|
Corporate Services and Intersegment
|
Total
|
|
Customer Type:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
40,900
|
|
$
|
20,974
|
|
$
|
77
|
|
$
|
—
|
|
|
$
|
491
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
62,442
|
|
Commercial & Industrial
|
24,625
|
|
16,998
|
|
185
|
|
197,580
|
|
|
5,466
|
|
6,317
|
|
|
(919)
|
|
250,252
|
|
|
OSS & Capacity Release
|
1,859
|
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
|
—
|
|
1,859
|
|
|
Other
|
381
|
|
191
|
|
23
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
595
|
|
|
|
$
|
67,765
|
|
$
|
38,163
|
|
$
|
285
|
|
$
|
197,580
|
|
|
$
|
5,957
|
|
$
|
6,317
|
|
|
$
|
(919)
|
|
$
|
315,148
|
|
|
Product/Service Line:
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
$
|
67,765
|
|
$
|
38,163
|
|
$
|
285
|
|
$
|
197,580
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
(595)
|
|
$
|
303,198
|
|
|
Electric
|
—
|
|
—
|
|
—
|
|
—
|
|
|
4,814
|
|
—
|
|
|
(324)
|
|
4,490
|
|
|
Solar
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
5,429
|
|
|
—
|
|
5,429
|
|
|
CHP
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Landfills
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
888
|
|
|
—
|
|
888
|
|
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
|
1,143
|
|
—
|
|
|
—
|
|
1,143
|
|
|
|
$
|
67,765
|
|
$
|
38,163
|
|
$
|
285
|
|
$
|
197,580
|
|
|
$
|
5,957
|
|
$
|
6,317
|
|
|
$
|
(919)
|
|
$
|
315,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
SJG Utility Operations
|
ETG Utility Operations
|
ELK Utility Operations
|
Wholesale Energy Operations
|
|
Retail Services
|
Renewables
|
|
Corporate Services and Intersegment
|
Total
|
|
Customer Type:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
244,114
|
|
$
|
153,496
|
|
$
|
2,179
|
|
$
|
—
|
|
|
$
|
1,485
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
401,274
|
|
|
Commercial & Industrial
|
100,689
|
|
74,752
|
|
2,544
|
|
456,427
|
|
|
18,838
|
|
15,459
|
|
|
(4,238)
|
|
664,471
|
|
|
OSS & Capacity Release
|
5,931
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
5,931
|
|
|
Other
|
1,393
|
|
4,162
|
|
203
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
5,758
|
|
|
|
$
|
352,127
|
|
$
|
232,410
|
|
$
|
4,926
|
|
$
|
456,427
|
|
|
$
|
20,323
|
|
$
|
15,459
|
|
|
$
|
(4,238)
|
|
$
|
1,077,434
|
|
|
Product/ Service Line:
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
$
|
352,127
|
|
$
|
232,410
|
|
$
|
4,926
|
|
$
|
456,427
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
(2,252)
|
|
$
|
1,043,638
|
|
|
Electric
|
—
|
|
—
|
|
—
|
|
—
|
|
|
17,462
|
|
—
|
|
|
(1,986)
|
|
15,476
|
|
|
Solar
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
8,725
|
|
|
—
|
|
8,725
|
|
|
CHP
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
3,502
|
|
|
—
|
|
3,502
|
|
|
Landfills
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
3,232
|
|
|
—
|
|
3,232
|
|
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,861
|
|
—
|
|
|
—
|
|
2,861
|
|
|
|
$
|
352,127
|
|
$
|
232,410
|
|
$
|
4,926
|
|
$
|
456,427
|
|
|
$
|
20,323
|
|
$
|
15,459
|
|
|
$
|
(4,238)
|
|
$
|
1,077,434
|
|
The SJG balance is a part of the SJG Utility Operations segment, and is before intercompany eliminations with other SJI entities.
Revenues on the condensed consolidated statements of (loss)/income that are not with contracts with customers consist of (a) revenues from alternative revenue programs at the SJG and ETG utility operating segments (including CIP and WNC), (b) both utility and nonutility realized revenue from derivative contracts at the SJG and ETG utility, Wholesale Energy Operations and Retail Services operating segments, and (c) unrealized revenues from derivative contracts of the Wholesale Energy Operations and Retail Services operating segments.
The Utilities' rate mechanisms that qualify as alternative revenue programs are described in Note 10 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020. These mechanisms are subject to compliance filings on at least an annual basis, and the tariff rate adjustments are designed to occur over this compliance period. These rate mechanisms satisfy the criteria in ASC 980-605-25-4, as (a) each mechanism is established by order of the BPU for SJG and ETG; (b) the amounts recoverable under each program are determined by tracking and are probable of recovery; and (c) the adjustments to tariff rates are designed to recover from or refund to customers within a 24 month period. For each individual rate reconciling mechanism, operating revenues are recognized when allowable costs are greater than the amounts billed in the current period and are reduced when allowable costs are less than amounts billed in the current period. Total revenues arising from alternative revenue programs at SJI were $0.4 million and $(6.4) million for the three months ended September 30, 2021 and 2020, respectively, and $2.5 million and $26.6 million for the nine months ended September 30, 2021 and 2020, respectively. Total revenues arising from alternative revenue programs at SJG were $1.0 million and $(5.8) million for the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $19.6 million for the nine months ended September 30, 2021 and 2020, respectively.
The following table provides information about SJI's and SJG's receivables (excluding SJG receivables from related parties) and unbilled revenue from contracts with customers (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable (A)
|
Unbilled Revenue (B)
|
|
SJI (including SJG and all other consolidated subsidiaries):
|
|
Beginning balance as of January 1, 2021
|
$
|
278,723
|
|
$
|
85,423
|
|
|
Ending balance as of September 30, 2021
|
272,286
|
|
26,783
|
|
|
Increase (Decrease)
|
$
|
(6,437)
|
|
$
|
(58,640)
|
|
|
|
|
|
|
Beginning balance as of January 1, 2020
|
$
|
253,661
|
|
$
|
84,821
|
|
|
Ending balance as of September 30, 2020
|
167,534
|
|
22,712
|
|
|
Increase (Decrease)
|
$
|
(86,127)
|
|
$
|
(62,109)
|
|
|
|
|
|
|
SJG:
|
|
|
|
Beginning balance as of January 1, 2021
|
$
|
88,657
|
|
$
|
46,837
|
|
|
Ending balance as of September 30, 2021
|
83,031
|
|
8,288
|
|
|
Increase (Decrease)
|
$
|
(5,626)
|
|
$
|
(38,549)
|
|
|
|
|
|
|
Beginning balance as of January 1, 2020
|
$
|
84,940
|
|
$
|
45,016
|
|
|
Ending balance as of September 30, 2020
|
62,447
|
|
9,985
|
|
|
Increase (Decrease)
|
$
|
(22,493)
|
|
$
|
(35,031)
|
|
(A) Included in Accounts Receivable in the condensed consolidated balance sheets. A receivable is SJI's and SJG's right to consideration that is unconditional, as only the passage of time is required before payment is expected from the customer.
(B) Included in Unbilled Revenues in the condensed consolidated balance sheets. All unbilled revenue for SJI and SJG arises from contracts with customers. Unbilled revenue relates to SJI's and SJG's right to receive payment for commodity delivered but not yet billed. This represents contract assets that arise from contracts with customers, which is defined in ASC 606 as the right to payment in exchange for goods already transferred to a customer, excluding any amounts presented as a receivable. The unbilled revenue is transferred to accounts receivable when billing occurs and the rights to collection become unconditional.
16. ACQUISITIONS & BUSINESS COMBINATIONS:
Catamaran and a third party formed Bronx Midco, of which Catamaran owns 99%. On June 9, 2021, Bronx Midco purchased a fuel cell project totaling 5 MW in Bronx, New York that is in the process of being constructed. Marina, through its ownership in Catamaran, has a 92% ownership interest in Bronx Midco, and, as a result, Marina consolidates the entity as Marina has the power to direct the activities of the entity that most significantly impact the entity’s economic performance.
ASC Topic 805, “Business Combinations,” states that a business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. As the acquisition did not meet the definition of a business combination under ASC 805, the Company accounted for the transaction as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets. The fuel cell project includes a land lease and working capital.
The total cost of the fuel cell project is $60.1 million, of which the partners have paid $16.6 million as of September 30, 2021. Of this total, Marina invested $15.3 million as of September 30, 2021. To account for the third party partner's interest in Bronx Midco, Marina recorded $1.3 million of non-controlling interest in stockholders' equity on the condensed consolidated balance sheets as of September 30, 2021. The major depreciable assets of the Bronx Midco Fuel Cell Project are the fuel cell modules, which will be depreciated over their estimated useful lives of 35 years once placed in service. The lease cost associated with the land lease is being recognized on a straight-line basis over the lease term of 35 years.
As this project is not yet placed into service, no revenues have been recorded, and expenses incurred in the Company's condensed consolidated statements of (loss)/income for the three and nine months ended September 30, 2021, are not material. While this project is eligible for ITC, no ITC has been recorded for the three and nine months ended September 30, 2021 as the project is still in the early stages of construction.
Notes 1 and 20 to the Consolidated Financial Statements in Item 8 of SJI’s and SJG's Annual Report on Form 10-K for the year ended December 31, 2020 describe the asset acquisitions and business combinations that occurred in 2020, which include Catamaran/Annadale, EnerConnex, solar projects and RNG dairy farm development rights. The purchase price allocation for EnerConnex was finalized during the nine months ended September 30, 2021, with no changes to the assets acquired and liabilities assumed as reported on the condensed consolidated balance sheet as of December 31, 2020.
17. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS:
GOODWILL - Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration paid or transferred over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount.
The Company performs its annual goodwill impairment test as of October 1 of each fiscal year and on an interim basis as events and changes in circumstances occur that could be an indication of a potential impairment, including, but not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business.
The Company's impairment evaluations begin with a qualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.
If sufficient qualitative factors exist, potential goodwill impairment is evaluated quantitatively by comparing the fair value of a reporting unit to the book value, including goodwill. For each reporting unit, the Company estimates the fair value of a reporting unit using a discounted cash flow analysis (an income approach) and, for certain reporting units, management also considers other methods, which include a market multiples analysis, and performs a weighted combination of the income approach and the market approach. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, forecasts of future operating results, discount and growth rates, capital expenditures, tax rates, projected terminal values and, in the cases where market multiples analysis is utilized, implied market multiples for a selected group of peer companies.
If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, an impairment charge is recognized for the excess up until the amount of goodwill allocated to the reporting unit. Changes in estimates or the application of alternative assumptions could produce significantly different results.
The Company determined that, as of September 30, 2021, there were not indicators of impairment of the goodwill associated with its reporting units, and as such did not perform a quantitative analysis. The qualitative factors analyzed as described above also included macroeconomic conditions related to the COVID-19 pandemic. There were no impairments recorded for the three and nine months ended September 30, 2021 and 2020. Should economic conditions deteriorate in future periods or become depressed for a prolonged period of time, estimates of future cash flows and market valuation assumptions may not be sufficient to support the carrying value, requiring impairment charges in the future.
As of both September 30, 2021 and December 31, 2020, SJI had $707.0 million of goodwill, including $700.2 million in the ETG Utility Operations segment and $6.8 million included in the Retail Services segment.
IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships, interconnection and power purchase agreements at Annadale (collectively "Annadale intangible assets"), and an AMA. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Considerations may include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from 2 to 20 years.
SJI's identifiable intangible assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
Gross Cost
|
|
Accumulated Amortization
|
|
Identifiable Intangible Assets, Net
|
|
Identifiable intangible assets subject to amortization:
|
|
|
|
|
|
|
Customer Relationships
|
$
|
8,818
|
|
|
$
|
(652)
|
|
|
$
|
8,166
|
|
|
AMA
|
$
|
19,200
|
|
|
$
|
(16,640)
|
|
|
$
|
2,560
|
|
|
Annadale Intangible Assets
|
$
|
4,220
|
|
|
$
|
(215)
|
|
|
$
|
4,005
|
|
|
Total
|
$
|
32,238
|
|
|
$
|
(17,507)
|
|
|
$
|
14,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
Gross Cost
|
|
Accumulated Amortization
|
|
Identifiable Intangible Assets, Net
|
|
Identifiable intangible assets subject to amortization:
|
|
|
|
|
|
|
Customer Relationships
|
$
|
6,900
|
|
|
$
|
(338)
|
|
|
$
|
6,562
|
|
|
AMA
|
$
|
19,200
|
|
|
$
|
(12,800)
|
|
|
$
|
6,400
|
|
|
Annadale Intangible Assets
|
$
|
4,318
|
|
|
$
|
(22)
|
|
|
$
|
4,296
|
|
|
Total
|
$
|
30,418
|
|
|
$
|
(13,160)
|
|
|
$
|
17,258
|
|
The net identifiable intangible asset balances shown in the table above are included in Other Noncurrent Assets on the condensed consolidated balance sheets.
Total SJI amortization expense related to identifiable intangible assets was $1.5 million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively, and $4.4 million and $4.0 million for the nine months ended September 30, 2021 and 2020, respectively. No impairment charges were recorded on identifiable intangible assets during the three and nine months ended September 30, 2021 or 2020.
As of September 30, 2021, SJI's estimated amortization expense related to identifiable intangible assets for each of the five succeeding fiscal years is as follows (in thousands):
|
|
|
|
|
|
|
|
Year ended December 31,
|
SJI
|
|
2021 (remaining three months)
|
$
|
1,493
|
|
|
2022
|
$
|
2,136
|
|
|
2023
|
$
|
856
|
|
|
2024
|
$
|
856
|
|
|
2025
|
$
|
856
|
|
18. SUBSEQUENT EVENTS:
Events occurring subsequent to September 30, 2021 have been evaluated through the date the financial statements were available to be issued. Management has concluded that there are no events requiring adjustment to, or disclosure in, the financial statements for SJI or SJG.