NEW JERSEY RESOURCES CORP (NJR) FY 2023 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Critical Accounting Estimates

We prepare our financial statements in accordance with GAAP. Application of these accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies during the reporting period. We regularly evaluate our estimates, including those related to the calculation of the fair value of derivative instruments, acquisitions, regulatory assets, income taxes, pension and postemployment benefits other than pensions and contingencies related to environmental matters and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In the normal course of business, estimated amounts are subsequently adjusted to actual results that may differ from estimates.

Regulatory Accounting

NJNG and Adelphia are subject to accounting requirements resulting from the effects of rate regulation. Specifically, NJNG and Adelphia record regulatory assets when it is considered probable that certain operating costs will be recoverable from customers in future periods and record regulatory liabilities when it is probable future obligations to customers exist.

Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. For NJNG, the BPU’s regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. Decisions to be made by the BPU in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. If the BPU indicates that recovery of all or a portion of a regulatory asset is not probable or does not allow for recovery of and a reasonable return on investments in property plant and equipment, a charge to income would be made in the period of such determination.

Environmental Costs

At the end of each fiscal year, NJNG, with the assistance of an independent consulting firm, updates the environmental review of its MGP sites, including its potential liability for investigation and remedial action. From this review, NJNG estimates expenditures necessary to remediate and monitor these MGP sites. NJNG’s estimate of these liabilities is developed from then-currently available facts, existing technology and current laws and regulations.

In accordance with accounting standards for contingencies, NJNG’s policy is to record a liability when it is probable that the cost will be incurred and can be reasonably estimated. NJNG will determine a range of liabilities and will record the most likely amount. If no point within the range is more likely than any other, NJNG will accrue the lower end of the range. Since we believe that recovery of these expenditures, as well as related litigation costs, is probable through the regulatory process, we record a regulatory asset corresponding to the related accrued liability. Accordingly, NJNG records an MGP remediation liability and a corresponding regulatory asset on the Consolidated Balance Sheets, which is based on the most likely amount.

The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations and the ultimate ability of other responsible parties to pay, as well as the potential impact of any litigation and any insurance recoveries. Previously incurred remediation costs, net of recoveries from customers and insurance proceeds received are included in regulatory assets on the Consolidated Balance Sheets.

If there are changes in the regulatory position surrounding these costs, or should actual expenditures vary significantly from estimates in that these costs are disallowed for recovery by the BPU, such costs would be charged to income in the period of such determination. See the Legal Proceedings section in Note 14. Commitments and Contingent Liabilities for more details.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Postemployment Employee Benefits

Our costs of providing postemployment employee benefits are dependent upon numerous factors, including actual plan experience and assumptions of future experience. Postemployment employee benefit costs are affected by actual employee demographics including age, compensation levels and employment periods, the level of contributions made to the plans, changes in long-term interest rates and the return on plan assets. Changes made to the provisions of the plans or healthcare legislation may also impact current and future postemployment employee benefit costs. Postemployment employee benefit costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets, changes in mortality tables, health care cost trends and discount rates used in determining the PBO. In determining the PBO and cost amounts, assumptions can change from period to period and could result in material changes to net postemployment employee benefit periodic costs and the related liability recognized.

The remeasurement of plan assets and obligations for a significant event should occur as of the date of the significant event. We may use a practical expedient to remeasure the plan assets and obligations as of the nearest calendar month-end date. When performing interim remeasurements, we obtain new asset values, roll forward the obligation to reflect population changes and review the appropriateness of all assumptions, regardless of the reason for performing the interim remeasurement.

Our postemployment employee benefit plan assets consist primarily of U.S. equity securities, international equity securities, fixed-income investments and other assets, with a targeted allocation of 34%, 17%, 33% and 16%, respectively. Fluctuations in actual market returns, as well as changes in interest rates, may result in increased or decreased postemployment employee benefit costs in future periods. Postemployment employee benefit expenses are included in O&M and other income, net on the Consolidated Statements of Operations.

The following is a summary of a sensitivity analysis for each actuarial assumption as of and for the fiscal year ended September 30, 2023:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Acquisitions

The Company follows the guidance in ASC 805, Business Combinations, for determining the appropriate accounting treatment for acquisitions. ASU No. 2017-01, Clarifying the Definition of a Business, provides an initial fair value screen to determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets. If the initial screening test is not met, the set is considered a business based on whether there are inputs and substantive processes in place. Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or an asset acquisition, the accounting treatment is derived.

If the acquisition is deemed to be a business, the acquisition method of accounting is applied. Identifiable assets acquired and liabilities assumed at the acquisition date are recorded at fair value. If the transaction is deemed to be an asset purchase, the cost accumulation and allocation model is used, whereby the assets and liabilities are recorded based on the purchase price and allocated to the individual assets and liabilities based on relative fair values.

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates and the number of years on which to base the cash flow projections, as well as other assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent in the acquired assets and related cash flows. The valuation of an acquired business is based on available information at the acquisition date and assumptions that are believed to be reasonable. However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date.

Investments in Equity Investees

The Company accounts for its investment in Steckman Ridge using the equity method of accounting where it is not the primary beneficiary, as defined under ASC 810, Consolidation, in that its respective ownership interests are 50% or less and/or it has significant influence over operating and management decisions. The Company’s share of earnings is recognized as equity in earnings of affiliates on the Consolidated Statements of Operations.

Equity method investments are reviewed for impairment when changes in facts and circumstances indicate that the current fair value may be less than the asset’s carrying amount. Factors that the Company analyzes in determining whether an impairment in its equity investments exists include reviewing the financial condition and near-term prospects of the investees, including economic conditions and trends in the general market, significant delays in or failure to complete significant projects, unfavorable regulatory or legal actions expected to substantially impact future earnings potential and lower-than-expected cash distributions from investees. If the Company determines the decline in the value of its equity method investment is other than temporary, an impairment charge is recorded in an amount equal to the excess of the carrying value of the asset over its fair value.

When impairment indicators are present, the fair value of the Company’s investment in Steckman Ridge is determined using a discounted cash flow method and utilizes management’s best estimates and assumptions related to expected future results, including the price and capacity of firm natural gas storage contracting, operations and maintenance costs, discount rates and the nature and timing of major maintenance and capital investment. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and other factors. As a result, it is reasonably possible that unfavorable developments, such as the failure to execute storage contracts and other services for available capacity at anticipated price levels, could result in an other-than-temporary impairment charge in the Consolidated Financial Statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Impairment of Long-lived Assets

Property, plant and equipment and finite-lived intangible assets are reviewed periodically for impairment when changes in facts and circumstances indicate that the carrying amount of an asset may not be fully recoverable in accordance with the appropriate accounting guidance. Factors that the Company analyzes in determining whether an impairment in its long-lived assets exists include determining if a significant decrease in the market price of a long-lived asset is present; a significant adverse change in the extent to which a long-lived asset is being used in its physical condition; legal proceedings or factors; significant business climate changes; accumulations of costs in significant excess of the amounts expected; a current-period operating or cash flow loss coupled with historical negative cash flows or expected future negative cash flows; and current expectations that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. When an impairment indicator is present, the Company determines if the carrying value of the asset is recoverable by comparing it to its expected undiscounted future cash flows. If the carrying value of the asset is greater than the expected undiscounted future cash flows, an impairment charge is recorded in an amount equal to the excess of the carrying value of the asset over its fair value.

Derivative Instruments

We record our derivative instruments held as assets and liabilities at fair value on the Consolidated Balance Sheets. In addition, since we choose not to designate any of our physical and financial natural gas commodity derivatives as accounting hedges, changes in the fair value of ES’s commodity derivatives are recognized in earnings, as they occur, as a component of operating revenues or natural gas purchases on the Consolidated Statements of Operations. Changes in the fair value of foreign exchange contracts are recognized in natural gas purchases on the Consolidated Statements of Operations.

The fair value of derivative instruments is determined by reference to quoted market prices of listed exchange-traded contracts, published price quotations, pipeline tariff information or a combination of those items. ES’s portfolio is valued using the most current and reasonable market information. If the price underlying a physical commodity transaction does not represent a visible and liquid market, ES may utilize additional published pipeline tariff information and/or other services to determine an equivalent market price. As of September 30, 2023, the fair value of its derivative assets and liabilities reported on the Consolidated Balance Sheets that is based on such pricing is considered immaterial.

Should there be a significant change in the underlying market prices or pricing assumptions, ES may experience a significant impact on its financial position, results of operations and cash flows. Refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risks for a sensitivity analysis related to the impact to derivative fair values resulting from changes in commodity prices. The valuation methods we use to determine fair values remained consistent for fiscal 2023, 2022 and 2021. We apply a discount to our derivative assets to factor in an adjustment associated with the credit risk of its physical natural gas counterparties and to our derivative liabilities to factor in an adjustment associated with its own credit risk. We determine this amount by using historical default probabilities corresponding to the appropriate S&P issuer ratings. Since the majority of our counterparties are rated investment grade, this results in an immaterial credit risk adjustment.

Gains and losses associated with derivatives utilized by NJNG to manage the price risk inherent in its natural gas purchasing activities are recoverable through its BGSS, subject to BPU approval. Accordingly, the offset to the change in fair value of these derivatives is recorded as either a regulatory asset or liability on the Consolidated Balance Sheets.

CEV hedges certain of its expected production of SRECs through forward and futures contracts. CEV intends to physically deliver all SRECs it sells and recognizes SREC revenue as operating revenue on the Consolidated Statements of Operations upon delivery of the underlying SREC.

We have not designated any derivatives as fair value or cash flow hedges as of September 30, 2023 and 2022.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Income Taxes

The determination of our provision for income taxes requires the use of estimates and the interpretation and application of tax laws. Judgment is required in assessing the deductibility and recoverability of certain tax benefits. We use the asset and liability method to determine and record deferred tax assets and liabilities, representing future tax benefits and taxes payable, which result from the differences in basis recorded in GAAP financial statements and amounts recorded in the income tax returns. The deferred tax assets and liabilities are recorded utilizing the statutorily enacted tax rates expected to be in effect at the time the assets are realized and/or the liabilities settled. An offsetting valuation allowance is recorded when it is more likely than not that some or all of the deferred income tax assets won’t be realized. Any significant changes to the estimates and judgments with respect to the interpretations, timing or deductibility could result in a material change to earnings and cash flows.

For state income tax and other taxes, estimates and judgments are required with respect to the apportionment among the various jurisdictions. In addition, we operate within multiple tax jurisdictions and are subject to audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We maintain a liability for the estimate of potential income tax exposure and, in our opinion, adequate provisions for income taxes have been made for all years reported. Any significant changes to the estimates and judgments with respect to the apportionment factor could result in a material change to earnings and cash flows.

Occasionally, the federal and state taxing authorities determine that it is necessary to make certain changes to the income tax laws. These changes may include but are not limited to changes in the tax rates and/or the treatment of certain items of income or expense. Accounting guidance requires that the Company reflect the effect of changes in tax laws or tax rates at the date of enactment. Additionally, the Company is required to re-measure its deferred tax assets and liabilities as of the date of enactment. For non-regulated entities, the effects of changes in tax laws or tax rates are required to be included in income from continuing operations for the period that includes the enactment date. For regulated entities, if as the result of an action by a regulator it is probable that the future increase or decrease in taxes payable for items such as changes in tax laws or rates will be recovered from or returned to customers through future rates, an asset or liability shall be recognized for that probable increase or decrease in future revenue. Accounting guidance also requires that regulatory liabilities and/or assets be considered a temporary difference for which a related deferred tax asset and/or liability shall be recognized.

Accounting guidance requires that we establish reserves for uncertain tax positions when it is more likely than not that the positions will not be sustained when challenged by taxing authorities. Any changes to the estimates and judgments with respect to the interpretations, timing or deductibility could result in a change to earnings and cash flows. Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense, and accrued interest and penalties are recognized within accrued taxes on the Consolidated Balance Sheets.

To the extent that NJNG invests in property that qualifies for ITCs, the ITC is deferred and amortized to income over the life of the equipment in accordance with regulatory treatment. In general, for our unregulated subsidiaries, we record ITCs on the balance sheet as a contra-asset as a reduction to property, plant and equipment when the property is placed in service. The contra-asset is amortized on the Consolidated Statements of Operations as a reduction to depreciation expense over the useful lives of the related assets.

Changes to the federal statutes related to ITCs, which have the effect of reducing or eliminating the credits, could have a negative impact on earnings and cash flows.

Recently Issued Accounting Standards

Refer to Note 2. Summary of Significant Accounting Policies in the accompanying Consolidated Financial Statements for discussion of recently issued accounting standards.

Management’s Overview

Consolidated

NJR is a diversified energy services holding company providing retail natural gas service in New Jersey and wholesale natural gas and related energy services to customers in the U.S. and Canada. In addition, we invest in clean energy projects and storage and transportation assets and provide various repair, sales and installation services. A more detailed description of our organizational structure can be found in Item 1. Business.

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Part II

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The following sections include a discussion of results for fiscal 2023 compared to fiscal 2022. The comparative results for fiscal 2022 with fiscal 2021 have been omitted from this Form 10-K, but may be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations on Form 10-K of our Annual Report for the fiscal year ended September 30, 2022, filed with the SEC on November 17, 2022.

Reporting Segments

We have four primary reporting segments as presented in the chart below:

In addition to our four reporting segments above, we have nonutility operations that either provide corporate support services or do not meet the criteria to be treated as a separate reporting segment. These operations, which comprise HSO, include appliance repair services, sales and installations at NJRHS and commercial real estate holdings at CR&R.

Operating Results

Net income (loss) and assets by reporting segment and other business operations for the fiscal years ended September 30, are as follows:

(1)Consists of transactions between subsidiaries that are eliminated in consolidation.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The decrease in net income of $10.2M during fiscal 2023, compared with fiscal 2022, is due primarily to decreased earnings at NJNG due to higher O&M and higher interest expense related to new debt at higher interest rates, and decreased earnings at S&T resulting from increased interest and depreciation expenses. These decreases are partially offset by increased earnings at ES due primarily to higher natural gas price volatility in December 2022 and February 2023 and by increased earnings at CEV related to the reversal of a valuation allowance for certain deferred tax assets. The primary drivers of the changes noted above are described in more detail in the individual reporting segment and other business operations discussions.

The increase in assets during fiscal 2023, compared with fiscal 2022, was due primarily to additional investment in utility plant at NJNG and solar asset investments at CEV, partially offset by a decrease in accounts receivable, gas in storage and restricted broker margin at ES and NJNG resulting from a decline in natural gas prices.

Non-GAAP Financial Measures

Our management uses NFE, a non-GAAP financial measure, when evaluating our operating results. ES economically hedges its natural gas inventory with financial derivative instruments. NFE is a measure of the earnings based on eliminating timing differences surrounding the recognition of certain gains or losses, to effectively match the earnings effects of the economic hedges with the physical sale of natural gas and, therefore, eliminates the impact of volatility to GAAP earnings associated with the derivative instruments. To the extent we utilize forwards, futures or other derivatives to hedge forecasted SREC production, unrealized gains and losses are also eliminated from NFE. NFE also excludes certain transactions associated with equity method investments, including impairment charges, which are non-cash charges, and return of capital in excess of the carrying value of our investment. These are considered unusual in nature and occur infrequently such that they are not indicative of our performance for ongoing operations. Included in the tax effects are current and deferred income tax expense corresponding with the components of NFE.

Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for or a replacement of, the comparable GAAP measure and should be read in conjunction with those GAAP results.

Below is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to NFE for the fiscal years ended September 30:

(1)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

NFE by reporting segment and other business operations for the fiscal years ended September 30, discussed in more detail within the operating results sections of each reporting segment and other business operations, is summarized as follows:

(1)     Consists of transactions between subsidiaries that are eliminated in consolidation.

The increase in NFE of $21.5M during fiscal 2023, compared with fiscal 2022, was due primarily to higher Financial Margin at ES along with an increase in the benefit from income taxes at CEV, partially offset by decreases at NJNG and S&T, as previously discussed.

Natural Gas Distribution

Overview

Natural Gas Distribution is comprised of NJNG, a natural gas utility that provides regulated natural gas service throughout Burlington, Middlesex, Monmouth, Morris, Ocean and Sussex counties in New Jersey to approximately 576,000 residential and commercial customers in its service territory and also participates in the off-system sales and capacity release markets. The business is subject to various risks, which may include but are not limited to impacts to customer growth and customer usage, customer collections, the timing and costs of capital expenditures and construction of infrastructure projects, operating and financing costs, fluctuations in commodity prices and customer conservation efforts. In addition, NJNG may be subject to adverse economic conditions such as inflation and rising natural gas costs, certain regulatory actions, environmental remediation and severe weather conditions. It is often difficult to predict the impact of events or trends associated with these risks.

NJNG’s business is seasonal by nature, as weather conditions directly influence the volume of natural gas delivered to customers on an annual basis. Specifically, customer demand substantially increases during the winter months when natural gas is used for heating purposes. As a result, NJNG generates most of its natural gas distribution revenues during the first and second fiscal quarters and is subject to variations in earnings and working capital during the fiscal year.

As a regulated company, NJNG is required to recognize the impact of regulatory decisions on its financial statements. See Note 4. Regulation in the accompanying Consolidated Financial Statements for a more detailed discussion of regulatory actions, including filings related to programs and associated expenditures, as well as rate requests related to recovery of capital investments and operating costs.

NJNG’s operations are managed with the goal of providing safe and reliable service, growing its customer base, diversifying its Utility Gross Margin, promoting clean energy programs and mitigating the risks discussed above.

Base Rate Case

In November 2021, the BPU issued an order adopting a stipulation of settlement approving a $79.0M increase to base rates, effective December 1, 2021. In addition, the order also included approval for the final increase for the NJ RISE/SAFE II programs, which totaled $0.3M. These increases include an overall rate of return on rate base of 6.84%, return on common equity of 9.6%, a common equity ratio of 54.0% and a composite depreciation rate of 2.78%.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Infrastructure Projects

NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant associated with customer growth and its associated PIM and infrastructure programs. Below is a summary of NJNG’s capital expenditures, including accruals for fiscal 2023 and estimates of expected investments over the next fiscal year:

Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory oversight, environmental regulations, unforeseen events and the ability to access capital.

NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability and integrity of NJNG’s natural gas distribution system.

Infrastructure Investment Program

In February 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP consisted of two components: transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP was approximately $507.0M. All approved investments will be recovered through annual filings to adjust base rates. In October 2020, the BPU approved the Company’s transmission and distribution component of the IIP for $150.0M over five years, effective November 1, 2020. NJNG voluntarily withdrew the information technology upgrade component and will seek to recover associated costs in future rate case proceedings. In March 2022, NJNG filed its first rate recovery request for its BPU-approved IIP with capital expenditures estimated through June 30, 2022, including AFUDC. In July 2022, NJNG filed its update with actual capital expenditures of $28.9M through June 30, 2022. In September 2022, the BPU approved the rate increase resulting in a $3.2M revenue increase, effective October 1, 2022.

On March 30, 2023, NJNG submitted its annual IIP filing to the BPU requesting a rate increase for estimated capital expenditures of $31.4M through June 30, 2023. This filing was updated on July 28, 2023, with actual expenses of approximately $28.2M through June 30, 2023. The BPU approved this filing on September 27, 2023, which resulted in a $3.2M revenue increase, effective October 1, 2023.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

SAFE II and NJ RISE

The BPU approved the 5-year SAFE II program and the associated rate mechanism to replace the remaining unprotected steel mains and services from NJNG’s natural gas distribution system at an estimated cost of approximately $200.0M, excluding AFUDC. With the approval of SAFE II, $157.5M was approved for accelerated cost recovery methodology. The remaining $42.5M in capital expenditures was requested for recovery in base rate cases, of which $23.4M was approved in NJNG’s 2019 base rate case and $19.1M was approved in the 2021 base rate case.

The BPU approved NJNG’s NJ RISE capital infrastructure program, which consists of six capital investment projects estimated to cost $102.5M, excluding AFUDC, for natural gas distribution storm hardening and mitigation projects, along with associated depreciation expense. These system enhancements are intended to minimize service impacts during extreme weather events to customers in the most storm-prone areas of NJNG’s service territory. Recovery of NJ RISE investments is included in NJNG’s base rates.

In March 2021, NJNG filed a petition with the BPU requesting the final base rate increase for the recovery associated with NJ RISE and SAFE II capital investments costs of approximately $3.4M made through June 30, 2021. In June 2021, this filing was consolidated with the 2021 base rate case. In November 2021, the BPU issued an order for the consolidated matter which included approval for the final increase for the NJ RISE and SAFE II programs of $0.3M.With this approval, the filings with respect to NJ RISE and SAFE II are complete.

Customer Growth

In conducting NJNG’s business, management focuses on factors it believes may have significant influence on its future financial results. NJNG’s policy is to work with all stakeholders, including customers, regulators and policymakers, to achieve favorable results. These factors include the rate of NJNG’s customer growth in its service territory, which can be influenced by political and regulatory policies, the delivered cost of natural gas compared with competing fuels, interest rates and general economic and business conditions.

NJNG’s total customers as of September 30, include the following:

During fiscal 2023, 2022 and 2021, NJNG added 8,800, 7,808 and 7,854 new customers, respectively. NJNG expects new customer additions, and those customers who added additional natural gas services to their premises, to contribute approximately $7.4M of incremental Utility Gross Margin on an annualized basis.

NJNG expects its new customer annual growth rate to be approximately 1.9%. Based on information from municipalities and developers, as well as external industry analysts and management’s experience, NJNG estimates that approximately 67% of the growth will come from new construction markets and 33% from customer conversions to natural gas from other fuel sources. This new customer and conversion growth would increase Utility Gross Margin under NJNG’s base rates by approximately $8.5M annually, as calculated under NJNG’s CIP tariff.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Energy Efficiency Programs

SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives designed to encourage the installation of high-efficiency heating and cooling equipment and other energy efficiency upgrades. Depending on the specific incentive or approval, NJNG recovers costs associated with the programs over a two- to 10-year period through a tariff rider mechanism. In March 2021, the BPU approved a three-year SAVEGREEN program consisting of approximately $126.1M of direct investment, $109.4M in financing options and approximately $23.4M in operation and maintenance expenses, which resulted in a $15.6M annual recovery increase, effective July 1, 2021.

In May 2020, NJNG filed a petition with the BPU to decrease its EE recovery rate. In October 2020, the BPU approved NJNG to maintain its existing rate, which resulted in an annual recovery of approximately $11.4M, effective November 1, 2020.

In June 2021, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through 2021. In January 2022, the BPU approved the stipulation, which increased annual recoveries by $2.2M, effective February 1, 2022.

In June 2022, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through the present. In September 2022, the BPU approved the rate decrease, which resulted in an annual decrease of approximately $3.5M, effective October 1, 2022.

On June 1, 2023, NJNG submitted its annual cost recovery filing for the SAVEGREEN programs established from 2010 through the present, which would increase annual recoveries by approximately $10.7M. On September 27, 2023, the BPU approved an increase to the EE rate, increasing annual recoveries by $9.0M based on updated information since the initial filing, effective October 1, 2023.

The following table summarizes loans, grants, rebates and related investments as of September 30:

Program recoveries from customers during the fiscal years ended September 30, 2023 and 2022, were $26.3M and $25.8M, respectively. The recovery includes a weighted average cost of capital that ranges from 6.69% to 7.76%, with a return on equity of 9.6% to 10.3%.

Conservation Incentive Program/BGSS

The CIP facilitates normalizing NJNG’s Utility Gross Margin for variances not only due to weather but also other factors affecting customer usage, such as conservation and energy efficiency. Recovery of Utility Gross Margin for the non-weather variance through the CIP is limited to the amount of certain natural gas supply cost savings achieved and is subject to a variable margin revenue test. Additionally, recovery of the CIP Utility Gross Margin is subject to an annual earnings test. An annual review of the CIP must be filed by June 1, coincident with NJNG’s annual BGSS filing, during which NJNG can request rate changes to the CIP.

NJNG’s total utility firm gross margin includes the following adjustments related to the CIP mechanism:

(1)Compared with the 20-year average, weather was 13.4%, 8.3% and 6.5% warmer-than-normal during fiscal 2023, 2022 and 2021, respectively.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Recovery of Natural Gas Costs

NJNG’s cost of natural gas is passed through to our customers, without markup, by applying NJNG’s authorized BGSS rate to actual therms delivered. There is no Utility Gross Margin associated with BGSS costs; therefore, changes in such costs do not impact NJNG’s earnings. NJNG monitors its actual natural gas costs in comparison to its BGSS rates to manage its cash flows associated with its allowed recovery of natural gas costs, which is facilitated through BPU-approved deferred accounting and the BGSS pricing mechanism. Accordingly, NJNG occasionally adjusts its periodic BGSS rates or can issue credits or refunds, as appropriate, for its residential and small commercial customers when the commodity cost varies from the existing BGSS rate. BGSS rates for its large commercial customers are adjusted monthly based on NYMEX prices.

NJNG’s residential and commercial markets are currently open to competition, and its rates are segregated between BGSS (i.e., natural gas commodity) and delivery (i.e., transportation) components. NJNG earns Utility Gross Margin through the delivery of natural gas to its customers and, therefore, is not negatively affected by customers who use its transportation service and purchase natural gas from another supplier. Under an existing order from the BPU, BGSS can be provided by suppliers other than the state’s natural gas utilities; however, customers who purchase natural gas from another supplier continue to use NJNG for transportation service.

During fiscal 2021, NJNG notified the BPU of its intent to provide BGSS bill credits to residential and small commercial sales customers. The actual bill credits given to customers totaled $20.6M, $19.3M net of tax.

In November 2021, the BPU approved on a preliminary basis a $2.9M increase to the annual revenues credited to BGSS, a $13.0M annual increase related to its balancing charge, as well as changes to CIP rates, which resulted in a $6.3M annual recovery decrease, effective December 1, 2021, and approved on a final basis in May 2022.

In November 2021, NJNG submitted notification of its intent to self-implement an increase to its BGSS rate, which resulted in an approximately $24.2M increase to annual revenues credited to BGSS, effective December 1, 2021.

In June 2022, NJNG submitted its annual petition to modify its BGSS, balancing charge and CIP rates for residential and small business customers, which was approved by the BPU on a preliminary basis in September 2022. This includes an $81.9M increase to the annual revenues credited to BGSS, a $9.0M annual increase related to its balancing charge and a $10.2M increase to CIP rates, effective October 1, 2022, which was approved on a final basis on April 12, 2023.

On April 12, 2023, the BPU approved on a final basis, NJNG’s February 22, 2023 filing that advised the BPU of a bill credit and a reduction to the BGSS rate for residential and small commercial customers, which will reduce recoveries by approximately $29.9M, effective March 1, 2023. Bill credits provided to customers from March 2023 through May 2023 totaled approximately $32.4M.

On June 1, 2023, NJNG filed its annual petition to modify its BGSS, balancing charge and CIP rates for residential and small business customers. This included a $38.6M decrease to the annual revenues credited to BGSS, a $7.4M annual decrease related to its balancing charge and a $27.5M increase to CIP rates, effective October 1, 2023. On September 18, 2023, the BPU approved, on a provisional basis, the filed BGSS and balancing charge changes and a $27.0M increase to CIP rates, based on updated information since the initial filing. The balancing charge rate includes the cost of balancing natural gas deliveries with customer usage for sales and transportation customers, and balancing charge revenues are credited to BGSS.

BGSS Incentive Programs

NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of Utility Gross Margin-sharing programs that include off-system sales, capacity release and storage incentive programs. These programs are designed to encourage better utilization and hedging of NJNG’s natural gas supply, transportation and storage assets. Depending on the program, NJNG shares 80 or 85% of Utility Gross Margin generated by these programs with firm customers. Utility Gross Margin from incentive programs was $20.0M, $19.6M and $13.4M during the fiscal years ended September 30, 2023, 2022 and 2021, respectively.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Hedging

In order to provide relative price stability to its natural gas supply portfolio, NJNG employs a hedging strategy with the goal of having at least 75% of the Company’s projected winter periodic BGSS natural gas sales volumes hedged by each November 1 and at least 25% of the projected periodic BGSS natural gas sales hedged for the following April-through-March period. The hedging goal is typically achieved with gas in storage and the use of financial instruments to hedge storage injections. NJNG may also use various financial instruments including futures, swaps, options and weather-related products to hedge its future delivery obligations.

Commodity Prices

NJNG is affected by the price of natural gas, which can have a significant impact on our cash flows, short-term financing costs, the price of natural gas charged to our customers through the BGSS clause, our ability to collect accounts receivable, which impacts our bad debt expense, and our ability to maintain a competitive advantage over other energy sources. Natural gas commodity prices are shown in the graph below, which illustrates the daily natural gas prices(1) in the Northeast market region, also known as TETCO M-3.

(1) Data sourced from Standard & Poor’s Financial Services, LLC Global Platts.

The maximum price per MMBtu was $32.46, $17.69 and $14.57 and the minimum price was $0.67, $2.42 and $0.28 for the fiscal years ended September 30, 2023, 2022 and 2021, respectively. A more detailed discussion of the impacts of the price of natural gas on operating revenues, natural gas purchases and cash flows can be found in the Operating Results and Cash Flow sections of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Societal Benefits Charge

NJNG’s qualifying customers are eligible for the USF program, which is administered by the New Jersey Department of Community Affairs, to help make energy bills more affordable.

In March 2022, the BPU approved on a final basis NJNG’s annual SBC application to recover remediation expenses, including an increase in the RAC, of approximately $0.6M annually and a decrease to the NJCEP factor of approximately $2.9M, effective April 1, 2022.

In June 2022, NJNG filed its annual USF compliance filing proposing a decrease to the statewide USF rate. In August 2022, an additional update was submitted on behalf of all NJ utilities with actual information through July 31, 2022. In September 2022, the BPU approved a decrease based on the August update, which resulted in an annual decrease of approximately $1.6M, effective October 1, 2022.

In September 2022, NJNG submitted its annual SBC filing to the BPU requesting approval of RAC expenditures through June 30, 2022, as well as an increase to the RAC annual recoveries of $3.8M and an increase to the NJCEP annual recoveries of $2.2M, with a proposed effective date of April 1, 2023. On April 12, 2023, the BPU approved on a final basis, an increase to the RAC annual recoveries of $3.7M and a decrease to the NJCEP annual recoveries of $0.9M, effective May 1, 2023.

On June 28, 2023, NJNG submitted its annual USF filing to the BPU requesting an increase to the statewide USF rate, which will result in a $0.7M increase to annual recoveries. The BPU approved this matter on September 27, 2023, effective October 1, 2023.

On September 11, 2023, NJNG submitted its annual SBC filing to the BPU requesting approval of RAC expenditures through June 2023, as well as an increase to the RAC annual recoveries of $2.4M and an increase to the NJCEP annual recoveries of $5.0M, which would be effective April 1, 2024.

Environmental Remediation

NJNG is responsible for the environmental remediation of former MGP sites, which contain contaminated residues from former gas manufacturing operations that ceased operating at these sites by the mid-1950s and, in some cases, had been discontinued many years earlier. Actual MGP remediation costs may vary from management’s estimates due to the developing nature of remediation requirements, regulatory decisions by the NJDEP and related litigation. NJNG reviews these costs at the end of each fiscal year and adjusts its liability and corresponding regulatory asset as necessary to reflect its expected future remediation obligation. Accordingly, NJNG recognized a regulatory asset and an obligation of $169.4M as of September 30, 2023, an increase of $42.3M compared with the prior fiscal period.

In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership and if former MGP operations were active at the location. The preliminary assessment and site investigation activities are ongoing at the Aberdeen site and, based on initial findings, will be moving to the remedial investigation phase. The costs associated with preliminary assessment, site investigation and remedial investigation activities are considered immaterial and are included as a component of NJNG’s annual SBC application to recover remediation expenses. We will continue to gather information to further refine and enhance the estimate of potential costs for this site as it becomes available. See Note 14. Commitments and Contingent Liabilities for a more detailed description.

Other regulatory filings and a more detailed discussion of the filings in this section can be found in Note 4. Regulation in the accompanying Consolidated Financial Statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operating Results

NJNG’s operating results for the fiscal years ended September 30, are as follows:

(1)Includes nonutility revenue of approximately $1.3M, $1.4M and $0.3M for fiscal 2023, 2022 and 2021, respectively, for lease agreements with various NJR subsidiaries leasing office space from NJNG at the Company’s headquarters that commenced in July 2021, which are eliminated in consolidation.

(2)Includes the purchased cost of the natural gas, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and hedging transactions. These expenses are passed through to customers and are offset by corresponding revenues.

(3)Includes related party transactions of approximately $9.3M for both fiscal 2023 and 2022, and $13.0M for fiscal 2021, a portion of which is eliminated in consolidation.

(4)Consists of expenses associated with state-mandated programs, the RAC and energy efficiency programs, calculated on a per-therm basis. These expenses are passed through to customers and are offset by corresponding revenues.

Operating Revenues and Natural Gas Purchases

Operating revenues decreased 10.3% during fiscal 2023 compared with fiscal 2022. Natural gas purchases decreased 23.6% during fiscal 2023 compared with fiscal 2022.

The factors contributing to the increases and decreases in operating revenues and natural gas purchases during fiscal 2023, are as follows:

(1)Riders and other includes changes in rider rates, including those related to Energy Efficiency, NJCEP and other programs, which is offset in regulatory rider expense.

Non-GAAP Financial Measures

Management uses Utility Gross Margin, a non-GAAP financial measure, when evaluating the operating results of NJNG. NJNG’s Utility Gross Margin is defined as operating revenues less natural gas purchases, sales tax and regulatory rider expenses. This measure differs from gross margin as presented on a GAAP basis, as it excludes certain operations and maintenance expense and depreciation and amortization. Utility Gross Margin may also not be comparable to the definition of gross margin used by others in the natural gas distribution business and other industries. Management believes that Utility

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Gross Margin provides a meaningful basis for evaluating utility operations since natural gas costs, sales tax and regulatory rider expenses are included in operating revenues and passed through to customers and, therefore, have no effect on Utility Gross Margin. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measure.

Utility Gross Margin

A reconciliation of gross margin, the closest GAAP financial measure to NJNG’s Utility Gross Margin for the fiscal years ended September 30, is as follows:

(1)Excludes selling, general and administrative expenses of approximately $111.5M, $102.8M and $97.0M for the fiscal years 2023, 2022 and 2021, respectively.

Utility Gross Margin consists of three components:

•Utility firm gross margin generated from only the delivery component of either a sales tariff or a transportation tariff from residential and commercial customers who receive natural gas service from NJNG;

•BGSS incentive programs, where revenues generated or savings achieved from BPU-approved off-system sales, capacity release or storage incentive programs are shared between customers and NJNG; and

•Utility Gross Margin generated from off-tariff customers, as well as interruptible customers.

The following provides more information on the components of Utility Gross Margin and associated throughput (Bcf) of natural gas delivered to customers:

Utility Firm Gross Margin

Utility firm gross margin increased $24.1M during fiscal 2023 compared with fiscal 2022, due primarily to an increase in customers along with increased base rates.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

BGSS Incentive Programs

The factors contributing to the change in Utility Gross Margin generated by BGSS incentive programs are as follows:

The increase in BGSS incentive programs was due primarily to increased margins from storage incentive market opportunities and higher capacity release values, partially offset by lower off-system sales volumes.

Other Results

O&M expense increased $28.2M during fiscal 2023 compared with fiscal 2022, due primarily to the deferral of bad debt costs in accordance with the July 2020 BPU deferral order in fiscal 2022 that did not reoccur, as well as an increase in compensation and consulting expenditures.

Depreciation expense increased $7.7M in fiscal 2023, compared with fiscal 2022, as a result of additional utility plant being placed into service.

Interest expense increased $10.2M in fiscal 2023, compared with fiscal 2022, due primarily to increased outstanding long-term debt at higher interest rates.

Other income increased $5.9M during fiscal 2023, compared with fiscal 2022, due primarily to increased AFUDC equity, along with decreased pension and postemployment costs.

Income taxes decreased $7.1M during fiscal 2023, compared with fiscal 2022, due to lower income before income taxes.

Net income decreased $8.7M during fiscal 2023, compared with fiscal 2022, due primarily to increased O&M, depreciation and interest expenses, partially offset by higher Utility Gross Margin, as previously discussed.

Clean Energy Ventures

Overview

CEV actively pursues opportunities in the renewable energy markets. CEV enters into various agreements to install solar net-metered systems for residential and commercial customers, as well as large commercial grid-connected projects. In addition, CEV enters into various long-term agreements, including PPAs, to supply energy from commercial solar projects.

Capital expenditures related to clean energy projects are subject to change due to a variety of factors that may affect our ability to commence operations at these projects on a timely basis or at all, including logistics associated with the start-up of residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any delays related to electric grid interconnection, economic trends, unforeseen events and the ability to access capital or allocation of capital to other investments or business opportunities. CEV is also subject to various risks, which may include impacts to residential solar customer growth and customer collections, our ability to identify and develop commercial solar asset investments, impacts to our supply chain and our ability to source materials for construction.

The primary contributors toward the value of qualifying clean energy projects are tax incentives and RECs. Changes in the federal statutes related to the ITC and/or relevant state legislation and regulatory policies affecting the market for solar renewable energy credits could significantly affect future results.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Solar

Solar projects placed in service and related expenditures for the fiscal years ended September 30, are as follows:

(1)Includes projects subject to sale leaseback arrangements.

(2)Includes an operational 2.9 MW commercial solar project acquired in December 2020.

(3)Includes two operational commercial solar projects acquired in July 2023, totaling 20.7 MW.

CEV has approximately 468.8 MW of solar capacity in service. Projects that were placed in service through December 31, 2019, qualified for a 30% federal ITC. The credit declined to 26% for property under construction during 2020. In December 2020, the 26% federal ITC was extended through the end of 2022. Following the signing of the Inflation Reduction Act into law in August 2022, the federal ITC was restored to 30% through the end of 2032. There are additional opportunities to increase the credit amount up to 20% for certain facilities that are placed in service after December 31, 2022, based upon the type of project and location. ITC-eligible projects placed in service prior to the enactment of the Inflation Reduction Act are not impacted by the change.

CEV may enter into transactions to sell certain of its commercial solar assets concurrent with agreements to lease the assets back over a period of five to 15 years. The Company will continue to operate the solar assets and is responsible for related expenses and entitled to retain the revenue generated from RECs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the buyer if applicable; however, the lease payments are structured so that CEV is compensated for the transfer of the related tax incentives. Accordingly, for solar projects financed under sale leasebacks for which the assets were sold during the first 5 years of in-service life, CEV recognizes the equivalent value of the ITC in other income on the Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease. During fiscal 2023, 2022 and 2021, CEV received proceeds of $167.8M, $24.1M and $17.7M, respectively, in connection with the sale leaseback of commercial solar assets.

As part of its solar investment portfolio, CEV operates a residential and small commercial solar program, The Sunlight Advantage®, that provides qualifying homeowners and small business owners the opportunity to have a solar system installed at their home or place of business with no installation or maintenance expenses. CEV owns, operates and maintains the system over the life of the contract in exchange for monthly payments.

For solar installations placed in-service in New Jersey prior to April 30, 2020, each MWh of electricity produced creates an SREC that represents the renewable energy attribute of the solar-electricity generated that can be sold to third parties, predominantly load-serving entities that are required to comply with the solar requirements under New Jersey’s renewable portfolio standard.

Following the close of the SREC market in New Jersey, the BPU established the TREC as the successor program to the SREC program. TRECs provide a fixed compensation base multiplied by an assigned project factor in order to determine their value. The project factor is determined by the type and location of the project, as defined. All TRECs generated are required to be purchased monthly by a TREC program administrator as appointed by the BPU.

In July 2021, the BPU established a new successor solar incentive program. This Administratively Determined Incentive Program, which we refer to as SREC IIs, provides administratively set incentives for net metered residential projects and net metered non-residential projects of 5 MW or less.

In December 2022, the BPU established the Competitive Solar Incentive Program, which will serve as the permanent program within the successor solar incentive program and provide incentives to larger solar facilities. It is open to qualifying grid supply solar facilities, non-residential net metered solar installations with a capacity greater than 5MW, and eligible grid supply solar facilities installed in combination with energy storage.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

REC activity consisted of the following:

(1)The TRECs’ and SREC IIs’ inventory balance is due to the timing of the generation of the RECs and the delivery of the RECs by the state administrator, which is typically on a one month lag.

(2)Fiscal 2022 included 247 SREC IIs within SRECs, which are shown separately in fiscal 2023. There were no SREC IIs generated during fiscal 2021.

CEV hedges its expected SREC production through the use of forward sales contracts. The following table reflects the hedged percentage of our projected inventory of SRECs related to CEV’s in-service commercial and residential assets at September 30, 2023:

(1)Energy years are compliance periods for New Jersey’s renewable portfolio standard that run from June 1 to May 31.

There are no direct costs associated with the production of RECs by our solar assets. All related costs are included as a component of O&M expenses on the Consolidated Statements of Operations, including such expenses as facility maintenance and broker fees.

Operating Results

CEV’s financial results for the fiscal years ended September 30, are summarized as follows:

Operating revenues decreased $4.1M in fiscal 2023, compared with fiscal 2022, due primarily to decreased SREC and electricity sales, partially offset by increased TREC sales.

Depreciation expense increased $3.9M in fiscal 2023, compared with fiscal 2022, due primarily to additional solar assets placed in service.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Income tax benefit increased $19.0M during fiscal 2023, compared with fiscal 2022, due primarily to the reversal of a valuation allowance for certain deferred tax assets.

Net income in fiscal 2023 increased $5.1M, compared with fiscal 2022, due primarily to the increased income tax benefit, partially offset by decreased operating revenues and higher depreciation expense, as previously discussed.

Energy Services

Overview

ES markets and sells natural gas to wholesale and retail customers and manages natural gas transportation and storage assets throughout major market areas across North America. ES maintains a strategic portfolio of natural gas transportation and storage contracts that it utilizes in conjunction with its market expertise to provide service and value to its customers. Availability of these transportation and storage contracts allows ES to generate market opportunities by capturing price differentials over specific time horizons and between geographic market locations.

ES also provides management of transportation and storage assets for natural gas producers and regulated utilities. These management transactions typically involve the release of producer/utility-owned storage and/or transportation capacity in combination with an obligation to either purchase and/or deliver physical natural gas. In addition to the contractual purchase and/or sale of physical natural gas, ES generates or pays fee-based margin in exchange for its active management and may provide the producer and/or utility with additional margin based on actual results.

In conjunction with the active management of these contracts, ES generates Financial Margin by identifying market opportunities and simultaneously entering into natural gas purchase/sale, storage or transportation contracts and financial derivative contracts. In cases where storage is utilized to fulfill these contracts, these forecast sales and/or purchases are economically hedged through the use of financial derivative contracts. The financial derivative contracts consist primarily of exchange-traded futures, options and swap contracts, and are frequently used to lock in anticipated transactional cash flows and to help manage volatility in natural gas market prices. Generally, when its transportation and storage contracts are exposed to periods of increased market volatility, ES is able to implement strategies that allow it to capture margin by improving the respective time or geographic spreads on a forward basis.

ES accounts for its physical commodity contracts and its financial derivative instruments at fair value on the Consolidated Balance Sheets. Changes in the fair value of physical commodity contracts and financial derivative instruments are included in earnings as a component of operating revenues or natural gas purchases on the Consolidated Statements of Operations. Volatility in reported net income at ES can occur over periods of time due to changes in the fair value of derivatives, as well as timing differences related to certain transactions. Unrealized gains and losses can fluctuate as a result of changes in the price of natural gas, SRECs and foreign currency from the original transaction price. Volatility in earnings can also occur as a result of timing differences between the settlement of financial derivatives and the sale of the underlying physical commodity. For example, when a financial instrument settles and the physical natural gas is injected into inventory, the realized gains and losses associated with the financial instrument are recognized in earnings. However, the gains and losses associated with the physical natural gas are not recognized in earnings until the natural gas inventory is withdrawn from storage and sold, at which time ES realizes the entire margin on the transaction.

During December 2020, ES entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts. The utility provides certain asset management services, and ES may deliver natural gas to the utility in exchange for aggregate net proceeds of approximately $500M, payable through November 1, 2030. The AMAs include a series of initial and permanent releases, which commenced in November 2021. NJR will receive a total of approximately $260M in cash from fiscal 2022 through fiscal 2024 and $34M per year from fiscal 2025 through fiscal 2031 under the agreements. During fiscal 2023 and 2022, ES recognized $48.5M and $53.0M, respectively, of operating revenue on the Consolidated Statements of Operations. Amounts received in excess of revenue, totaling $58.7M and $33.8M as of September 30, 2023 and 2022, respectively, are included in deferred revenue on the Consolidated Balance Sheets.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operating Results

ES’s financial results for the fiscal years ended September 30, are summarized as follows:

(1)Includes related party transactions of approximately $10.2M, $0.1M and $(0.4)M for fiscal 2023, 2022 and 2021, respectively, which are eliminated in consolidation.

(2)Costs associated with pipeline and storage capacity are expensed over the term of the related contracts, which generally varies from less than one year to 10 years.

(3)Includes related party transactions of approximately $0.9M, $1.0M and $0.8M for fiscal 2023, 2022 and 2021, respectively, a portion of which is eliminated in consolidation.

ES’s portfolio of financial derivative instruments is composed of:

During fiscal 2023, 2022 and 2021 the net short position resulted in unrealized gains (losses) of $16.2M, $(8.5)M and $(53.5)M, respectively.

Operating revenues decreased $837.7M and natural gas purchases decreased $835.5M during fiscal 2023, compared with fiscal 2022, due primarily to a 45.2% decrease in natural gas prices, partially offset by periods of volatility in natural gas prices during the first two quarters of fiscal 2023.

Future results at ES are contingent upon natural gas market price volatility driven by variations in both the supply and demand balances caused by weather and other factors. As a result, variations in weather patterns in the key market areas served may affect earnings during the fiscal year. Changes in market fundamentals, such as an increase in supply and decrease in demand due to warmer temperatures and reduced volatility, can negatively impact ES’s earnings. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Natural Gas Distribution for TETCO M-3 Daily Prices, which illustrates the daily natural gas prices in the Northeast market region.

O&M expense decreased $19.7M during fiscal 2023, compared with fiscal 2022, due primarily to a reduction in the reserve for bad debt, and decreases in charitable contributions and compensation costs.

Interest expense increased $6.7M during fiscal 2023, compared with fiscal 2022, due primarily to increased borrowings at higher interest rates.

Net income increased $9.2M during fiscal 2023, compared with fiscal 2022, due primarily to increased operating income, partially offset by higher interest expense, as previously discussed.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Non-GAAP Financial Measures

Management uses Financial Margin and NFE, non-GAAP financial measures, when evaluating the operating results of ES. Financial Margin and NFE are based on removing timing differences associated with certain derivative instruments. GAAP also requires us, during the interim periods, to estimate our annual effective tax rate and use this rate to calculate the year-to-date tax provision. We also determine an annual estimated effective tax rate for NFE purposes and calculate a quarterly tax adjustment based on the differences between our forecasted net income and our forecasted NFE for the fiscal year. This adjustment is applied to ES, as the adjustment primarily relates to timing differences associated with certain derivative instruments that impact the estimate of the annual effective tax rate for NFE. No adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at year end.

Management views these measures as representative of the overall expected economic result and uses these measures to compare ES’s results against established benchmarks and earnings targets, as these measures eliminate the impact of volatility on GAAP earnings as a result of timing differences associated with the settlement of derivative instruments. To the extent that there are unanticipated impacts from changes in the market value related to the effectiveness of economic hedges, ES’s actual non-GAAP results can differ from the results anticipated at the outset of the transaction. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measure.

When ES reconciles the most directly comparable GAAP measure to both Financial Margin and NFE, the current period unrealized gains and losses on derivatives are excluded as a reconciling item. Financial Margin and NFE also exclude the effects of economic hedging of the value of our natural gas in storage and, therefore, only include realized gains and losses related to natural gas withdrawn from storage, effectively matching the full earnings effects of the derivatives with realized margins on the related physical natural gas flows. Financial Margin differs from gross margin as defined on a GAAP basis, as it excludes certain operations and maintenance expense and depreciation and amortization as well as the effects of derivatives as discussed above.

Financial Margin

A reconciliation of gross margin, the closest GAAP financial measure, to ES’s Financial Margin is as follows:

(1)Excludes general and administrative expenses of $(0.8)M, $15.4M and $17.6M for fiscal 2023, 2022 and 2021, respectively.

(2)Includes unrealized losses (gains) related to an intercompany transaction between NJNG and ES that have been eliminated in consolidation of approximately $7.8M, $0.1M and $(3.2)M, net of taxes for fiscal 2023, 2022 and 2021, respectively.

(3)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.

Financial Margin increased $24.3M during fiscal 2023, compared with fiscal 2022, due primarily to higher natural gas price volatility in December 2022 and February 2023, as a result of cold weather in regions where ES had contracted rights to transportation and storage assets.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Net Financial Earnings

A reconciliation of ES’s net income, the most directly comparable GAAP financial measure to NFE, is as follows for the fiscal years ended September 30:

(1)Includes taxes related to an intercompany transaction between NJNG and ES that have been eliminated in consolidation of approximately $(2.4)M and $1.0M for fiscal 2023 and 2021, respectively. Taxes that were eliminated in consolidation during fiscal 2022 were immaterial.

NFE increased $29.4M during fiscal 2023, compared with fiscal 2022, due primarily to higher Financial Margin, as previously discussed.

Future results are subject to ES’s ability to expand its wholesale sales and service activities and are contingent upon many other factors, including an adequate number of appropriate and credit-qualified counterparties in an active and liquid natural marketplace; volatility in the natural gas market due to weather or other fundamental market factors impacting supply and/or demand; transportation, storage and/or other market arbitrage opportunities; sufficient liquidity in the overall energy trading market; and continued access to liquidity in the capital markets.

Storage and Transportation

Overview

S&T invests in natural gas assets, such as natural gas transportation and storage facilities. We believe that acquiring, owning and developing these storage and transportation assets, which operate under a tariff structure that has either cost- or market-based rates, can provide us a growth opportunity. S&T is subject to various risks, including the construction, development and operation of our transportation and storage assets, obtaining necessary governmental, environmental and regulatory approvals, our ability to obtain necessary property rights and our ability to obtain financing at reasonable costs for the construction, operation and maintenance of our assets.

S&T is comprised of Leaf River, a 32.2M Dth salt dome natural gas storage facility that operates under market-based rates, and Adelphia, an existing 84-mile pipeline in southeastern Pennsylvania. Adelphia operates under cost-of-service rates but can enter into negotiated rates with counterparties. The northern portion of the pipeline was operational upon acquisition, and it currently serves two natural gas generation facilities. In October 2020, we began the conversion of the southern zone of the pipeline to natural gas, which became fully operational in September 2022.

S&T also has a 50% ownership interest in Steckman Ridge, a storage facility located in western Pennsylvania that operates under market-based rates. As of September 30, 2023, our investment in Steckman Ridge was $104.1M.

S&T also has a 20% interest in PennEast, a partnership whose purpose was to construct and operate a 120-mile natural gas pipeline that would have extended from northeast Pennsylvania to western New Jersey. PennEast received a Certificate of Public Convenience and Necessity for the project from FERC in January 2018. However, because of numerous regulatory and legal challenges, we evaluated our equity investment in PennEast for impairment during fiscal 2021, and determined that it was other-than-temporarily impaired. We estimated the fair value of our investment in PennEast using probability weighted scenarios assigned to discounted future cash flows. The impairment was the result of management’s estimates and assumptions regarding the likelihood of certain outcomes related to required regulatory approvals and pending legal matters, the timing and magnitude of construction costs and in-service dates, the evaluation of the current environmental and political climate as it relates to interstate pipeline development, and transportation capacity revenues and discount rates.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

In December 2021, the FERC dismissed PennEast’s pending applications. The order vacated the certificate authorization for the PennEast pipeline project in light of PennEast’s response to FERC staff’s November 2021 request for a status update, in which PennEast informed the Commission it is no longer developing the project.

During fiscal 2022, the PennEast board of managers approved cash distributions to members of the partnership following the sale of certain project-related assets and refunds of interconnection fees received from interstate pipelines. The return of capital received by the Company, which totaled $11.0M, reduced the remaining carrying value of its equity method investment in PennEast to zero, with the excess recorded in equity in earnings (loss) of affiliates in the Consolidated Statements of Operations. The Company received additional return of capital of $0.3M during fiscal 2023, which is recognized in equity in earnings of affiliates in the Consolidated Statements of Operations.

Operating Results

The financial results of S&T for the fiscal years ended September 30, are summarized as follows:

(1)Includes related party transactions of approximately $4.2M, $2.4M and $1.8M for the fiscal years ended September 30, 2023, 2022 and 2021, respectively, which are eliminated in consolidation.

Operating revenue increased $25.1M during fiscal 2023, compared with fiscal 2022, due primarily to increased fixed price contract revenue for Adelphia and increased hub services revenue for Leaf River.

O&M expense increased $4.1M during fiscal 2023, compared with fiscal 2022, due primarily to increased property taxes and contractor expenses.

Depreciation expense increased $11.9M during fiscal 2023, compared with fiscal 2022, due primarily to the southern portion of Adelphia, which was placed in service in September 2022.

Interest expense increased $13.7M during fiscal 2023, compared with fiscal 2022, due primarily to increased borrowings and higher interest rates.

Equity in earnings of affiliates decreased $6.7M during fiscal 2023, compared with fiscal 2022, due primarily to a decreased return of capital related to our equity method investment in PennEast, as previously discussed.

Net income decreased $13.4M during fiscal 2023, compared with fiscal 2022, due primarily to increased O&M, depreciation and interest expense, along with decreased equity in earnings of affiliates, partially offset by higher operating revenue, as previously discussed.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Non-GAAP Financial Measures

Management uses NFE, a non-GAAP financial measure, when evaluating the operating results of S&T. Certain transactions associated with equity method investments and their impact, including impairment charges, which are non-cash charges, and the return of capital in excess of the carrying value of our investment, are excluded for NFE purposes. The details of such adjustments can be found in the table below. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP, and should be considered in addition to, and not as a substitute for, the comparable GAAP measure.

A reconciliation of S&T’s net income, the most directly comparable GAAP financial measure to NFE, is as follows:

NFE decreased $9.6M during fiscal 2023, compared with fiscal 2022, due primarily to increased O&M, depreciation and interest expense, partially offset by higher operating revenue, as previously discussed.

Home Services and Other

Overview

The financial results of HSO consist primarily of the operating results of NJRHS. NJRHS provides service, sales and installation of appliances to service contract customers and has been focused on growing its installation business and expanding its service contract customer base. HSO also includes organizational expenses incurred at NJR.

Operating Results

The condensed financial results of HSO for the fiscal years ended September 30, are summarized as follows:

Operating revenues increased $1.5M during fiscal 2023, compared with fiscal 2022, due primarily to increased service contract and installation revenue at NJRHS.

Net income increased $5.5M during fiscal 2023, compared with fiscal 2022, due primarily to increased revenue, as previously discussed, along with decreased pension costs and increased income tax benefit.

Liquidity and Capital Resources

Our objective is to maintain an efficient consolidated capital structure that reflects the different characteristics of each reporting segment and other business operations and provides adequate financial flexibility for accessing capital markets as required. Our consolidated capital structure as of September 30, was as follows:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Common Stock Equity

We satisfy our external common equity requirements, if any, through issuances of our common stock, including the proceeds from stock issuances under our DRP. The DRP allows us, at our option, to use treasury shares or newly issued shares to raise capital. NJR raised approximately $15.0M and $14.7M of equity through the DRP during fiscal 2023 and 2022, respectively. We also raised approximately $42.8M of equity by issuing approximately 948,000 shares through the waiver discount feature of the DRP during fiscal 2023. There were no shares issued through the waiver discount feature during fiscal 2022.

In 1996, the Board of Directors authorized us to implement a share repurchase program, which has been expanded seven times since the inception of the program, authorizing a total of 19.5M shares of common stock for repurchase. As of September 30, 2023, we had repurchased a total of approximately 17.8M of those shares and may repurchase an additional 1.7M shares under the approved program. There were no shares repurchased during fiscal 2023 and 2022.

Debt

NJR and its unregulated subsidiaries generally rely on cash flows generated from operating activities and the utilization of committed credit facilities to provide liquidity to meet working capital and short-term debt financing requirements. NJNG also relies on the issuance of commercial paper for short-term funding. NJR and NJNG, as borrowers, periodically access the capital markets to fund long-life assets through the issuance of long-term debt securities.

We believe that our existing borrowing availability, equity proceeds and cash flows from operations will be sufficient to satisfy our working capital, capital expenditures and dividend requirements for at least the next 12 months. NJR, NJNG, CEV, S&T and ES currently anticipate that each of their financing requirements for the next 12 months will be met primarily through the issuance of short- and long-term debt, and meter or solar asset sale leasebacks.

We believe that as of September 30, 2023, NJR and NJNG were, and currently are, in compliance with all existing debt covenants, both financial and non-financial.

As a result of the COVID-19 pandemic, recent geopolitical tensions and inflationary pressures, there has been uncertainty and volatility in the credit and capital markets. We have been able to obtain sufficient financing to meet our funding requirements for operations and capital expenditures; however, our ability to access funds from financial institutions at a reasonable cost in the future may impact the nature and timing of future capital market transactions.

Short-Term Debt

We use our short-term borrowings primarily to finance ES’s short-term liquidity needs, S&T investments, share repurchases and, on an initial basis, CEV’s investments. ES’s use of high-volume storage facilities and anticipated pipeline park and loan arrangements, combined with related economic hedging activities in the volatile wholesale natural gas market, create significant short-term cash requirements.

As of September 30, 2023, NJR had a revolving credit facility totaling $650M, with $427.0M available under the facility.

NJNG satisfies its debt needs by issuing short-term and long-term debt based on its financial profile. The seasonal nature of NJNG’s operations creates large short-term cash requirements, primarily to finance natural gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, and for the temporary financing of construction and MGP remediation expenditures and energy tax payments, based on its financial profile, through the issuance of commercial paper supported by the NJNG Credit Facility or through short-term bank loans under the NJNG Credit Facility.

NJNG’s commercial paper is sold through several commercial banks under an issuing and paying agency agreement and is supported by the $250M NJNG Credit Facility. As of September 30, 2023, the unused amount available under the NJNG Credit Facility, including amounts allocated to the backstop under the commercial paper program and the issuance of letters of credit, was $214.5M.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Short-term borrowings were as follows:

Due to the seasonal nature of natural gas prices and demand, and because inventory levels are built up during its natural gas injection season (April through October), NJR and NJNG’s short-term borrowings tend to peak in the November through January time frame.

NJR

On August 30, 2022, NJR entered into a First Amendment to NJR’s Second Amended and Restated Credit Agreement governing a $650M NJR Credit Facility with a maturity date of September 2, 2027. The NJR Credit Facility is subject to a one-year extension beyond that date and includes an accordion feature, which allows NJR, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJR Credit Facility in increments of $50M with the total revolving credit commitments not exceeding $750M. The NJR Credit Facility also permits the borrowing of revolving loans and swingline loans, as well as a $75M sublimit for the issuance of letters of credit. Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility. The credit facility is used primarily to finance its share repurchases, to satisfy ES’s short-term liquidity needs and to finance, on an initial basis, unregulated investments.

As of September 30, 2023, NJR had seven letters of credit outstanding totaling $5.7M, which reduced the amount available under the NJR Credit Facility by the same amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties.

In February 2022, NJR entered into a 364-day $150M term loan credit agreement with an interest rate based on SOFR plus 0.85%, that expired on February 7, 2023. The Company borrowed $50M on February 9, 2022 and $100M on February 14, 2022 under the term loan, which was paid in full at expiration of the term loan agreement.

Based on its average borrowings during fiscal 2023, NJR’s average interest rate was 5.78%, resulting in interest expense of approximately $14.3M. Based on average borrowings of $254.9M during the period, a 100 basis point change in the underlying average interest rate would have caused a change in interest expense of approximately $2.6M during fiscal 2023.

Neither NJNG nor its assets are obligated or pledged to support the NJR Credit Facility.

NJNG

On August 30, 2022, NJNG amended the Second Amended and Restated Credit Agreement governing a $250M NJNG Credit Facility with a maturity date of September 2, 2027. The NJNG Credit Facility is subject to a one-year extension beyond that date and includes an accordion feature, which would allow NJNG, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJNG Credit Facility in minimum increments of $50M up to a maximum of $100M. The NJNG Credit Facility also permits the borrowing of revolving loans and swingline loans, as well as a $30M sublimit for the issuance of letters of credit.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

As of September 30, 2023, NJNG had two letters of credit outstanding for $0.7M, which reduced the amount available under the NJNG Credit Facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the counterparties.

Based on its average borrowings during fiscal 2023, NJNG’s average interest rate was 4.82%, resulting in interest expense of $1.5M. Based on average borrowings of $40.7M during the period, a 100 basis point change in the underlying average interest rate would have caused a change in interest expense of approximately $0.3M during fiscal 2023.

Short-Term Debt Covenants

Borrowings under the NJR Credit Facility, term loan credit agreement and NJNG Credit Facility are conditioned upon compliance with a maximum leverage ratio (consolidated total indebtedness to consolidated total capitalization as defined in the applicable agreements) of not more than .70 to 1.00 for NJR and .65 to 1.00 for NJNG. These revolving credit facilities and term loan credit agreement contain customary representations and warranties for transactions of this type. They also contain customary events of default and certain covenants that will limit NJR’s or NJNG’s ability, beyond agreed upon thresholds, to, among other things:

•incur additional debt;

•incur liens and encumbrances;

•make dispositions of assets;

•enter into transactions with affiliates; and

•merge, consolidate, transfer, sell or lease all or substantially all of the borrowers’ or guarantors’ assets.

These covenants are subject to a number of exceptions and qualifications set forth in the applicable agreements.

Default Provisions

The agreements governing our long-term and short-term debt obligations include provisions that, if not complied with, could require early payment or similar actions. Default events include, but are not limited to, the following:

•defaults for non-payment;

•defaults for breach of representations and warranties;

•defaults for insolvency;

•defaults for non-performance of covenants;

•cross-defaults to other debt obligations of the borrower; and

•guarantor defaults.

The occurrence of an event of default under these agreements could result in all loans and other obligations of the borrower becoming immediately due and payable and the termination of the credit facilities or term loan.

Long-Term Debt

NJR

As of September 30, 2023, NJR had the following outstanding:

•$100M of 3.48% senior notes due November 7, 2024;

•$100M of 3.54% senior notes due August 18, 2026;

•$110M of 4.38% senior notes due June 23, 2027;

•$100M of 3.96% senior notes due June 8, 2028;

•$150M of 3.29% senior notes due July 17, 2029;

•$130M of 3.50% senior notes due July 23, 2030;

•$130M of 3.60% senior notes due July 23, 2032;

•$80M of 3.25% senior notes due September 1, 2033;

•$120M of 3.13% senior notes due September 1, 2031;

•$50M of 3.64% senior notes due September 19, 2034; and

•$50M of 6.14% senior notes due December 15, 2032.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

On October 24, 2022, NJR entered into a Note Purchase Agreement, which closed on December 15, 2022, under which NJR issued $50M senior notes at a fixed rate of 6.14%, maturing in 2032. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR.

Neither NJNG nor its assets are obligated or pledged to support NJR’s long-term debt.

NJNG

As of September 30, 2023, NJNG’s long-term debt consisted of $1.5B in fixed-rate debt issuances secured by the Mortgage Indenture, with maturities ranging from 2024 to 2061, and $22.9M in finance leases with various maturities ranging from 2024 to 2028.

On October 24, 2022, NJNG entered into a Note Purchase Agreement under which it sold $125M of its senior notes at an interest rate of 5.47%, maturing in 2052.

On September 28, 2023, NJNG entered into a Note Purchase Agreement for $100M aggregate principal amount of its senior notes consisting of $50M of 5.56% senior notes due September 28, 2033, which closed on September 28, 2023, and $50M of 5.85% senior notes due October 30, 2053, which closed on October 30, 2023.

Senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s Mortgage Indenture.

NJR is not obligated directly or contingently with respect to NJNG’s fixed-rate debt issuances.

Long-Term Debt Covenants and Default Provisions

The NJR and NJNG long-term debt instruments contain customary representations and warranties for transactions of their type. They also contain customary events of default and certain covenants that will limit NJR or NJNG’s ability beyond agreed upon thresholds to, among other things:

•incur additional debt (including a covenant that limits the amount of consolidated total debt of the borrower at the end of a fiscal quarter to 70% for NJR and 65% for NJNG of the consolidated total capitalization of the borrower, as those terms are defined in the applicable agreements, and a covenant limiting priority debt to 20% of the borrower’s consolidated total capitalization, as those terms are defined in the applicable agreements);

•incur liens and encumbrances;

•make loans and investments;

•make dispositions of assets;

•make dividends or restricted payments;

•enter into transactions with affiliates; and

•merge, consolidate, transfer, sell or lease substantially all of the borrower’s assets.

The aforementioned covenants are subject to a number of exceptions and qualifications set forth in the applicable note purchase agreements.

In addition, the FMBs issued by NJNG under the Mortgage Indenture are subject to certain default provisions. Events of Default, as defined in the Mortgage Indenture, consist mainly of:

•failure for 30 days to pay interest when due;

•failure to pay principal or premium when due and payable;

•failure to make sinking fund payments when due;

•failure to comply with any other covenants of the Mortgage Indenture after 30 days’ written notice from the Trustee;

•failure to pay or provide for judgments in excess of $30M in aggregate amount within 60 days of the entry thereof; or

•certain events that are or could be the basis of a bankruptcy, reorganization, insolvency or receivership proceeding.

Upon the occurrence and continuance of such an Event of Default, the Mortgage Indenture, subject to any provisions of law applicable thereto, provides that the Trustee may take possession and conduct the business of NJNG, may sell the trust estate or proceed to foreclose the lien of the Mortgage Indenture. The interest rate on defaulted principal and interest, to the extent permitted by law, on the FMBs issued under the Mortgage Indenture is the rate stated in the applicable supplement or, if no such rate is stated, 6% per annum.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Sale Leaseback

NJNG

NJNG received $8.4M and $17.3M in fiscal 2023 and 2022, respectively, in connection with the sale leaseback of its natural gas meters. These transactions are treated as financing obligations that are paid over the term of the arrangement, and NJNG has the option to purchase the meters back at fair value upon expiration. NJNG continues to evaluate this sale leaseback program based on current market conditions. Natural gas meters are excepted and excluded from the lien on NJNG property under the Mortgage Indenture. There were no natural gas meter sale leasebacks recorded during fiscal 2021.

CEV

CEV enters into transactions to sell the commercial solar assets concurrent with agreements to lease the assets back over a period of five to 15 years. These transactions are considered failed sale leasebacks for accounting purposes and are therefore treated as financing obligations, which are typically secured by the renewable energy facility asset and its future cash flows from RECs and energy sales. ITCs and other tax benefits associated with these solar projects are transferred to the buyer, if applicable; however, the lease payments are structured so that CEV is compensated for the transfer of the related tax incentives. CEV continues to operate the solar assets, including related expenses, and retain the revenue generated from RECs and energy sales, and has the option to renew the lease or repurchase the assets sold at the end of the lease term. During fiscal 2023, 2022 and 2021, CEV received proceeds of $167.8M, $24.1M and $17.7M, respectively, in connection with the sale leaseback of commercial solar projects. The proceeds received were recognized as a financing obligation on the Consolidated Balance Sheets.

Contractual Obligations and Capital Expenditures

As of September 30, 2023, there were NJR guarantees covering approximately $192.3M of natural gas purchases and ES demand fee commitments and nine outstanding letters of credit totaling $6.4M, as previously mentioned, not yet reflected in accounts payable on the Consolidated Balance Sheets.

Estimated capital expenditures are reviewed on a regular basis and may vary based on the ongoing effects of regulatory constraints, environmental regulations, unforeseen events and the ability to access capital.

NJNG’s total capital expenditures spent or accrued during fiscal 2023 were $394.6M. During fiscal 2024 capital expenditures are projected to be between $387M and $440M. NJNG expects to fund its obligations with a combination of cash flows from operations, cash on hand, issuance of commercial paper, available capacity under its revolving credit facility and the issuance of long-term debt. As of September 30, 2023, NJNG’s future MGP expenditures are estimated to be $169.4M. For a more detailed description of MGP expenditures, see Note 14. Commitments and Contingent Liabilities in the accompanying Consolidated Financial Statements.

During fiscal 2023, S&T had capital expenditures spent or accrued for the Adelphia project totaling $18.8M, and capital expenditures spent or accrued for Leaf River totaling $12.2M. During fiscal 2024, we expect expenditures related to the Adelphia project to be between $8M and $12M and expenditures related to Leaf River to be between $25M and $35M.

During fiscal 2023, total capital expenditures spent or accrued related to the purchase and installation of solar equipment were $110.4M. CEV’s expenditures include clean energy projects that support our goal to promote renewable energy. Accordingly, CEV enters into agreements to install solar equipment involving both residential and commercial projects. We estimate solar-related capital expenditures for projects placed in service during fiscal 2024 to be between $140M and $204M.

Capital expenditures related to clean energy projects are subject to change due to a variety of factors that may affect our ability to commence operations at these projects on a timely basis or at all, including sourcing projects that meet our investment criteria, logistics associated with the start-up of residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any delays related to electric grid interconnection, economic trends or unforeseen events and the ability to access capital or allocation of capital to other investments or business opportunities.

ES does not currently anticipate any significant capital expenditures during fiscal 2024 and 2025.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

During December 2020, ES entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts. The utility provides certain asset management services, and ES may deliver natural gas to the utility in exchange for aggregate net proceeds of approximately $500M, payable through November 1, 2030. The AMAs include a series of initial and permanent releases which commenced in November 2021. NJR will receive a total of approximately $260M in cash from fiscal 2022 through fiscal 2024 and $34M per year from fiscal 2025 through fiscal 2031 under the agreements. During fiscal 2023 and 2022, ES recognized $48.5M and $53.0M, respectively, of operating revenue on the Consolidated Statements of Operations. Amounts received in excess of revenue, totaling $58.7M and $33.8M as of September 30, 2023 and 2022, respectively, are included in deferred revenue on the Consolidated Balance Sheets.

Cash Flows

Operating Activities

Cash flows from operating activities during fiscal 2023 totaled $479.0M compared with $323.5M during fiscal 2022. Operating cash flows are primarily affected by variations in working capital, which can be impacted by several factors, including:

•seasonality of our business;

•fluctuations in wholesale natural gas prices and other energy prices, including changes in derivative asset and liability values;

•timing of storage injections and withdrawals;

•the deferral and recovery of natural gas costs;

•changes in contractual assets utilized to optimize margins related to natural gas transactions;

•broker margin requirements;

•impact of unusual weather patterns on our wholesale business;

•timing of the collections of receivables and payments of current liabilities;

•volumes of natural gas purchased and sold; and

•timing of SREC deliveries.

The increase of $155.5M in cash flows from operating activities during fiscal 2023, compared with fiscal 2022, was due primarily to decreased working capital requirements related to the decline in natural gas prices.

Investing Activities

Cash flows used in investing activities totaled $538.6M during fiscal 2023, compared with $590.6M during fiscal 2022. The decrease of $52.0M was due primarily to lower capital expenditures for S&T related to the conversion of the southern portion of Adelphia’s pipeline to natural gas, which was placed into service during September 2022, along with decreased solar asset expenditures, partially offset by increased utility plant expenditures.

Financing Activities

Financing cash flows generally are seasonal in nature and are impacted by the volatility in pricing in the natural gas and other energy markets. NJNG’s inventory levels are built up during its natural gas injection season (April through October) and reduced during withdrawal season (November through March) in response to the supply requirements of its customers. Changes in financing cash flows can also be impacted by natural gas management and marketing activities at ES and clean energy investments at CEV.

Cash flows from financing activities totaled $59.7M during fiscal 2023, compared with $262.5M during fiscal 2022. The decrease of $202.8M is due primarily to the repayment of the term loan of $150.0M that was borrowed during fiscal 2022, decreased long-term debt proceeds of $135.0M, partially offset by an increase in proceeds of $143.7M from solar sale leasebacks, a decrease in payments of short-term debt of $81.5M and an increase of $42.8M from the waiver discount issuance of common stock.

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Part II

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Credit Ratings

The table below summarizes NJNG’s credit ratings as of September 30, 2023, issued by two rating entities, Moody’s and Fitch:

The Fitch ratings and outlook were reaffirmed on April 24, 2023. The Moody’s ratings and outlook were reaffirmed on September 29, 2023. NJNG’s Moody’s and Fitch ratings are investment-grade ratings. NJR is not rated by Moody’s or Fitch.

Although NJNG is not party to any lending agreements that would accelerate the maturity date of any obligation caused by a failure to maintain any specific credit rating, if such ratings are downgraded below investment grade, borrowing costs could increase, as would the costs of maintaining certain contractual relationships, and future financing and our access to capital markets would be reduced. Even if ratings are downgraded without falling below investment grade, NJR and NJNG could face increased borrowing costs under their credit facilities. A rating set forth above is not a recommendation to buy, sell or hold NJR’s or NJNG’s securities and may be subject to revision or withdrawal at any time. Each rating set forth above should be evaluated independently of any other rating.

The timing and mix of any external financings will target a common equity ratio that is consistent with maintaining NJNG’s current short-term and long-term credit ratings.