Notes to Consolidated Financial Statements
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL - SJI provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:
▪SJIU is a holding company that owns SJG, ETG and ELK.
•SJG is a regulated natural gas utility which distributes natural gas in the seven southernmost counties of New Jersey.
•ETG is a regulated natural gas utility which distributes natural gas in seven counties in northern and central New Jersey.
•ELK is a regulated natural gas utility which distributes natural gas in northern Maryland. In December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer, pending MPSC approval (see "Agreement to Sell ELK" below).
▪SJE acquires and markets electricity to retail end users. In November 2018, the Company sold SJE's retail gas business.
▪SJRG markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.
▪SJEX owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.
▪Marina develops and operates on-site energy-related projects. Included in Marina is MTF, which, in February 2020, was sold to a third party buyer (see "Agreement to Sell MTF & ACB" below). Also included in Marina are three solar projects which are held for sale. The significant wholly-owned subsidiaries of Marina include:
•ACB, which owns and operates a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey. ACB is included in the sale to a third party buyer (see "Agreement to Sell MTF & ACB" below).
•ACLE, BCLE, SCLE and SXLE, which owns and operates landfill gas-to-energy production facilities in Atlantic, Burlington, Salem and Sussex Counties in New Jersey.
▪SJESP receives commissions on service contracts from a third party.
•Midstream invests in infrastructure and other midstream projects, including PennEast. See Note 3.
•SJEI provides energy procurement and cost reduction services. AEP, an aggregator, broker and consultant in the retail energy markets, is a wholly-owned subsidiary of SJEI after completion of the AEP acquisition in August 2019.
BASIS OF PRESENTATION - SJI's consolidated financial statements include the accounts of SJI, its direct and indirect wholly-owned subsidiaries (including SJG) and subsidiaries in which SJI has a controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Beginning as of the date of their acquisition, July 1, 2018, SJI also reports on a consolidated basis the combined operations of ETG and ELK. In addition, SJI is reporting on a consolidated basis the operations of AEP as of the date of its acquisition, August 31, 2019. In management's opinion, the consolidated financial statements of SJI and SJG reflect all normal recurring adjustments needed to fairly present their respective financial positions, operating results and cash flows at the dates and for the periods presented.
As of December 31, 2019 and 2018, SJI had assets and liabilities held for sale on the consolidated balance sheets as a result of the agreements to sell that are discussed below. Unless otherwise noted, the disclosures herein related to specific asset and liability balances at December 31, 2019 and 2018 exclude assets and liabilities held for sale. See "Assets and Liabilities Held for Sale" below for additional information including major classes of assets and liabilities classified as held for sale for both periods presented.
ACQUISITIONS - On July 1, 2018, SJI, through its wholly-owned subsidiary SJIU, acquired the assets of ETG and ELK from Pivotal Utility Holdings, Inc., a subsidiary of Southern Company Gas (collectively, the "Acquisition"), for total consideration of $1.72 billion after the settlement of working capital. On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for approximately $4.0 million in total consideration. See Note 20.
AGREEMENT TO SELL SOLAR ASSETS - On June 27, 2018, the Company, through its wholly-owned subsidiary, Marina, entered into a series of agreements whereby Marina agreed to sell its portfolio of solar energy assets (the “Transaction”) to a third-party buyer. As part of the Transaction, Marina agreed to sell its distributed solar energy projects across New Jersey, Maryland, Massachusetts and Vermont (the “Projects”), along with the assets comprising the Projects. Also in connection with the Transaction, Marina is leasing back from the buyer certain of the Projects that have not yet passed the fifth anniversary of their placed-in-service dates for U.S. federal income tax purposes. The leaseback will run from the date each such project was acquired by the buyer until the later of the first anniversary of the applicable acquisition date and the fifth anniversary of the applicable placed-in-service date of the project.
In July 2018, as part of the Transaction, Marina received a cash payment of $62.5 million for the sale of certain SRECs.
During the fourth quarter of 2018, the Company closed on the majority of these Projects, including the wholly-owned subsidiaries MCS, NBS and SBS, with each project sold having met all conditions to satisfy closing. Total consideration received in the fourth quarter 2018 related to these sales was $228.1 million.
During 2019, seven Projects were sold for total consideration of $24.3 million. The Company has three projects that are not part of the Transaction but are expected to be sold in 2020. These unsold assets are recorded as Assets Held For Sale on the consolidated balance sheets as of December 31, 2019, where they will remain until they are transferred to a buyer.
The Company also received $2.5 million in 2019 for completion of remaining performance obligations from a separate sale of a solar project that occurred in 2018.
In total, the Company recorded pre-tax gains on the sale of these projects of $3.1 million and $17.6 million in 2019 and 2018, respectively, in Net Gain on Sales of Assets on the consolidated statements of income, with these gains pertaining to those projects that were not impaired as discussed under "Impairment of Long-Lived Assets" below.
AGREEMENT TO SELL MTF & ACB - In December 2019, the Company announced it had entered into an agreement to sell MTF and ACB to a third-party buyer for an initial sales price of $100.0 million, which includes working capital. This sale closed on February 18, 2020 for a final sales price of $97.0 million, with the initial sales price being reduced by the amount of cash flows generated by MTF and ACB from October 1, 2019 through the date of closing (see Note 22). These unsold assets and liabilities are recorded as Assets Held for Sale and Liabilities Held For Sale, respectively, on the consolidated balance sheets as of December 31, 2019. See "Impairment of Long-Lived Assets" below for charges taken on this agreement.
AGREEMENT TO SELL ELK - In December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer for approximately $15.0 million, less any indebtedness at the time of closing, and pending MPSC approval. This transaction is expected to close in the middle of 2020. The assets and liabilities for ELK are recorded as Assets Held for Sale and Liabilities Held for Sale, respectively, on the consolidated balance sheets as of December 31, 2019.
ASSETS AND LIABILITIES HELD FOR SALE - As of December 31, 2019, SJI has recorded assets and liabilities held for sale as a result of the agreements to sell MTF/ACB and ELK discussed above. As of both December 31, 2019 and 2018, assets held for sale also relate to the solar projects discussed under “Agreement to Sell Solar Assets” above. As a result, SJI has recorded the following in Assets Held for Sale and Liabilities Held for Sale on the consolidated balance sheets as of December 31, 2019 and 2018 (in thousands):
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|
|
|
|
|
|
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2019
|
2018
|
Assets Held for Sale:
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|
|
Current Assets
|
$
|
5,365
|
|
$
|
—
|
|
Net Utility Plant
|
18,692
|
|
—
|
|
Net Nonutility Property, Plant & Equipment
|
110,400
|
|
59,588
|
|
Goodwill
|
59
|
|
—
|
|
Regulatory Assets
|
415
|
|
—
|
|
Other Noncurrent Assets
|
8,509
|
|
—
|
|
Total Assets Held for Sale
|
$
|
143,440
|
|
$
|
59,588
|
|
Liabilities Held for Sale:
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|
|
Current Liabilities
|
$
|
916
|
|
$
|
—
|
|
Asset Retirement Obligations
|
2,515
|
|
—
|
|
Regulatory Liabilities
|
2,583
|
|
—
|
|
Other Noncurrent Liabilities
|
29
|
|
—
|
|
Total Liabilities Held for Sale
|
$
|
6,043
|
|
$
|
—
|
|
SJG does not have any assets or liabilities recorded as held for sale as of December 31, 2019 or 2018.
SALE OF RETAIL GAS OPERATIONS OF SJE - On November 30, 2018, SJI sold the retail gas business of SJE for total consideration of $15.0 million. As a result of this agreement, SJE no longer acquires, transports or markets natural gas for retail markets. The Company recognized a pre-tax loss on this sale of $2.2 million, which is recorded in Net Gain on Sales of Assets on the consolidated statements of income.
IMPAIRMENT OF LONG-LIVED ASSETS - Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with FASB ASC 350, Intangibles - Goodwill and Other, and ASC 360, Property, Plant and Equipment. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset's carrying amount and fair value with the difference recorded within Impairment Charges on the consolidated statements of income. Fair values can be determined based on agreements to sell assets as well as by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques.
In 2019, total impairment charges of $10.8 million (pre-tax) were recorded, $2.4 million of which were related to the expected purchase price of two of the unsold solar sites discussed in "Agreement to Sell Solar Assets" being less than their carrying value. The other $8.4 million were impairments of goodwill and identifiable intangible assets, which were the result of the purchase price discussed in "Agreement to Sell MTF & ACB" being less than its carrying value (see Note 21).
In 2018, the Transaction described above under "Agreement to Sell Solar Assets" triggered an indicator of impairment as the purchase price was less than the carrying amount for several of the assets sold and, as a result, several assets were considered to be impaired. The Company measured the impairment loss as the difference between the carrying amount of the respective assets and the fair value, which was determined using the purchase price and the expected cash flows from the assets, including potential price reductions resulting from the timing needed to satisfy all required closing conditions. As a result, the Company recorded an impairment charge of $99.2 million (pre-tax) for the year ended December 31, 2018, to reduce the carrying amount of several assets to their fair market value.
In 2017, SJI had reason to believe that, due to a significant decline in the market prices of Maryland SRECs, combined with increase of operating expenses, the full carrying value of SJI's Maryland solar facilities may not be recoverable. As a result, SJI performed an impairment test on the respective assets which led to an impairment charge of $43.9 million (pre-tax) for the year ended December 31, 2017. Also, during the fourth quarter of 2017, as the Company updated its estimated future cash flows for the rest of its solar portfolio, the Company determined that the expected future undiscounted cash flows for certain individual solar facilities were below their carrying value and the assets were considered impaired. As a result, SJI recorded an additional impairment charge of $27.4 million (pre-tax) in 2017. The fair values of the impaired solar facilities were determined using an income approach by applying a discounted cash flow methodology to the future estimated cash flows, which were Level 3 fair value measurements. The key inputs to the methodology were forecasted SREC and electric revenues, operating expenses, salvage values, and discount rates.
Also in the fourth quarter of 2017, SJI observed its LFGTE assets were incurring continuing cash flow losses specifically due to larger than expected decreases in electric generation and increasing operating expenses, and as a result had reason to believe the carrying value of these assets may no longer be recoverable. As a result, SJI performed an impairment test on the respective assets which led to an impairment charge of $16.5 million (pre-tax) for the year ended December 31, 2017. The fair values of the LFGTE assets were determined using a combination of market and cost approaches, which considers similar market transactions that are specific to the LFGTE assets. The cost and market approaches used were deemed Level 3 fair value measurements. In the fourth quarter of 2018, SJI observed its LFGTE assets were continuing to incur cash flow losses for similar reasons, and as a result had reason to believe the remaining carrying value of these assets may no longer be recoverable. As a result, the remaining carrying value of all such assets was written off via an impairment charge of $6.1 million (pre-tax) during the fourth quarter of 2018.
For the years ended December 31, 2019, 2018 and 2017, SJI had total long-lived asset impairment charges (pre-tax) of $10.8 million, $105.3 million and $87.8 million, respectively. These impairment charges are recorded within Impairment Charges on the consolidated statements of income and are included within the On-Site Energy Production segment. No impairment charges were recorded at SJG for the years ended December 31, 2019, 2018 and 2017.
EQUITY INVESTMENTS - Marketable equity securities that are purchased as long-term investments are classified as Available-for-Sale Securities and carried at their fair value on the consolidated balance sheets. Any unrealized gains or losses are included in AOCL. SJI, through wholly owned subsidiaries, holds significant variable interests in several companies but is not the primary beneficiary. Consequently, these investments are accounted for under the equity method. In the event that losses and/or distributions from these equity method investments exceed the carrying value, and the Company is obligated to provide additional financial support, the excess will be recorded as either a current or non-current liability on the consolidated balance sheets. SJI includes the operations of these affiliated companies on a pre-tax basis in the statements of consolidated income under Equity in Earnings (Loss) of Affiliated Companies (see Note 3). An impairment loss is recorded when there is clear evidence that a decline in value is other than temporary. No impairment losses were recorded on equity investments during 2019, 2018 or 2017. SJG does not hold any equity investments.
ESTIMATES AND ASSUMPTIONS - The consolidated financial statements were prepared to conform with GAAP. Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Therefore, actual results could differ from those estimates. Significant estimates include amounts related to regulatory accounting, energy derivatives, environmental remediation costs, pension and other postretirement benefit costs, revenue recognition, goodwill and evaluation of equity method investments for other-than-temporary impairment.
REGULATION - SJG and ETG are subject to the rules and regulations of the BPU, while ELK is subject to the rules and regulations of the MPSC. See Note 10 for a discussion of SJG's, ETG's and ELK's rate structure and regulatory actions. SJG, ETG and ELK maintain their accounts according to the BPU's and MPSC's, prescribed Uniform System of Accounts. SJG, ETG and ELK follow the accounting for regulated enterprises prescribed by FASB ASC Topic 980 -”Regulated Operations.” In general, Topic 980 allows for the deferral of certain costs (regulatory assets) and creation of certain obligations (regulatory liabilities) when it is probable that such items will be recovered from or refunded to customers in future periods. See Note 11 for a detailed discussion of regulatory assets and liabilities.
OPERATING REVENUES - Gas and electric revenues are recognized in the period the commodity is delivered to customers. For retail customers (including SJG) that are not billed at the end of the month, we record an estimate to recognize unbilled revenues for gas and electricity delivered from the date of the last meter reading to the end of the month. SJRG's gas revenues are recognized in the period the commodity is delivered. Realized and unrealized gains and losses on energy-related derivative instruments are also recognized in operating revenues for SJRG. See further discussion under Derivative Instruments. SJRG presents revenues and expenses related to its energy trading activities on a net basis in operating revenues. This net presentation
has no effect on operating income or net income. The Company recognizes revenues on commissions received related to SJESP appliance service contracts from a third party on a monthly basis as these commissions are earned. Marina recognizes revenue on a monthly basis as services are provided, as lease income is earned, and for on-site energy production that is delivered to its customers.
ACCOUNTS RECEIVABLE AND PROVISION FOR UNCOLLECTIBLE ACCOUNTS - Accounts receivable are carried at the amount owed by customers. A provision for uncollectible accounts is established based on our collection experience and an assessment of the collectibility of specific accounts.
NATURAL GAS IN STORAGE – Natural Gas in Storage is reflected at average cost on the consolidated balance sheets, and represents natural gas that will be utilized in the ordinary course of business.
ASSET RETIREMENT OBLIGATIONS - The amounts included under ARO are primarily related to the legal obligations SJI has to cut and cap gas distribution pipelines when taking those pipelines out of service in future years. These liabilities are generally recognized upon the acquisition or construction of the asset, or when management has adequate information in order to make an estimate of the obligation. The related asset retirement cost is capitalized concurrently by increasing the carrying amount of the related asset by the same amount as the liability. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO.
ARO activity was as follows (in thousands):
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SJI (includes SJG and all other consolidated subsidiaries):
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2019
|
|
2018
|
AROs as of January 1,
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|
$
|
80,163
|
|
|
$
|
59,497
|
|
Accretion
|
|
9,263
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|
|
1,909
|
|
Additions (A)
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|
175,082
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|
|
297
|
|
Settlements
|
|
(14,437)
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|
|
(3,402)
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|
Revisions in Estimated Cash Flows (B)
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|
13,879
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|
|
21,862
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|
ARO's as of December 31,
|
|
$
|
263,950
|
|
|
$
|
80,163
|
|
|
|
|
|
|
SJG:
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|
2019
|
|
2018
|
AROs as of January 1,
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|
$
|
79,890
|
|
|
$
|
58,714
|
|
Accretion
|
|
3,741
|
|
|
1,880
|
|
Additions
|
|
2,553
|
|
|
297
|
|
Settlements
|
|
(3,554)
|
|
|
(2,863)
|
|
Revisions in Estimated Cash Flows (B)
|
|
13,879
|
|
|
21,862
|
|
ARO's as of December 31,
|
|
$
|
96,509
|
|
|
$
|
79,890
|
|
(A) The additions in 2019 are related to the recording of ETG's ARO liability as part of purchase accounting (see Note 20).
(B) The revision in estimated cash flows reflects an increase in the retirement costs and inflation rate, partially offset by a decrease to the discount rate, to settle the ARO liability. Corresponding entries were made to Regulatory Assets and Utility Plant, thus having no impact on earnings.
PROPERTY, PLANT AND EQUIPMENT - For regulatory purposes, utility plant is stated at original cost, which may be different than costs if the assets were acquired from another regulated entity. Nonutility property, plant and equipment is stated at cost. The cost of adding, replacing and renewing property is charged to the appropriate plant account.
Utility Plant balances and Nonutility Property and Equipment as of December 31, 2019 and 2018 were comprised of the following (in thousands):
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|
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|
|
|
|
|
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SJI (includes SJG and all other consolidated subsidiaries):
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|
|
SJG
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|
|
|
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2019
|
|
2018
|
|
2019
|
|
2018
|
Utility Plant
|
|
|
|
|
|
|
|
|
Production Plant
|
|
$
|
1,334
|
|
|
$
|
1,281
|
|
|
$
|
25
|
|
|
$
|
296
|
|
Storage Plant
|
|
84,611
|
|
|
92,769
|
|
|
61,936
|
|
|
61,996
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|
Transmission Plant
|
|
332,049
|
|
|
326,906
|
|
|
305,459
|
|
|
306,654
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|
Distribution Plant
|
|
3,973,466
|
|
|
3,466,101
|
|
|
2,441,342
|
|
|
2,212,831
|
|
General Plant
|
|
310,785
|
|
|
303,219
|
|
|
238,379
|
|
|
241,095
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|
Other Plant
|
|
1,955
|
|
|
1,964
|
|
|
1,855
|
|
|
1,855
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|
Utility Plant In Service
|
|
4,704,200
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|
|
4,192,240
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|
|
3,048,996
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|
|
2,824,727
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|
Construction Work In Progress
|
|
201,150
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|
|
148,873
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|
|
105,740
|
|
|
82,475
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|
Total Utility Plant
|
|
$
|
4,905,350
|
|
|
$
|
4,341,113
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|
|
$
|
3,154,736
|
|
|
$
|
2,907,202
|
|
|
|
|
|
|
|
|
|
|
Nonutility Property and Equipment
|
|
|
|
|
|
|
|
|
Solar Assets (A)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cogeneration Assets (B)
|
|
—
|
|
|
126,228
|
|
|
—
|
|
|
—
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|
Other Assets
|
|
25,991
|
|
|
26,004
|
|
|
—
|
|
|
—
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|
Total Nonutility Property and Equipment
|
|
$
|
25,991
|
|
|
$
|
152,232
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(A) All remaining solar assets are recorded as Assets Held for Sale in the consolidated balance sheets as of December 31, 2019 and 2018.
(B) All cogeneration assets are recorded as Assets Held for Sale in the consolidated balance sheets as of December 31, 2019.
DEPRECIATION - We depreciate utility plant on a straight-line basis over the estimated remaining lives of the various property classes. These estimates are periodically reviewed and adjusted as required after BPU/MPSC approval. The composite annual rate for all SJG depreciable utility property was approximately 2.2% in 2019, 2.3% in 2018, and 2.2% in 2017. The composite rate for all ETG depreciable utility property was approximately 2.4% in 2019 and 2.3% in 2018. The actual composite rate may differ from the approved rate as the asset mix changes over time. Except for retirements outside of the normal course of business, accumulated depreciation is charged with the cost of depreciable utility property retired, less salvage. Nonutility property depreciation is computed on a straight-line basis over the estimated useful lives of the property, ranging up to 15 years. Gain or loss on the disposition of nonutility property is recognized in operating income.
Total accumulated depreciation for utility and nonutility property and equipment was $844.0 million and $13.8 million, respectively, as of December 31, 2019, and $787.2 million and $52.6 million, respectively, as of December 31, 2018. The decrease in nonutility accumulated depreciation is due to the assets of MTF and ACB being classified as held for sale. As of December 31, 2019 and 2018, total accumulated depreciation for SJG utility property and equipment was $558.6 million and $523.7 million, respectively.
DEBT ISSUANCE COSTS - Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt. See Note 14 for the total unamortized debt issuance costs that are recorded as a reduction to long-term debt on the consolidated balance sheets of SJI and SJG.
CAPITALIZED INTEREST - The Utilities capitalize interest on construction at the rate of return on the rate base utilized by the BPU/MPSC to set rates in their last base rate proceedings. For SJG's accelerated infrastructure programs and ETG's infrastructure investment programs, SJG and ETG capitalize interest on construction at a rate prescribed by the programs (see Note 10), and amounts are included in Utility Plant on the consolidated balance sheets. Midstream capitalizes interest on capital projects in progress based on the actual cost of borrowed funds, and amounts are included in Nonutility Property and Equipment on the consolidated balance sheets. Interest Charges are presented net of capitalized interest on the statements of consolidated income. The amount of interest capitalized by SJI (including SJG) for the years ended December 31, 2019, 2018
and 2017 was $6.0 million, $2.5 million and $2.0 million, respectively. The amount of interest capitalized by SJG for the years ended December 31, 2019, 2018 and 2017 was $4.5 million, $2.2 million and $1.6 million, respectively.
CAPITALIZED SOFTWARE COSTS - For implementation costs incurred in a cloud computing arrangement that is a service contract, SJI and SJG capitalize certain costs incurred during the application-development and post-implementation-operation stages (provided the costs result in enhanced functionality to the hosted solution) in accordance with ASC 350-40. All other costs that do not meet the capitalization criteria per ASC 350-40 are expensed as incurred.
DERIVATIVE INSTRUMENTS - SJI accounts for derivative instruments in accordance with FASB ASC Topic 815 - “Derivatives and Hedging.” We record all derivatives, whether designated in hedging relationships or not, on the consolidated balance sheets at fair value unless the derivative contracts qualify for the normal purchase and sale exemption. In general, if the derivative is designated as a fair value hedge, we recognize the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk in earnings. We currently have no fair value hedges. If the derivative is designated as a cash flow hedge, we record the effective portion of the hedge in AOCL and recognize it in the income statement when the hedged item affects earnings. We recognize ineffective portions of the cash flow hedges immediately in earnings. We currently have no cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives, strategies for undertaking various hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment or forecasted transaction. Due to the application of regulatory accounting principles under FASB ASC Topic 980, gains and losses on derivatives related to SJG's gas purchases are recorded through the BGSS clause.
Initially and on an ongoing basis, we assess whether derivatives designated as hedges are highly effective in offsetting changes in cash flows or fair values of the hedged items. We discontinue hedge accounting prospectively if we decide to discontinue the hedging relationship; determine that the anticipated transaction is no longer likely to occur; or determine that a derivative is no longer highly effective as a hedge. In the event that hedge accounting is discontinued, we will continue to carry the derivative on the balance sheet at its current fair value and recognize subsequent changes in fair value in current period earnings. Unrealized gains and losses on the discontinued hedges that were previously included in AOCL will be reclassified into earnings when the forecasted transaction occurs, or when it is probable that it will not occur. Hedge accounting has been discontinued for all remaining derivatives that were designated as hedging instruments. As a result, unrealized gains and losses on these derivatives, that were previously recorded in AOCL on the consolidated balance sheets, are being recorded into earnings over the remaining life of the derivative. In March 2017, SJI entered into a new interest rate derivative and amended the existing interest rate derivative linked to unrealized losses previously recorded in AOCL (see Note 16).
GAS EXPLORATION AND DEVELOPMENT - SJI capitalizes all costs associated with gas property acquisition, exploration and development activities under the full cost method of accounting. Capitalized costs include costs related to unproved properties, which are not amortized until proved reserves are found or it is determined that the unproved properties are impaired. All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. No impairment charges were recorded on these costs during the years ended December 31, 2019, 2018 and 2017. As of both December 31, 2019 and 2018, $8.6 million related to interests in proved and unproved properties in Pennsylvania, net of amortization, is included with Nonutility Property and Equipment and Other Noncurrent Assets on the consolidated balance sheets and in the Wholesale Energy Operations segment.
TREASURY STOCK – SJI uses the par value method of accounting for treasury stock. As of December 31, 2019 and 2018, SJI held 231,514 and 233,482 shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.
AFUDC - SJI and SJG record AFUDC, which represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently, AFUDC increases the regulated revenue requirement and is included in rate base and recovered over the service life of the asset through a higher rate base and higher depreciation.
INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with FASB ASC Topic 740 - “Income Taxes” (See Note 4). A valuation allowance is established when it is determined that it is more likely than not that a deferred tax asset will not be realized.
On December 22, 2017, Tax Reform was enacted into law, changing various corporate income tax provisions within the existing Internal Revenue Code. The law became effective January 1, 2018 but was required to be accounted for in the period of enactment, as such SJI adopted the new requirements in the fourth quarter of 2017. SJI and SJG were impacted in several ways as a result of Tax Reform, see Note 4.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents.
BUSINESS COMBINATIONS - The Company applies the acquisition method to account for business combinations. The consideration transferred for an acquisition is the fair value of the assets transferred, the liabilities incurred or assumed by the acquirer and the equity interests issued by the acquirer. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill (see Note 20).
AMA - On July 1, 2018, SJRG purchased from a third party an AMA whereby SJRG manages the pipeline capacity of ETG. Total cash payment was $11.3 million. The AMA expires on March 31, 2022. Under the AMA, SJRG pays ETG an annual fee of $4.25 million, plus additional profit sharing as defined in the AMA. The amounts received by ETG will be credited to its BGSS clause and returned to its ratepayers. The total purchase price was allocated as follows (in thousands):
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Natural Gas in Storage
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$
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9,685
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|
Intangible Asset
|
|
19,200
|
|
Profit Sharing - Other Liabilities
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|
(17,546)
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Total Consideration
|
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$
|
11,339
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|
As of December 31, 2019 and 2018, the balance of the intangible asset is $11.5 million and $16.6 million, respectively, and is recorded to Other Current and Noncurrent Assets on the consolidated balance sheets of SJI, with the reduction being due to amortization. As of December 31, 2019 and 2018, the balance in the liability is $10.6 million and $17.0 million and is recorded to Regulatory Liabilities on the consolidated balance sheets of SJI, with the change resulting from profit sharing earned.
ERIP - In 2018, the Company offered an ERIP to non-union, non-Officer employees over the age of 55 years old with 20 or more years of service to the Company as well as to Officers over the age of 55 years old with 5 or more years of service to the Company. Communication was made to these employees in the fourth quarter 2018, with acceptance made by non-union employees by December 15, 2018 and by Officers by December 31, 2018. Total cost to the Company for the ERIP was $13.4 million, of which $8.3 million was included in Operations Expense on the consolidated statements of income as of December 31, 2018, and $5.1 million was related to employees of SJG and recorded as a Regulatory Asset on the consolidated balance sheets as of December 31, 2018. These costs include severances, curtailments and special termination benefits on the Company's pension, SERP and OPEB plans. The majority of employees who accepted the ERIP retired in 2019.
CURRENT PORTION OF LONG-TERM DEBT & SHORT-TERM BORROWINGS - The Company has $467.9 million of long-term debt that is due within one year, along with $848.7 million of notes payable which includes borrowings under the commercial paper program (see Note 13). SJI expects to reduce its debt and notes payable over the next twelve months using cash provided from the sale of MTF/ACB and ELK as discussed above, along with the sale of the remaining solar assets. The remaining portion of long-term debt that is due within one year is expected to be paid by utilizing funds provided from refinancing activity and from the Company's revolving credit facilities.
Management believes that actions presently being taken to pay off the long-term debt that is due within the next year will be successful as the Company has been successful in refinancing debt in the past. However, there can be no assurance that success will continue in the future. No adjustments have been made to the financial statements to account for this uncertainty.
AOCL - SJI and SJG release income tax effects from AOCL on an individual unit of account basis.
NEW ACCOUNTING PRONOUNCEMENTS -
In March 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize substantially all leases on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. Topic 842 also resulted in enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized from existing leases. The accounting for leases by the lessor remains relatively the same.
In connection with this new standard, the FASB has issued amendments to ASU 2016-02, including:
•In January 2018, the FASB issued an amendment (ASU 2018-01) to clarify the application of the new lease guidance to land easements and provided relief concerning adoption efforts for existing land easements that are not accounted for as leases under current GAAP.
•In July 2018, the FASB issued ASU 2018-10 and 2018-11, which included a number of technical corrections and improvements to this standard, including an additional option for transition. The guidance initially required a modified retrospective transition method of adoption, under which lessees and lessors were to recognize and measure leases at the beginning of the earliest period presented. The additional, optional transition method allows an entity to initially apply the requirements of the lease standard at the adoption date, and avoid restating the comparative periods.
The new guidance in ASU 2016-02, as well as all amendments discussed above, was effective for the Company beginning on January 1, 2019. The impact of adopting Topic 842 did not result in an adjustment to retained earnings as of January 1, 2019.
As of January 1, 2019, the Company designed the necessary changes to its existing processes and configured all system requirements to adopt the new standard and applied its provisions to all contracts using the optional transition method discussed above, and by applying certain transition practical expedients. The Company elected the “package of practical expedients,” which permits the Company to not reassess under Topic 842 the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the expedient not to evaluate existing or expired land easements under Topic 842 that were not previously accounted for as leases. The Company has elected not to use hindsight when determining the lease term at the effective date. The Company elected the short-term lease recognition exemption for all leases that qualify. For the leases that qualify, including leases effective at adoption, the Company will not recognize right-of-use assets or lease liabilities. The Company has elected the practical expedient to not separate lease and non-lease components for leases where it is a lessee. The Company’s non-lease components are primarily related to property maintenance on real estate leases, which varies based on future outcomes, and thus is recognized in rent expense when incurred. Additionally, the Company elected to apply a portfolio approach when establishing the discount rate for certain of its leases.
The Company has leases for the following classes of underlying assets: equipment, real estate (land and building), and fleet vehicles. After adopting Topic 842, SJI and SJG had operating right-of-use assets of approximately $3.1 million and $0.5 million, respectively, as of January 1, 2019, with operating lease liabilities of the same amounts. The Company did not have any finance leases.
The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable. Otherwise, the Company uses its incremental borrowing rate, which is determined by using a portfolio approach based on the rate of interest in its existing collateralized term loan facility adjusted for lease term.
Rent expense for operating leases is recognized on a straight-line basis over the reasonably certain lease term based on the total lease payments and is included in Operations Expense in the condensed consolidated statements of income.
For all leases, rent payments that are based on a fixed index or rate are included in the measurement of right-of-use assets and lease liabilities using the index or rate at the lease commencement date. Rent payments that vary based on changes in future indexes or rates are expensed in the period incurred.
For more information on the Company's leases, see Note 9.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The amendments in this Update are effective for annual and any interim impairment tests performed in periods beginning after December 31, 2019. Management does not expect adoption of this guidance to have a material impact on the financial statements of SJI and SJG.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU is intended to improve the financial reporting of hedging relationships so that it represents a more faithful portrayal of an entity’s risk management activities (i.e., to help financial statement users understand an entity’s risk exposures and the manner in which hedging strategies are used to manage them), as well as to further simplify the application of the hedge accounting guidance in GAAP. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Tax Reform. Consequently, the amendments eliminate the stranded tax effects resulting from Tax Reform and will improve the usefulness of information reported to financial statement users. SJI and SJG adopted this guidance on January 1, 2019, consistent with the effective date. Adoption of this guidance did not have an impact on the financial statement results of SJI or SJG. An election was not made to reclassify the income tax effects of Tax Reform from AOCL to retained earnings. SJI and SJG release income tax effects from AOCL on an individual unit of account basis.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on the timing of liquidation of an investee's assets and the description of measurement uncertainty at the reporting date. Entities are now required to disclose: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Further, the standard eliminates disclosure requirements with respect to: (1) the transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation process for Level 3 fair value measurements. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The new disclosure requirement for unrealized gains and losses, the range and weighted average of significant unobservable inputs and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively to all periods presented upon their effective date. Management does not expect adoption of this guidance to have a material impact on the financial statements of SJI and SJG.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plan. This ASU eliminates requirements for certain disclosures such as the amount and timing of plan assets expected to be returned to the employer and the amount of future annual benefits covered by insurance contracts. The standard added new disclosures such as for sponsors of the defined benefit plans to provide information relating to the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates and an explanation for significant gains or losses related to changes in the benefit obligations for the period. The standard is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.
In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other Internal-Use Software (Topic 350): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs for hosting arrangements (services) with costs for internal-use software (assets). As a result, certain implementation costs incurred in hosting arrangements will be deferred and amortized. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. SJI and SJG early adopted this ASU during the third quarter of 2018, which did not result in a change to the financial statements of SJI and SJG.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU provide codification improvements and further clarification on several topics, including ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, as well as ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10). Since SJI and SJG have adopted the amendments in ASU 2017-12 (with no impact to the financial statements results of SJI or SJG) as of April 25, 2019 (the issuance date of ASU 2019-04), the effective date for the amendments to Topic 815 contained in ASU 2019-04 is as of the beginning of the first annual reporting period beginning after April 25, 2019. Early adoption is permitted, including adoption on any date on or after April 25, 2019. The amendments are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption in any interim period is permitted. SJI and SJG do not plan to early adopt ASU 2019-04. Management does not expect adoption of this guidance to have a material impact on the financial statements of SJI and SJG.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In May 2019, the FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326). The amendments in this ASU provide optional targeted transition relief for entities adopting the provisions of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in ASU 2019-05 provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement - Overall, and 825-10. The amendments in ASU 2019-05, along with ASU 2016-13, are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. SJI and SJG did not early adopt ASU 2016-13 or ASU 2019-05.
Management has formed an implementation team to evaluate the impact that adoption of ASU 2016-13 and ASU 2019-05 will have on the financial statements of SJI and SJG. We have completed the assessment of the impact of the guidance on SJI's and SJG's reserve methodologies and credit policies and procedures for any assets that could be impacted, including (but not limited to) Accounts Receivable, Unbilled Revenues, Notes Receivable-Affiliates, and Contract Receivable balances that are recorded on the consolidated balance sheets. We are continuing with our implementation plan and have transitioned to the new guidance beginning in 2020. Management believes that the impact on its statement of financial position, its statement of comprehensive income and its statement of cash flows will not be material. Neither SJI nor SJG expect any impact on its beginning retained earnings at the effective date.
In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments in this ASU clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments in this ASU also clarify that for the purposes of applying Topic 815, an entity should not consider whether, upon the settlement of a forward contract or exercise of a purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, for public companies. Early adoption is permitted, including early adoption in an interim period. Management is currently determining the impact that adoption of this guidance will have on the financial statements of SJI and SJG.
2. STOCK-BASED COMPENSATION PLAN:
Under SJI's 2015 Omnibus Equity Compensation Plan (Plan), shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. No options were granted or outstanding during the years ended December 31, 2019, 2018 and 2017. No stock appreciation rights have been issued under the Plan. During the years ended December 31, 2019, 2018 and 2017, SJI granted 184,791, 201,858 and 167,734 restricted shares, respectively, to Officers and other key employees under the Plan. Performance-based restricted shares vest over a three-year period and are subject to SJI achieving
certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted.
SJI grants time-based shares of restricted stock, one-third of which vests annually over a three-year period and which are limited to a 100% payout. Vesting of time-based grants is contingent upon SJI achieving a ROE of at least 7% during the initial year of the grant and meeting the service requirement. Provided that the 7% ROE requirement is met in the initial year, payout is solely contingent upon the service requirement being met in years two and three of the grant. Beginning in 2018, the vesting and payout of time-based shares of restricted stock is solely contingent upon the service requirement being met in years one, two, and three of the grant. In 2019, 2018, and 2017, Officers and other key employees were granted 88,550, 67,479, and 53,058 shares of time-based restricted stock, respectively, which are included in the shares noted above.
Grants containing market-based performance targets use SJI's TSR relative to a peer group to measure performance. As TSR-based grants are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant on a straight-line basis over the requisite three-year period of each award. In addition, SJI identifies specific forfeitures of share-based awards, and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of performance goals. The fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.
Earnings-based performance targets include pre-defined EGR and ROE goals to measure performance. Performance targets include pre-defined CEGR for SJI. As EGR-based, ROE-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.
SJI granted 30,961, 26,416 and 30,394 restricted shares to Directors in 2019, 2018 and 2017, respectively. Shares issued to Directors vest after twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.
The following table summarizes the nonvested restricted stock awards outstanding at December 31, 2019, and the assumptions used to estimate the fair value of the awards:
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|
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|
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Grants
|
|
Shares Outstanding
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|
Fair Value Per Share
|
|
Expected Volatility
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|
Risk-Free Interest Rate
|
Officers & Key Employees -
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2017 - TSR
|
|
40,226
|
|
|
$
|
32.17
|
|
|
20.8
|
%
|
|
1.47
|
%
|
|
2017 - CEGR, Time
|
|
53,373
|
|
|
33.69
|
|
|
N/A
|
|
|
N/A
|
|
|
2018 - TSR
|
|
50,094
|
|
|
$
|
31.05
|
|
|
21.9
|
%
|
|
2.00
|
%
|
|
2018 - CEGR, Time
|
|
82,429
|
|
|
$
|
31.23
|
|
|
N/A
|
|
|
N/A
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|
|
2019 - TSR
|
|
38,934
|
|
|
$
|
32.88
|
|
|
23.2
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%
|
|
2.40
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%
|
|
2019 - CEGR, Time
|
|
137,091
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|
|
$
|
31.38
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|
|
N/A
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|
|
N/A
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|
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Directors -
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2019
|
|
30,961
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|
|
$
|
27.07
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|
N/A
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|
|
N/A
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|
Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers' and other key employees' restricted shares. As notional dividend equivalents are credited to the holders during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the requisite service period, the fair value of these awards are equal to the market value of the shares on the date of grant.
The following table summarizes the total stock-based compensation cost for the years ended December 31 (in thousands):
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2019
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2018
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2017
|
Officers & Key Employees
|
$
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4,371
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|
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$
|
3,321
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|
|
$
|
3,232
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Directors
|
838
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|
|
823
|
|
|
1,022
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Total Cost
|
5,209
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|
|
4,144
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|
|
4,254
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|
|
|
|
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|
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Capitalized
|
(275)
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|
|
(386)
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|
|
(288)
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Net Expense
|
$
|
4,934
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|
|
$
|
3,758
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|
|
$
|
3,966
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|
As of December 31, 2019, there was $5.1 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the plans. That cost is expected to be recognized over a weighted average period of 1.7 years.
The following table summarizes information regarding restricted stock award activity during 2019, excluding accrued dividend equivalents:
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Officers & Other Key Employees
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Directors
|
|
Weighted
Average
Fair Value
|
Nonvested Shares Outstanding, January 1, 2019
|
411,809
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|
|
26,416
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|
|
$
|
29.57
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|
Granted
|
184,791
|
|
|
30,961
|
|
|
$
|
31.03
|
|
Vested
|
(148,213)
|
|
|
(26,416)
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|
|
$
|
26.07
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|
Cancelled/Forfeited
|
(46,241)
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|
|
—
|
|
|
$
|
31.57
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|
Nonvested Shares Outstanding, December 31, 2019
|
402,146
|
|
|
30,961
|
|
|
$
|
31.50
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|
During the years ended December 31, 2019, 2018 and 2017, SJI awarded 125,288, 67,130 and 65,628, respectively, shares to its Officers and other key employees at a market value of $3.7 million, $2.0 million and $2.2 million, respectively. Also, during the years ended December 31, 2019, 2018 and 2017, SJI granted 30,961, 26,416 and 30,394 shares to its Directors at a market value of $0.8 million, $0.8 million and $1.0 million, respectively.
SJI has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming nonforfeitable or immediately payable in cash. At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods. These deferred shares are included in Treasury Stock on the consolidated balance sheets.
SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the years ended December 31, 2019, 2018 and 2017, SJG officers and other key employees were granted 6,095, 32,924 and 24,001 shares of SJI restricted stock, respectively. The cost of outstanding stock awards for SJG during the years ended December 31, 2019, 2018 and 2017 was $0.1 million and $0.6 million and $0.4 million, respectively. Approximately 70% of these costs were capitalized on SJG's balance sheets to Utility Plant.
3. AFFILIATIONS, DISCONTINUED OPERATIONS AND RELATED-PARTY TRANSACTIONS:
AFFILIATIONS — The following affiliated entities are accounted for under the equity method:
PennEast - Midstream has a 20% investment in PennEast. The following events have occurred with respect to PennEast in recent months:
•On September 10, 2019, the U.S. Court of Appeals for the Third Circuit ruled that PennEast does not have eminent domain authority over NJ state-owned lands. A Petition for Rehearing En Banc was denied by the U.S. Court of Appeals for the Third Circuit on November 5, 2019.
•On October 8, 2019, the NJDEP denied and closed PennEast’s application for several permits without prejudice, citing the Third Circuit Court decision. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its
position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.
•In December 2019, PennEast asked the FERC for a two-year extension to construct the pipeline.
•On January 30, 2020, the FERC voted to approve PennEast’s petition for a declaratory order and expedited action requesting that the body issue an order interpreting the Natural Gas Act’s eminent domain authority. On the same day, PennEast filed an amendment with FERC to construct PennEast in two phases. Phase one consists of construction of a pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction is expected to begin following approval by FERC of the phased approach and receipt of any remaining governmental and regulatory permits.
•On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States to review the September 10, 2019 Third Circuit decision.
•On February 20, 2020, FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline.
PennEast management remains committed to pursuing the project and intends to pursue all available options. SJI, along with the other partners, are intending to contribute to the project.
Our investment in PennEast totaled $82.7 million as of December 31, 2019. As a result of the September decision by the U.S. Court of Appeals and continuing events, we evaluated our investment in the PennEast project for an other-than-temporary impairment. Our impairment assessment used a discounted cash flow income approach, including consideration of the severity and duration of any decline in fair value of our investment in the project. Our significant estimates and assumptions included development options and legal outcomes, construction costs, timing of in-service dates, revenues (including forecasted volumes and rates), and discount rates. At this time, we believe we do not have an other-than-temporary impairment and have not recorded any impairment charge to reduce the carrying value of our investment. Our evaluation considered that the pending legal proceedings are at very early stages, and the intent is to move forward with all potential legal proceedings and other options available. However, to the extent that the legal proceedings have unfavorable outcomes, or if PennEast concludes that the project is not viable or does not go forward as actions progress, our conclusions with respect to other-than-temporary impairment could change and may require that we recognize an impairment charge of up to our recorded investment in the project, net of any cash and working capital. We will continue to monitor and update this analysis as required. Different assumptions could affect the timing and amount of any charge recorded in a period.
Energenic - Marina and a joint venture partner formed Energenic, in which Marina has a 50% equity interest. Energenic developed and operated on-site, self-contained, energy-related projects. Energenic currently does not have any projects that are operational.
Potato Creek - SJI and a joint venture partner formed Potato Creek, in which SJI has a 30% equity interest. Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.
Millennium - SJI and a joint venture partner formed Millennium, in which SJI has a 50% equity interest. Millennium reads utility customers’ meters on a monthly basis for a fee.
EnergyMark - SJE has a 33% investment in EnergyMark, an entity that acquires and markets natural gas to retail end users.
For the years ended December 31, 2019, 2018 and 2017, SJRG had net sales to EnergyMark of $27.8 million, $41.6 million and $37.5 million, respectively.
EnerConnex - SJEI has a 25% investment in EnerConnex, which is a retail and wholesale broker and consultant that matches end users with suppliers for the procurement of natural gas and electricity.
The Company made net investments in unconsolidated affiliates of $8.3 million, $6.6 million and $32.1 million in 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, the outstanding balance of Notes Receivable – Affiliates was $18.1 million and $15.2 million, respectively. These Notes Receivable-Affiliates are broken out as follows:
•$13.1 million and $13.6 million, respectively, of notes are related to Energenic, which are secured by Energenic's cogeneration assets for energy service projects, accrue interest at 7.5% and are to be repaid through 2025. As of December 31, 2019 and 2018, $4.4 million and $3.4 million, respectively, of interest has been accrued and is recorded in Accounts Receivable on the consolidated balance sheets. No payments have been made on this note as of December 31, 2019.
•The remaining $5.0 million and $1.6 million of notes are unsecured and accrue interest at variable rates.
SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of December 31, 2019, the Company had a net asset of approximately $87.1 million included in Investment in Affiliates on the consolidated balance sheets related to equity method investees, in addition to Notes Receivable – Affiliates as discussed above. SJI’s maximum exposure to loss from these entities as of December 31, 2019 is limited to its combined equity contributions and the Notes Receivable-Affiliates in the aggregate amount of $105.2 million.
DISCONTINUED OPERATIONS - Discontinued Operations consist of the environmental remediation activities related to the properties of SJF and the product liability litigation and environmental remediation activities related to the prior business of Morie. SJF is a subsidiary of EMI, an SJI subsidiary, which previously operated a fuel oil business. Morie is the former sand mining and processing subsidiary of EMI. EMI sold the common stock of Morie in 1996.
SJI conducts tests annually to estimate the environmental remediation costs for these properties (see Note 15).
Summarized operating results of the discontinued operations for the years ended December 31, were (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Loss before Income Taxes:
|
|
|
|
|
|
Sand Mining
|
$
|
(79)
|
|
|
$
|
(118)
|
|
|
$
|
(84)
|
|
Fuel Oil
|
(263)
|
|
|
(184)
|
|
|
(175)
|
|
Income Tax Benefits
|
70
|
|
|
62
|
|
|
173
|
|
Loss from Discontinued Operations — Net
|
$
|
(272)
|
|
|
$
|
(240)
|
|
|
$
|
(86)
|
|
Earnings Per Common Share from
|
|
|
|
|
|
Discontinued Operations — Net:
|
|
|
|
|
|
Basic and Diluted
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
SJG RELATED-PARTY TRANSACTIONS - SJG conducts business with its parent, SJI, and several other related parties. A description of each of these affiliates and related transactions is as follows:
SJES - a wholly-owned subsidiary of SJI that serves as a holding company for all of SJI’s nonutility operating businesses:
•SJE - Prior to the sale of SJE's retail gas business (see Note 1), for SJE’s commercial customers for which SJG performed billing services, SJG purchased the related accounts receivable at book value and charged them a purchase of receivable fee for potential uncollectible accounts, and assumed all risk associated with collection.
•SJRG - SJG sells natural gas for resale and capacity release to SJRG and also meets some of SJG's gas purchasing requirements by purchasing natural gas from SJRG.
•Marina - SJG provides natural gas transportation services to Marina under BPU-approved tariffs.
•Millennium - Reads SJG's utility customers’ meters on a monthly basis for a fee.
Sales of gas to SJRG and SJE comply with Section 284.02 of the regulations of the FERC.
In addition to the above, SJG provides various administrative and professional services to SJI and each of the affiliates discussed above. Likewise, SJI provides substantial administrative services on SJG's behalf. For certain types of transactions, SJG served as central processing agents for the related parties discussed above. Amounts due to and due from these related parties for pass-through items are not considered material to SJG's financial statements as a whole.
A summary of related party transactions involving SJG, excluding pass-through items, included in SJG's Operating Revenues were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Operating Revenues/Affiliates:
|
|
|
|
|
|
SJRG
|
$
|
5,039
|
|
|
$
|
5,813
|
|
|
$
|
4,458
|
|
Marina
|
394
|
|
|
379
|
|
|
314
|
|
Other
|
80
|
|
|
91
|
|
|
86
|
|
Total Operating Revenues/Affiliates
|
$
|
5,513
|
|
|
$
|
6,283
|
|
|
$
|
4,858
|
|
Related-party transactions involving SJG, excluding pass-through items, included in SJG's Cost of Sales and Operating Expenses were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Costs of Sales/Affiliates (Excluding depreciation and amortization)
|
|
|
|
|
|
SJRG*
|
$
|
9,612
|
|
|
$
|
33,313
|
|
|
$
|
24,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Expense/Affiliates:
|
|
|
|
|
|
SJI
|
$
|
22,462
|
|
|
$
|
31,740
|
|
|
$
|
22,154
|
|
SJIU
|
1,833
|
|
|
—
|
|
|
—
|
|
Millennium
|
3,146
|
|
|
2,920
|
|
|
2,856
|
|
Other
|
1,680
|
|
|
(569)
|
|
|
(653)
|
|
Total Operations Expense/Affiliates
|
$
|
29,121
|
|
|
$
|
34,091
|
|
|
$
|
24,357
|
|
*These costs are included in either SJG's Cost of Sales on the statements of income, or Regulatory Assets on the balance sheets. As discussed in Note 1, revenues and expenses related to the energy trading activities of the wholesale energy operations at SJRG are presented on a net basis in Operating Revenues - Nonutility on the statements of consolidated income.
4. INCOME TAXES:
SJI files a consolidated federal income tax return and various state income tax returns, some of which are combined or unitary.
Total income taxes applicable to operations differ from the tax that would have resulted by applying the statutory Federal income tax rate to pre-tax income for SJI and SJG for the following reasons (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
Tax at Statutory Rate*
|
|
$
|
20,633
|
|
|
$
|
3,877
|
|
|
$
|
(9,915)
|
|
Increase (Decrease) Resulting from:
|
|
|
|
|
|
|
State Income Taxes
|
|
7,813
|
|
|
622
|
|
|
2,778
|
|
ESOP Dividend
|
|
(697)
|
|
|
(791)
|
|
|
(1,314)
|
|
Tax Reform Adjustments
|
|
—
|
|
|
(588)
|
|
|
(13,521)
|
|
|
|
|
|
|
|
|
AFUDC
|
|
(1,546)
|
|
|
(1,835)
|
|
|
(3,094)
|
|
Amortization of Excess Deferred Taxes
|
|
(3,475)
|
|
|
(893)
|
|
|
—
|
|
Investment and Other Tax Credits
|
|
(953)
|
|
|
(93)
|
|
|
(666)
|
|
Other - Net
|
|
(714)
|
|
|
262
|
|
|
795
|
|
Income Taxes:
|
|
|
|
|
|
|
Continuing Operations
|
|
21,061
|
|
|
561
|
|
|
(24,937)
|
|
Discontinued Operations
|
|
(70)
|
|
|
(62)
|
|
|
(173)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense (Benefit)
|
|
$
|
20,991
|
|
|
$
|
499
|
|
|
$
|
(25,110)
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
Tax at Statutory Rate*
|
|
25,245
|
|
|
22,966
|
|
|
41,390
|
|
Increase (Decrease) Resulting from:
|
|
|
|
|
|
|
State Income Taxes
|
|
9,542
|
|
|
5,220
|
|
|
5,955
|
|
|
|
|
|
|
|
|
ESOP Dividend
|
|
(592)
|
|
|
(712)
|
|
|
(1,182)
|
|
AFUDC
|
|
(591)
|
|
|
(1,126)
|
|
|
(1,446)
|
|
|
|
|
|
|
|
|
Other - Net
|
|
(782)
|
|
|
65
|
|
|
983
|
|
Total Income Tax Expense
|
|
32,822
|
|
|
26,413
|
|
|
45,700
|
|
|
|
|
|
|
|
|
The provision for Income Taxes is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
(13,790)
|
|
|
$
|
(34,971)
|
|
State
|
|
(482)
|
|
|
3,959
|
|
|
(48)
|
|
Total Current
|
|
(482)
|
|
|
(9,831)
|
|
|
(35,019)
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
11,171
|
|
|
13,564
|
|
|
5,761
|
|
State
|
|
10,372
|
|
|
(3,172)
|
|
|
4,321
|
|
Total Deferred
|
|
21,543
|
|
|
10,392
|
|
|
10,082
|
|
|
|
|
|
|
|
|
Income Taxes:
|
|
|
|
|
|
|
Continuing Operations
|
|
21,061
|
|
|
561
|
|
|
(24,937)
|
|
Discontinued Operations
|
|
(70)
|
|
|
(62)
|
|
|
(173)
|
|
Total Income Tax Expense (Benefit)
|
|
$
|
20,991
|
|
|
$
|
499
|
|
|
$
|
(25,110)
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
(12,766)
|
|
|
$
|
(33,012)
|
|
State
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Current
|
|
—
|
|
|
(12,766)
|
|
|
(33,012)
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
20,744
|
|
|
32,571
|
|
|
69,550
|
|
State
|
|
12,078
|
|
|
6,608
|
|
|
9,162
|
|
Total Deferred
|
|
32,822
|
|
|
39,179
|
|
|
78,712
|
|
|
|
|
|
|
|
|
Total Income Tax Expense
|
|
$
|
32,822
|
|
|
$
|
26,413
|
|
|
$
|
45,700
|
|
*See Tax Reform discussion below.
For the years ended December 31, 2019 and 2018, changes in SJI and SJG tax expense correlated with changes in income before income taxes. For the year ended December 31, 2017, SJI's tax expense decreased primarily due to adjustments made as a result of Tax Reform along with an overall loss before income taxes.
TAX REFORM - On December 22, 2017, Tax Reform was enacted into law, changing various corporate income tax provisions within the existing Internal Revenue Code. The law became effective January 1, 2018 but was required to be accounted for in the period of enactment, as such SJI adopted the new requirements in the fourth quarter of 2017. SJI and SJG were impacted in several ways as a result of Tax Reform, including provisions related to the permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, modification of bonus depreciation and changes to the deductibility of certain business related expenses. As a result of the change in the federal corporate income tax rate, SJI and SJG revalued deferred tax assets and liabilities to reflect the rates expected to be in effect as a result of Tax Reform. This resulted in SJI recording a $14.1 million income tax benefit in total for the decrease of its net deferred tax liabilities. SJG also recorded a $260.5 million total decrease in its net deferred tax liabilities, which resulted in an increase to SJG's regulatory liabilities as such amounts are probable of settlement or recovery through customer rates. The amounts noted above were the total recorded between 2017 and 2018 as a result of Tax Reform. The amount and timing of potential settlements of the established net regulatory liability will be determined by the BPU, subject to certain IRS "normalization" provisions. All adjustments related to Tax Reform were recorded in the Corporate & Services segment.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of Tax Reform for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of Tax Reform for which the accounting under ASC 740 is complete.
As of December 31, 2018, SJI and SJG consider the impacts from Tax Reform to be complete. While we still expect additional guidance from the U.S. Department of the Treasury and the IRS, we have finalized our calculations using available guidance. Any additional issued guidance or future actions of our regulators could potentially affect the final determination of the accounting effects arising from the implementation of Tax Reform.
In November 2018, the IRS issued proposed regulations that allow all interest expense of a consolidated group to be deductible as long as a public utility comprises at least 90 percent of the total consolidated business. Under these proposed regulations, SJI expects to meet the de minimis safe harbor rule in 2019 and 2018 and therefore, the full amount of SJI’s 2019 and 2018 consolidated interest expense would be deductible.
The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following net deferred tax assets and liabilities for SJI and SJG at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
2019
|
|
2018
|
Deferred Tax Assets:
|
|
|
|
|
Net Operating Loss Carryforward
|
|
$
|
122,197
|
|
|
$
|
125,418
|
|
Investment and Other Tax Credits
|
|
215,033
|
|
|
214,698
|
|
|
|
|
|
|
Conservation Incentive Program
|
|
1,991
|
|
|
1,701
|
|
Deferred State Tax
|
|
18,514
|
|
|
16,087
|
|
Income Taxes Recoverable Through Rates
|
|
103,922
|
|
|
103,434
|
|
Pension & Other Post Retirement Benefits
|
|
28,579
|
|
|
16,560
|
|
Deferred Revenues
|
|
5,324
|
|
|
5,736
|
|
Deferred Regulatory Costs
|
|
11,895
|
|
|
—
|
|
Provision for Uncollectibles
|
|
4,749
|
|
|
5,319
|
|
Other
|
|
16,705
|
|
|
4,639
|
|
Total Deferred Tax Asset
|
|
$
|
528,909
|
|
|
$
|
493,592
|
|
Deferred Tax Liabilities:
|
|
|
|
|
Book versus Tax Basis of Property
|
|
$
|
479,765
|
|
|
$
|
458,772
|
|
Deferred Gas Costs - Net
|
|
23,728
|
|
|
25,812
|
|
Derivatives / Unrealized Gain
|
|
1,098
|
|
|
4,463
|
|
Environmental Remediation
|
|
53,511
|
|
|
20,250
|
|
Deferred Regulatory Costs
|
|
—
|
|
|
14,351
|
|
Budget Billing - Customer Accounts
|
|
5,400
|
|
|
4,550
|
|
Deferred Pension & Other Post Retirement Benefits
|
|
31,416
|
|
|
34,095
|
|
|
|
|
|
|
Equity In Loss Of Affiliated Companies
|
|
1,801
|
|
|
1,417
|
|
Other
|
|
24,356
|
|
|
15,718
|
|
Total Deferred Tax Liability
|
|
$
|
621,075
|
|
|
$
|
579,428
|
|
Deferred Tax Liability - Net
|
|
$
|
92,166
|
|
|
$
|
85,836
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
Net Operating Loss and Tax Credits
|
|
$
|
55,250
|
|
|
$
|
60,986
|
|
Deferred State Tax
|
|
20,352
|
|
|
16,754
|
|
Provision for Uncollectibles
|
|
3,939
|
|
|
3,776
|
|
Conservation Incentive Program
|
|
1,991
|
|
|
1,701
|
|
Income Taxes Recoverable Through Rates
|
|
68,280
|
|
|
67,372
|
|
Pension & Other Post Retirement Benefits
|
|
17,461
|
|
|
16,699
|
|
Deferred Revenues
|
|
5,525
|
|
|
5,906
|
|
Other
|
|
2,486
|
|
|
2,599
|
|
Total Deferred Tax Assets
|
|
$
|
175,284
|
|
|
$
|
175,793
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
Book Versus Tax Basis of Property
|
|
$
|
418,059
|
|
|
$
|
395,371
|
|
Deferred Fuel Costs - Net
|
|
20,227
|
|
|
23,642
|
|
Environmental Remediation
|
|
47,270
|
|
|
40,753
|
|
Deferred Regulatory Costs
|
|
9,609
|
|
|
5,061
|
|
Deferred Pension & Other Post Retirement Benefits
|
|
20,396
|
|
|
21,870
|
|
Budget Billing - Customer Accounts
|
|
5,400
|
|
|
4,550
|
|
Section 461 Prepayments
|
|
1,445
|
|
|
1,081
|
|
|
|
|
|
|
Other
|
|
10,515
|
|
|
9,351
|
|
Total Deferred Tax Liabilities
|
|
$
|
532,921
|
|
|
$
|
501,679
|
|
|
|
|
|
|
Deferred Tax Liability - Net
|
|
$
|
357,637
|
|
|
$
|
325,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG is included in the consolidated federal income tax return filed by SJI. The actual taxes, including credits, are allocated by SJI to its subsidiaries, generally on a separate return basis except for net operating loss and credit carryforwards. As of December 31, 2019 and 2018, there were no income taxes due to or from SJI.
As of December 31, 2019, SJI has the following federal and state net operating loss carryforwards (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
|
Expire in:
|
|
Federal
|
State
|
2031
|
|
$
|
—
|
|
$
|
15,104
|
|
2032
|
|
21,777
|
|
3,108
|
|
2033
|
|
57,363
|
|
18,557
|
|
2034
|
|
106,899
|
|
12,779
|
|
2035
|
|
51,308
|
|
13,317
|
|
2036
|
|
72,199
|
|
165,032
|
|
2037
|
|
75,606
|
|
79,869
|
|
2038
|
|
—
|
|
131,406
|
|
2039
|
|
—
|
|
82,659
|
|
Indefinite
|
|
16,792
|
|
—
|
|
|
|
$
|
401,944
|
|
$
|
521,831
|
|
As of December 31, 2019, SJI has the following investment tax credit carryforwards (in thousands):
|
|
|
|
|
|
|
|
|
Expire in:
|
|
Investment Tax Credit Carryforward
|
2030
|
|
$
|
11,628
|
|
2031
|
|
25,664
|
|
2032
|
|
32,031
|
|
2033
|
|
45,606
|
|
2034
|
|
37,699
|
|
2035
|
|
45,005
|
|
2036
|
|
11,744
|
|
2037
|
|
636
|
|
2038
|
|
93
|
|
|
|
$
|
210,106
|
|
SJI has $0.6 million of federal alternative minimum tax credits which have no expiration date.
SJI and SJG also have research and development credits of $4.1 million and $2.9 million, respectively, which will expire between 2031 and 2038.
As of December 31, 2019 and 2018, SJG has total federal net operating loss carryforwards of $156.8 million and $200.0 million, respectively, that will expire between 2035 and 2037. SJG has a state net operating loss carryforward of $246.0 million and $207.9 million that will expire between 2036 and 2038.
A valuation allowance is recorded when it is more likely than not that any of SJI's or SJG's deferred tax assets will not be realized. SJI and SJG believe that they will generate sufficient future taxable income to realize the income tax benefits related to their net deferred tax assets.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
2019
|
|
2018
|
|
2017
|
Balance at January 1,
|
|
$
|
1,147
|
|
|
$
|
1,445
|
|
|
$
|
1,445
|
|
Increase as a result of tax positions taken in prior years
|
|
419
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Decrease in prior year positions
|
|
—
|
|
|
(298)
|
|
|
—
|
|
Balance at December 31,
|
|
$
|
1,566
|
|
|
$
|
1,147
|
|
|
$
|
1,445
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
Balance at January 1,
|
|
$
|
1,063
|
|
|
$
|
1,361
|
|
|
$
|
1,361
|
|
Increase as a result of tax position taken in prior years
|
|
41
|
|
|
—
|
|
|
—
|
|
Decrease in prior year positions
|
|
—
|
|
|
(298)
|
|
|
—
|
|
Balance at December 31,
|
|
$
|
1,104
|
|
|
$
|
1,063
|
|
|
$
|
1,361
|
|
The total unrecognized tax benefits reflected in the table above exclude $0.8 million of accrued interest and penalties for each of the years ended December 31, 2019, 2018 and 2017 for both SJI and SJG. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not significant. The Company's policy is to record interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively. These amounts were not significant in 2019, 2018 or 2017. The majority of the increased tax position in 2019 is attributable to research and development credits. The Company does not anticipate any significant changes in the total unrecognized tax benefits within the next 12 months.
The unrecognized tax benefits are primarily related to an uncertainty of state income tax issues relating to the Company's nexus in certain states and tax credits. Federal income tax returns from 2014 forward and state income tax returns from 2008 forward are open and subject to examination.
5. PREFERRED STOCK:
REDEEMABLE CUMULATIVE PREFERRED STOCK - SJI has 2,500,000 authorized shares of Preference Stock, no par value, which has not been issued.
6. COMMON STOCK:
The following shares were issued and outstanding at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Beginning of Year
|
85,506,218
|
|
|
79,549,080
|
|
|
79,478,055
|
|
New Issuances During Year:
|
|
|
|
|
|
|
Settlement of Equity Forward Sale Agreement
|
6,779,661
|
|
|
—
|
|
|
—
|
|
Stock-Based Compensation Plan
|
108,276
|
|
|
67,308
|
|
|
71,025
|
|
Public Equity Offering
|
—
|
|
|
5,889,830
|
|
|
—
|
|
End of Year
|
92,394,155
|
|
|
85,506,218
|
|
|
79,549,080
|
|
The par value ($1.25 per share) of stock issued was recorded in Common Stock and the net excess over par value at December 31, 2019 of approximately $184.6 million was recorded in Premium on Common Stock.
There were 2,339,139 shares of SJG's common stock (par value $2.50 per share) outstanding as of December 31, 2019. SJG did not issue any new shares during the period. SJI, through its a wholly-owned subsidiary SJIU, owns all of the outstanding common stock of SJG.
FORWARD SHARES - In the second quarter of 2018, SJI offered 12,669,491 shares of its common stock, par value $1.25 per share, at a public offering price of $29.50 per share. Of the offered shares, 5,889,830 shares were issued at closing. On January 15, 2019, SJI settled its equity forward sale agreement by physically delivering the remaining 6,779,661 shares of common stock and receiving net cash proceeds of approximately $189.0 million. The forward price used to determine cash proceeds received by SJI at settlement was calculated based on the initial forward sale price, as adjusted for underwriting fees, interest rate adjustments as specified in the equity forward agreement and any dividends paid on our common stock during the forward period.
CONVERTIBLE UNITS - In the second quarter of 2018, SJI issued and sold 5,750,000 Equity Units, initially in the form of Corporate Units, which included 750,000 Corporate Units pursuant to the underwriters’ option. Each Corporate Unit has a stated amount of $50 and is comprised of (a) a purchase contract obligating the holder to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, on the purchase contract settlement date, or April 15, 2021, subject to earlier termination or settlement, a certain number of shares of common stock; and (b) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of SJI’s 2018 Series A 3.70% Remarketable Junior Subordinated Notes due 2031. SJI will pay the holder quarterly contract adjustment payments at a rate of 3.55% per year on the stated amount of $50 per Equity Unit, in respect of each purchase contract, subject to the Company's right to defer these payments. The net proceeds, after amortization of the underwriting discounts, are recorded as Long-Term Debt on the consolidated balance sheets.
SJI's EPS — SJI's Basic EPS is based on the weighted-average number of common shares outstanding. The incremental shares required for inclusion in the denominator for the diluted EPS calculation were 123,021 and 777,603 shares for the years ended December 31, 2019 and 2018, respectively. For the year ended December 31, 2017, incremental shares of 141,750 were not included in the denominator for the diluted EPS calculation because they would have an antidilutive effect on EPS. These shares relate to SJI’s restricted stock as discussed in Note 2, along with the impact of the Forward Shares and Convertible Units discussed above, accounted for under the treasury stock method.
DIVIDENDS PER SHARE - SJI's dividends per share were $1.16, $1.13 and $1.10 for the years ended December 31, 2019, 2018 and 2017, respectively. SJG did not declare or pay any dividends to SJI in 2019 or 2018. SJG's dividends per share paid to SJI were $8.55 for the year ended December 31, 2017.
DRP — SJI offers a DRP which allows participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases. SJI currently purchases shares on the open market to fund share purchases by DRP participants, and as a result SJI did not raise any equity capital through the DRP in 2019, 2018 or 2017. SJI does not intend to issue equity capital via the DRP in 2020.
RETAINED EARNINGS:
The Utilities are limited by their regulatory authorities on the amount of cash dividends or other distributions they are able to transfer to their parent, specifically of which could impact their capitalization structure. In addition, various loan agreements may contain restrictions regarding the amount of cash dividends or other distributions that the Utilities may pay on its common stock. As of December 31, 2019, these loan restrictions did not affect the amount that may be distributed from the Utilities's retained earnings.
SJG declared and paid cash dividends of $20.0 million in 2017 to SJI. Cash dividends were not declared or paid by SJG to SJI in 2019 or 2018. SJG received a $40.0 million equity contribution from SJI in 2017; there was no equity contribution to SJG in 2019 or 2018. Future equity contributions will occur on an as needed basis.
7. FINANCIAL INSTRUMENTS:
RESTRICTED INVESTMENTS — SJI and SJG maintain margin accounts with certain counterparties to support their risk management activities associated with hedging commodities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease. As of December 31, 2019 and 2018, SJI's balances (including SJG) in these accounts totaled $22.0 million and $1.6 million, respectively, held by the counterparties, which is recorded in Restricted Investments on the consolidated balance sheets. SJI also had balances held by SJRG as collateral as of December 31, 2018 of $7.9 million which was recorded in Accounts Payable on the consolidated balance sheets. As of December 31, 2019 and 2018, SJG's balance held by the counterparties totaled $4.0 million and $1.3 million, respectively, which is recorded in Restricted Investments on the balance sheets.
The carrying amounts of the Restricted Investments for both SJI and SJG approximate their fair values at December 31, 2019 and 2018, which would be included in Level 1 of the fair value hierarchy (see Note 17).
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
Balance Sheet Line Item
|
|
SJI
|
SJG
|
Cash and Cash Equivalents
|
|
6,417
|
|
2,678
|
|
Restricted Investments
|
|
21,964
|
|
4,073
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
$
|
28,381
|
|
$
|
6,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
Balance Sheet Line Item
|
|
SJI
|
SJG
|
Cash and Cash Equivalents
|
|
30,030
|
|
1,984
|
|
Restricted Investments
|
|
1,649
|
|
1,278
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
$
|
31,679
|
|
$
|
3,262
|
|
NOTES RECEIVABLE-AFFILIATES - See Note 3.
LONG-TERM RECEIVABLES — SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources. The terms of these loans call for customers to make monthly payments over periods ranging from five to ten years, with no interest. The carrying amounts of such loans were $3.7 million and $5.3 million as of December 31, 2019 and 2018, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of $0.5 million and $0.7 million as of December 31, 2019 and 2018, respectively. The annualized amortization to interest is not material to SJI's or SJG's consolidated financial statements. In addition, as part of EET/EEP programs (see Note 10), SJG provides funding to customers to upgrade equipment for the purpose of promoting energy efficiency. The terms of these loans range from two to ten years. The carrying amounts of such loans were $33.5 million and $26.3 million as of December 31, 2019 and 2018, respectively. On the consolidated balance sheets of SJI and SJG, $4.6 million and $3.6 million of the current portion of EET/EEP loans receivable is reflected in Accounts Receivable as of December 31, 2019 and 2018, respectively, and $28.9 million and $22.7 million of the non-current portion is reflected in Contract Receivables as of December 31, 2019 and 2018, respectively. The carrying amounts of these receivables approximate their fair value at December 31, 2019 and 2018, which would be included in Level 2 of the fair value hierarchy (see Note 17).
CREDIT RISK - As of December 31, 2019, SJI had approximately $15.4 million, or 25.7%, of current and noncurrent Derivatives–Energy Related Assets transacted with two counterparties. These counterparties are investment-grade rated.
FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's and SJG's financial instruments approximate their fair values at December 31, 2019 and 2018, except as noted below.
•For Long-Term Debt, in estimating the fair value, SJI and SJG use the present value of remaining cash flows at the balance sheet date. SJI and SJG based the estimates on interest rates available at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy, see Note 17).
•The estimated fair values of SJI's long-term debt (which includes SJG and all consolidated subsidiaries), including current maturities, as of December 31, 2019 and 2018, were $2.73 billion and $2.91 billion, respectively. The carrying amounts of SJI's long-term debt, including current maturities, as of December 31, 2019 and 2018, were $2.54 billion and $2.84 billion, respectively. SJI's carrying amounts as of December 31, 2019 are net of unamortized debt issuance costs of $25.5 million and unamortized debt discounts of $5.3 million. SJI's carrying amounts as of December 31, 2018 are net of unamortized debt issuance costs of $27.0 million.
•The estimated fair values of SJG's long-term debt, including current maturities, as of December 31, 2019 and 2018, were $915.2 million and $895.1 million, respectively. The carrying amounts of SJG's long-term debt, including current maturities, as of December 31, 2019 and 2018, were $965.1 million and $893.4 million, respectively. The carrying amounts as of December 31, 2019 and 2018 are net of unamortized debt issuance costs of $6.3 million and $6.8 million, respectively.
OTHER FINANCIAL INSTRUMENTS - The carrying amounts of SJI's and SJG's other financial instruments approximate their fair values at December 31, 2019 and 2018.
8. SEGMENTS OF BUSINESS:
SJI operates in several different reportable operating segments which reflect the financial information regularly evaluated by the CODM. These segments are as follows:
•SJG utility operations consist primarily of natural gas distribution to residential, commercial and industrial customers in southern New Jersey.
•ETG utility operations consist primarily of natural gas distribution to residential, commercial and industrial customers in northern and central New Jersey.
•ELK utility operations consist of natural gas distribution to residential, commercial and industrial customers in Maryland. As discussed in Note 1, SJI entered into an agreement to sell ELK to a third party, with expected closing in the middle of 2020.
•Wholesale energy operations include the activities of SJRG and SJEX.
•Retail gas and other operations at SJE included natural gas acquisition and transportation service business lines. This business was sold on November 30, 2018.
•Retail electric operations at SJE consist of electricity acquisition and transportation to commercial, industrial and residential customers.
•On-site energy production consists of MTF and ACB, which, as disclosed in Notes 1 and 22 to the consolidated financial statements, were sold on February 18, 2020. This segment also includes other energy-related projects, including three remaining solar projects. Also included in this segment are the activities of ACLE, BCLE, SCLE, SXLE, along with MCS, NBS and SBS, which were sold in October 2018 .
•Appliance service operations includes SJESP, which receives commissions on service contracts from a third party.
•Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey.
•Corporate & Services segment includes costs related to the Acquisition, along with other unallocated costs. Also included in this segment are the results of SJEI.
•Intersegment represents intercompany transactions between the above SJI consolidated entities.
SJI groups its utility businesses under its wholly-owned subsidiary SJIU. This group consists of gas utility operations of SJG, ETG and ELK. SJI groups its nonutility operations into separate categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
Information about SJI’s operations in different reportable operating segments is presented below (in thousands). The results for ETG and ELK utility operations are included from the date of the Acquisition, July 1, 2018; the results for AEP are included in the Corporate & Services segment from the acquired date of August 31, 2019. Further, the results and balances for On-Site Energy Production and Retail Gas and Other Operations are impacted by the sales of solar assets and the retail gas business of SJE, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Operating Revenues:
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
SJG Utility Operations
|
$
|
569,226
|
|
|
$
|
548,000
|
|
|
$
|
517,254
|
|
ETG Utility Operations
|
325,133
|
|
|
125,604
|
|
|
—
|
|
ELK Utility Operations
|
7,949
|
|
|
3,302
|
|
|
—
|
|
Subtotal SJI Utilities
|
902,308
|
|
|
676,906
|
|
|
517,254
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
607,093
|
|
|
636,005
|
|
|
352,613
|
|
Retail Gas and Other Operations
|
—
|
|
|
101,543
|
|
|
111,048
|
|
Retail Electric Operations
|
81,193
|
|
|
176,945
|
|
|
179,534
|
|
Subtotal Energy Group
|
688,286
|
|
|
914,493
|
|
|
643,195
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
48,748
|
|
|
72,374
|
|
|
99,517
|
|
Appliance Service Operations
|
2,042
|
|
|
1,957
|
|
|
6,488
|
|
Subtotal Energy Services
|
50,790
|
|
|
74,331
|
|
|
106,005
|
|
Corporate & Services
|
44,511
|
|
|
51,000
|
|
|
45,024
|
|
Subtotal
|
1,685,895
|
|
|
1,716,730
|
|
|
1,311,478
|
|
Intersegment Sales
|
(57,269)
|
|
|
(75,392)
|
|
|
(68,410)
|
|
Total Operating Revenues
|
$
|
1,628,626
|
|
|
$
|
1,641,338
|
|
|
$
|
1,243,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Operating Income/(Loss):
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
SJG Utility Operations
|
$
|
147,494
|
|
|
$
|
132,688
|
|
|
$
|
138,875
|
|
ETG Utility Operations
|
69,315
|
|
|
2,164
|
|
|
—
|
|
ELK Utility Operations
|
721
|
|
|
(256)
|
|
|
—
|
|
Subtotal SJI Utilities
|
217,530
|
|
|
134,596
|
|
|
138,875
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
439
|
|
|
87,895
|
|
|
(36,815)
|
|
Retail Gas and Other Operations
|
—
|
|
|
(8,721)
|
|
|
(2,468)
|
|
Retail Electric Operations
|
(4,985)
|
|
|
(359)
|
|
|
3,620
|
|
Subtotal Energy Group
|
(4,546)
|
|
|
78,815
|
|
|
(35,663)
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
(4,248)
|
|
|
(88,230)
|
|
|
(83,654)
|
|
Appliance Service Operations
|
2,108
|
|
|
1,818
|
|
|
217
|
|
Subtotal Energy Services
|
(2,140)
|
|
|
(86,412)
|
|
|
(83,437)
|
|
Midstream
|
(154)
|
|
|
(292)
|
|
|
—
|
|
Corporate and Services
|
(9,485)
|
|
|
(25,962)
|
|
|
(10,932)
|
|
Total Operating Income
|
$
|
201,205
|
|
|
$
|
100,745
|
|
|
$
|
8,843
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
SJG Utility Operations
|
$
|
93,910
|
|
|
$
|
82,622
|
|
|
$
|
71,654
|
|
ETG Utility Operations
|
29,051
|
|
|
13,580
|
|
|
—
|
|
ELK Utility Operations
|
469
|
|
|
222
|
|
|
—
|
|
Subtotal SJI Utilities
|
123,430
|
|
|
96,424
|
|
|
71,654
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
89
|
|
|
105
|
|
|
125
|
|
Retail Gas and Other Operations
|
—
|
|
|
279
|
|
|
323
|
|
Subtotal Energy Group
|
89
|
|
|
384
|
|
|
448
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
4,591
|
|
|
23,123
|
|
|
46,928
|
|
Appliance Service Operations
|
—
|
|
|
—
|
|
|
153
|
|
Subtotal Energy Services
|
4,591
|
|
|
23,123
|
|
|
47,081
|
|
Corporate and Services
|
5,275
|
|
|
12,983
|
|
|
4,303
|
|
Total Depreciation and Amortization
|
$
|
133,385
|
|
|
$
|
132,914
|
|
|
$
|
123,486
|
|
|
|
|
|
|
|
Interest Charges:
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
SJG Utility Operations
|
$
|
31,654
|
|
|
$
|
28,011
|
|
|
$
|
24,705
|
|
ETG Utility Operations
|
27,352
|
|
|
10,478
|
|
|
—
|
|
ELK Utility Operations
|
8
|
|
|
4
|
|
|
—
|
|
Subtotal SJI Utilities
|
59,014
|
|
|
38,493
|
|
|
24,705
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
—
|
|
|
—
|
|
|
3,150
|
|
Retail Gas and Other Operations
|
—
|
|
|
487
|
|
|
250
|
|
Subtotal Energy Group
|
—
|
|
|
487
|
|
|
3,400
|
|
Energy Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Site Energy Production
|
8,637
|
|
|
15,364
|
|
|
16,838
|
|
Midstream
|
2,262
|
|
|
1,966
|
|
|
985
|
|
Corporate and Services
|
57,716
|
|
|
54,107
|
|
|
23,819
|
|
Subtotal
|
127,629
|
|
|
110,417
|
|
|
69,747
|
|
Intersegment Borrowings
|
|
(13,152)
|
|
|
(20,121)
|
|
|
(15,728)
|
|
Total Interest Charges
|
$
|
114,477
|
|
|
$
|
90,296
|
|
|
$
|
54,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
Income Taxes:
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
SJG Utility Operations
|
$
|
32,822
|
|
|
$
|
26,413
|
|
|
$
|
45,700
|
|
ETG Utility Operations
|
7,761
|
|
|
(3,086)
|
|
|
—
|
|
ELK Utility Operations
|
146
|
|
|
(70)
|
|
|
—
|
|
Subtotal SJI Utilities
|
40,729
|
|
|
23,257
|
|
|
45,700
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
574
|
|
|
22,473
|
|
|
(14,720)
|
|
Retail Gas and Other Operations
|
—
|
|
|
(2,360)
|
|
|
(544)
|
|
Retail Electric Operations
|
(935)
|
|
|
(101)
|
|
|
1,480
|
|
Subtotal Energy Group
|
(361)
|
|
|
20,012
|
|
|
(13,784)
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
(3,308)
|
|
|
(26,397)
|
|
|
(39,262)
|
|
Appliance Service Operations
|
627
|
|
|
534
|
|
|
4
|
|
Subtotal Energy Services
|
(2,681)
|
|
|
(25,863)
|
|
|
(39,258)
|
|
Midstream
|
(135)
|
|
|
(190)
|
|
|
(41)
|
|
Corporate and Services
|
(16,491)
|
|
|
(16,655)
|
|
|
(17,554)
|
|
Total Income Taxes
|
$
|
21,061
|
|
|
$
|
561
|
|
|
$
|
(24,937)
|
|
|
|
|
|
|
|
Property Additions:
|
|
|
|
|
|
SJI Utilities:
|
|
|
|
|
|
SJG Utility Operations
|
$
|
264,235
|
|
|
$
|
253,617
|
|
|
$
|
253,545
|
|
ETG Utility Operations (1)
|
197,457
|
|
|
90,259
|
|
|
—
|
|
ELK Utility Operations (1)
|
2,762
|
|
|
1,820
|
|
|
—
|
|
Subtotal SJI Utilities
|
464,454
|
|
|
345,696
|
|
|
253,545
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
7
|
|
|
34
|
|
|
14
|
|
Retail Gas and Other Operations
|
4
|
|
|
495
|
|
|
889
|
|
Subtotal Energy Group
|
11
|
|
|
529
|
|
|
903
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
229
|
|
|
2,686
|
|
|
12,588
|
|
Appliance Service Operations
|
—
|
|
|
—
|
|
|
260
|
|
Subtotal Energy Services
|
229
|
|
|
2,686
|
|
|
12,848
|
|
Midstream
|
46
|
|
|
119
|
|
|
218
|
|
Corporate and Services
|
1,554
|
|
|
1,826
|
|
|
2,233
|
|
Total Property Additions
|
$
|
466,294
|
|
|
$
|
350,856
|
|
|
$
|
269,747
|
|
(1) The property additions for ETG Utility Operations and ELK Utility Operations in 2018 do not include the approximately $1.077 billion and $12.3 million, respectively, of Property, Plant and Equipment obtained through the Acquisition as discussed in Note 20.
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Identifiable Assets:
|
|
|
|
SJI Utilities:
|
|
|
|
SJG Utility Operations
|
$
|
3,348,555
|
|
|
$
|
3,118,236
|
|
ETG Utility Operations
|
2,458,846
|
|
|
2,148,175
|
|
ELK Utility Operations
|
21,723
|
|
|
16,482
|
|
Subtotal SJI Utilities
|
5,829,124
|
|
|
5,282,893
|
|
Energy Group:
|
|
|
|
Wholesale Energy Operations
|
195,576
|
|
|
266,417
|
|
Retail Gas and Other Operations
|
—
|
|
|
12,736
|
|
Retail Electric Operations
|
30,351
|
|
|
39,345
|
|
Subtotal Energy Group
|
225,927
|
|
|
318,498
|
|
Energy Services:
|
|
|
|
On-Site Energy Production
|
154,021
|
|
|
195,329
|
|
Appliance Service Operations
|
—
|
|
|
—
|
|
Subtotal Energy Services
|
154,021
|
|
|
195,329
|
|
Discontinued Operations
|
1,766
|
|
|
1,777
|
|
Midstream
|
83,517
|
|
|
72,333
|
|
Corporate and Services
|
403,170
|
|
|
387,482
|
|
Intersegment Assets
|
(332,185)
|
|
|
(301,735)
|
|
Total Identifiable Assets
|
$
|
6,365,340
|
|
|
$
|
5,956,577
|
|
9. LEASES:
SJI and SJG (collectively, the "Company" for purposes of Note 9) is a lessee for the following classes of underlying assets: equipment, real estate (land and building), and fleet vehicles. The Company evaluates its contracts for the purpose of determining whether it is, or contains, a lease at its inception based on whether or not the contract grants the Company the use of a specifically identified asset for a period of time, as well as whether the contract grants the Company both the right to direct the use of that asset and receive the significant economic benefits of the asset. SJI's and SJG's real estate leases, which are comprised primarily of office space and payment centers, represent approximately 81% and 43%, respectively, of operating lease liabilities and generally have a lease term between 5 and 15 years. The remaining operating leases primarily consist of fleet vehicles (SJI only), communication towers, and general office equipment, each with various lease terms ranging between 3 and 25 years. The majority of our leases are comprised of fixed lease payments, with a portion of the Company’s real estate, fleet vehicles, and office equipment leases including lease payments tied to levels of production, maintenance and property taxes, which may be subject to variability. The Company does not have any finance leases. The Company also evaluates contracts in which it is the owner of an underlying asset in the same manner as if it is a lessee, to determine if it should be considered the lessor of that asset. SJI has one contract where it is considered the lessor, see "MTF" below; SJG is not considered the lessor of any assets.
As a practical expedient permitted under Topic 842, the Company has elected to account for the lease and non-lease components as a single lease component for leases where it is a lessee. Lease payments, which may include lease components, non-lease components and non-components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts that depend on a rate or index as stipulated in the lease contract. The Company discounts its lease liability using an estimated incremental borrowing rate computed based on its existing term loan facility adjusted for lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined using the remaining lease term and available data as of that date based on the Company's collateralized incremental interest rate to borrow over a comparable term. For new or modified leases starting in 2019, the discount rate is determined using available data at lease commencement (for new leases) or the modification date (modified leases), based on its collateralized incremental interest rate to borrow over the lease term, including any reasonably certain renewal periods.
Some of its lease agreements, primarily related to real estate, include Company options to either extend and/or early terminate the lease, the costs of which are included in our lease liability to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When determining the lease term, renewal options reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that we would exercise such option. Renewal options were generally not included in the lease term for the Company’s existing leases. The Company does not generally enter into leases involving the construction or design of the underlying asset, and nearly all of the assets we lease are not specialized in nature. Our lease agreements generally do not include restrictions, financial covenants or residual value guarantees.
As stated in Note 1, SJI and SJG had $3.1 million and $0.5 million, respectively, of right-of-use assets upon adoption of Topic 842 on January 1, 2019, with lease liabilities of the same amount. As of December 31, 2019, SJI recognized right-of-use assets and lease liabilities of $1.9 million each for operating leases. The lease liability is comprised of approximately $1.5 million of real estate leases, $0.3 million of equipment leases and $0.1 million of fleet vehicle leases. As of December 31, 2019, SJG recognized right-of-use assets and lease liabilities of $0.3 million each for operating leases. The lease liability is comprised of approximately $0.2 million of equipment leases and $0.1 million of real estate leases. SJI and SJG recorded the right-of-use assets in Other Noncurrent Assets and the lease liabilities in Other Current and Noncurrent Liabilities (as shown in the table below) on the consolidated balance sheets as of December 31, 2019.
The maturity of the Company’s operating lease liabilities as of December 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
SJI Consolidated
|
SJG
|
2020
|
1,209
|
|
$
|
153
|
|
2021
|
376
|
|
39
|
|
2022
|
190
|
|
21
|
|
2023
|
34
|
|
19
|
|
2024
|
12
|
|
12
|
|
Thereafter
|
105
|
|
102
|
|
Total lease payments
|
1,926
|
|
346
|
|
Less imputed interest
|
75
|
|
$
|
33
|
|
Total lease liabilities
|
$
|
1,851
|
|
$
|
313
|
|
Included in the consolidated balance sheets
|
|
|
Current lease liabilities (included in Other Current Liabilities)
|
1,170
|
|
$
|
146
|
|
Long-term lease liabilities (included in Other Noncurrent Liabilities)
|
681
|
|
$
|
167
|
|
Total lease liabilities
|
$
|
1,851
|
|
$
|
313
|
|
The total operating lease cost for SJI and SJG was $3.1 million and $0.2 million, respectively, during the year ended December 31, 2019. Short-term lease costs were immaterial for both SJI and SJG. Neither SJI nor SJG had any sublease income during the year ended December 31, 2019. Cash paid for amounts included in the measurement of lease liabilities for SJI and SJG were $1.7 million and $0.2 million, respectively, during the year ended December 31, 2019.
Neither SJI nor SJG have leases with related parties or leveraged lease arrangements. There are no leases that have not yet commenced but that create significant rights and obligations.
SJI had $1.3 million of variable lease payments pertaining to leased back assets during the year ended December 31, 2019, respectively. As discussed in Note 1 under "Agreement to Sell Solar Assets," SJI has solar assets that are being leased back from the buyer; these assets were leased back in 2018 and were treated as operating leases. As per the adoption of the "package of expedients" discussed in Note 1, SJI is not required to reassess under Topic 842 the Company’s prior conclusions about lease identification or classification.
The following summarizes our contractual obligations for operating leases and their applicable payment due dates, as of December 31, 2018 under ASC Topic 840, prior to the implementation of ASC 842:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
Up to 1 year
|
Years 2&3
|
Years 4&5
|
More than 5 years
|
SJI Consolidated
|
1,885
|
|
838
|
|
916
|
|
131
|
|
—
|
|
SJG
|
175
|
|
56
|
|
112
|
|
7
|
|
—
|
|
Supplemental Non-Cash Disclosures
The weighted average remaining lease term for SJI's operating leases is 2.7 years at a weighted average discount rate of 3.0%.
The weighted average remaining lease term for SJG's operating leases is 7.2 years at a weighted average discount rate of 3.0%.
MTF
As of December 31, 2019, Marina was considered to be the lessor of certain thermal energy generating property and equipment under an operating lease which was set to expire in May 2027. As of December 31, 2019 and 2018, the carrying costs of this property and equipment under operating lease was $68.9 million and $71.5 million, respectively (net of accumulated depreciation of $40.6 million and $37.7 million , respectively), and is included in Assets Held for Sale in the consolidated balance sheets. As discussed in Notes 1 and 22, MTF was sold to a third party buyer in February 2020, and as a result, Marina no longer is the lessor of this property, and no longer has future rentals or commitments.
10. RATES AND REGULATORY ACTIONS:
SJG and ETG are subject to the rules and regulations of the BPU. ELK is subject to the rules and regulations of the MPSC.
SJG:
Rate Cases - In January 2017, SJG filed a base rate case with the BPU to increase its base rates in order to obtain a return on new capital investments made by SJG since the settlement of its last base rate case in 2014. In October 2017, SJG settled its base rate case, pursuant to which the BPU granted SJG a base rate increase, effective November 1, 2017, of $39.5 million, which was predicated in part upon a 6.80% rate of return on rate base that included a 9.60% return on common equity. The BPU Order allows SJG to recover revenues associated with certain infrastructure and system improvement investments made and the related expenses incurred since the approval of its previous base rate case proceeding in September 2014.
Pursuant to our AIRP extension order in 2016, SJG is required to file a base rate case no later than November 2020. SJG expects to file a base rate case in early 2020.
SJG's tariff, a schedule detailing the terms, conditions and rate information applicable to its various types of natural gas service, as approved by the BPU, has several primary rate mechanisms as discussed in detail below:
BGSS Clause - The BGSS price structure allows SJG to recover all prudently incurred gas costs. Changes to BGSS charges to customers can occur either monthly or periodically (annually). Monthly changes in BGSS charges are applicable to large use customers and are pursuant to a BPU-approved formula based on commodity market prices. Periodic changes in BGSS charges are applicable to lower usage customers, which include all of SJG's residential customers, and those rates are evaluated at least annually by the BPU. However, to some extent, more frequent rate changes to the periodic BGSS are allowed. SJG collects gas costs from customers on a forecasted basis and defers periodic over/under recoveries to the following BGSS year, which runs from October 1 through September 30. If SJG is in a net cumulative undercollected position, gas costs deferrals are reflected on the balance sheet as a regulatory asset. If SJG is in a net cumulative overcollected position, amounts due back to customers are reflected on the balance sheet as a regulatory liability. SJG pays interest on net overcollected BGSS balances at the rate of return on rate base utilized by the BPU to set rates in the last base rate proceeding.
For the preceding three years, regulatory actions regarding the BGSS were as follows:
•April 2017 - SJG provided a BGSS bill credit of approximately $8.0 million to its residential and small commercial customers. The credit was in addition to the overall rate reduction that was approved by the BPU and took effect in October 2016.
•2017-2018 BGSS year - In June 2017, SJG filed its annual BGSS filing with the BPU, requesting a $4.7 million decrease in gas cost recoveries. This request was approved by the BPU, on a provisional basis, in September 2017, effective October 2017, and was approved in final form in May 2018.
•2018-2019 BGSS year - In September 2018, the BPU approved, on a provisional basis, SJG's request for a $65.5 million increase in the gas cost recoveries, effective October 1, 2018. The matter was thereafter referred to the Office of Administrative Law for further proceedings.
◦December 2018 - SJG submitted a notice of intent to self-implement a BGSS rate adjustment based on a 5% increase of the monthly bill of a typical residential customer; that adjustment took effect on February 1, 2019.
◦May 2019 - The BPU authorized SJG to spread the $65.5 million recovery of gas costs over a two-year period, resulting in a reduction in the BGSS rate effective May 15, 2019, and a one-time bill credit of approximately $24.0 million to adjust amounts collected to date to the two-year recovery period.
•2019-2020 BGSS year - In June 2019, SJG filed its annual BGSS filing with the BPU requesting a $27.6 million decrease in gas recoveries, which the BPU approved, on a provisional basis, in September 2019, effective October 1, 2019.
SJG's next filing for the 2020-2021 BGSS year will include the amounts disclosed related to SJG in Note 15 pertaining to a closed legal proceeding related to a gas supply contract.
CIP - The primary purpose of the CIP is to promote conservation efforts, without negatively impacting financial stability, and to base SJG's profit margin on the number of customers rather than the amount of natural gas distributed to customers. Each CIP year begins October 1 and ends September 30 of the subsequent year. On a monthly basis during the CIP year, SJG records adjustments to earnings based on weather and customer usage factors, as incurred. Subsequent to each year, SJG makes filings with the BPU to review and approve amounts recorded under the CIP. BPU-approved cash inflows or outflows generally will not begin until the next CIP year.
For the preceding three years, regulatory actions regarding the CIP were as follows:
•2017-2018 CIP year - In June 2017, SJG filed its annual CIP filing with the BPU requesting a $0.2 million increase in revenues, which included a $1.1 million increase in non-weather related revenues and a $0.9 million decrease in weather related revenues. This request was approved by the BPU, on a provisional basis, in September 2017 and was approved in final form in May 2018.
•2018-2019 CIP year - In June 2018, SJG filed its annual CIP filing with the BPU requesting a $26.4 million decrease in revenues, which included a $22.4 million decrease in weather-related revenues and a $4.0 million decrease in non-weather related revenues. This request was approved by the BPU, on a provisional basis, in September 2018, effective October 2018, and was approved in final form in May 2019.
•2019-2020 CIP year - In June 2019, SJG filed its annual CIP filing with the BPU requesting a total $7.6 million net decrease in revenues, which included a $32.3 million decrease in non-weather related revenues and a $24.7 million increase in weather related revenues. This request was approved by the BPU, on a provisional basis, in September 2019, effective October 2019.
AIRP - In October 2016, the BPU approved an extension of the AIRP for a five-year period (“AIRP II”), commencing October 1, 2016, with authorized investments of up to $302.5 million to continue replacing cast iron and unprotected bare steel mains and associated services. Pursuant to the Order, AIRP II investments are to be recovered through annual base rate adjustments.
For the preceding three years, regulatory actions regarding AIRP II were as follows:
•April 2017 - SJG filed its first annual petition, pursuant to the October 2016 BPU approval of the AIRP II, seeking a base rate adjustment to increase annual revenues by approximately $4.5 million to reflect the roll-in of $42.0 million of AIRP II investments made from October 1, 2016 through June 30, 2017.
•September 2017 - The BPU approved an increase in annual revenues from base rates of $5.0 million to reflect the roll-in of $46.1 million AIRP II investments made from October 2016 through June 2017, effective October 1, 2017.
•April 2018 - SJG submitted its second annual filing, seeking a base rate adjustment to increase annual revenues by approximately $6.6 million to reflect the roll-in of $60.4 million of AIRP II investments made from July 1, 2017 through June 30, 2018. This was approved in September 2018.
•April 2019 - SJG submitted its third annual filing seeking a base rate adjustment to increase annual revenues by approximately $6.5 million to reflect the roll-in of approximately $63.0 million of AIRP II investments placed in service from July 1, 2018 through June 30, 2019.
•September 2019 - The BPU approved an increase in annual revenues from base rates of $6.7 million to reflect the roll-in of $64.5 million of AIRP II investments made from July 2018 through June 2019, effective October 1, 2019.
SHARP - SHARP replaces low pressure distribution mains and services with high pressure mains and services in coastal areas that are susceptible to flooding during major storm events. SHARP investments are to be recovered through annual base rate adjustments.
For the preceding three years, regulatory actions regarding SHARP included the following:
•April 2017 - SJG filed a petition seeking a base rate adjustment to increase annual revenues by approximately $4.0 million to reflect approximately $35.7 million of SHARP investments made from July 2016 through June 2017.
•September 2017 - The BPU approved an increase in annual revenues from base rates of $3.6 million to reflect the roll-in of $33.3 million SHARP investments made from July 2016 through June 2017, effective October 1, 2017.
•November 2017 - SJG filed a petition with the BPU for approval to continue its storm hardening efforts under a second phase of SHARP (“SHARP II”). Phase one of SJG’s initial SHARP expired in June of 2017. In its petition, SJG proposed a three-year program, with a total investment level of approximately $110.3 million, focused on four system enhancement projects within the coastal regions. SJG also proposed to recover the SHARP II through annual base rate adjustments, with no impact to customer bills until October 2019. This was approved by the BPU in May 2018 with a total of $100.3 million recoverable through SHARP II. Pursuant to the order, SHARP II investments are to be recovered through annual base rate adjustments.
•April 2019 - SJG submitted its first annual filing, pursuant to the May 2018 BPU approval of the SHARP II, seeking a base rate adjustment to increase annual revenues by approximately $3.0 million to reflect the roll-in of approximately $28.3 million of SHARP II investments placed in service during June 1, 2018 through June 30, 2019.
•September 2019 - The BPU approved an increase in annual revenues from base rates of $2.9 million to reflect the roll-in of $27.4 million of SHARP II investments made from June 2018 through June 2019, effective October 1, 2019.
EET - The BPU has authorized SJG to continue to offer EET/EEPs as discussed further below.
For the preceding three years, regulatory actions regarding the EET/EEP were as follows:
•January 2017 - The BPU approved SJG’s request to extend the expiration date of EEP III from August 2017 to December 2018, without any modification to the subprograms or the amount of the previously authorized budget of $36.3 million, inclusive of operation and maintenance expenses.
•June 2017 - SJG filed its annual EET filing, requesting a $3.0 million increase in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with EEPs.
•November 2017 - The BPU approved a revenue increase of $2.6 million associated with the eighth annual EET filing, effective December 1, 2017.
•March 2018 - SJG filed a petition with the BPU seeking to continue its existing EEP's, with modifications, and to implement new programs (the “EEP IV”) for a five-year period with a proposed budget of approximately $195.4 million and with the same rate recovery mechanism that exists for its current EEP's. Under its existing EEP's, SJG is permitted to recover incremental operating and maintenance expenses and earn a return of, and return on, program investments.
•June 2018 - SJG filed its annual EET rate adjustment petition, requesting a $1.6 million decrease in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with its EEPs. This was approved by the BPU in January 2019, effective February 1, 2019.
•October 2018 - The BPU approved SJG's request to continue its existing EEPs with modifications, and to implement several new EEP's for a period of three years (EEP IV), with a total budget of $81.3 million and a revenue increase of $3.5 million, effective November 1, 2018.
•June 2019 - SJG filed its annual EET rate adjustment petition, requesting a $1.3 million increase in revenues to continue recovering the costs of, and the allowed return on, investments associated with its EEPs. This was approved by the BPU in January 2020, effective February 1, 2020.
SBC - The SBC allows SJG to recover costs related to several BPU-mandated programs. Within the SBC are a RAC, the NJCEP and the USF program. SBC adjustments affect revenue and cash flows but do not directly affect earnings as related costs are deferred and recovered through rates on an on-going basis.
For the preceding three years, regulatory actions regarding the SBC, with the exception of USF, which requires separate regulatory filings, were as follows:
•2017-2018 SBC filing - In July 2017, SJG made its annual filing requesting an $8.5 million increase in annual revenues. The BPU approved this filing in January 2018.
•2018-2019 SBC filing - In July 2018, SJG made its annual filing requesting a $3.4 million decrease in annual revenues. In March 2019, the BPU approved a $2.2 million decrease in annual revenues for this filing, with rates effective May 1, 2019.
•2019-2020 SBC filing - In July 2019, SJG made its annual filing requesting a net $3.9 million increase, including tax, in annual revenues. The matter is currently pending BPU approval.
RAC - The RAC recovers environmental remediation costs of 12 former gas manufacturing plants (see Note 15). The BPU allows SJG to recover such costs over seven-year amortization periods. The net between the amounts actually spent and amounts recovered from customers is recorded as a regulatory asset, "Environmental Remediation Cost Expended - Net." RAC activity affects revenue and cash flows but does not directly affect earnings because of the cost recovery over seven-year amortization periods. As of December 31, 2019 and 2018, SJG reflected unamortized remediation costs of $156.3 million and $136.2 million, respectively, on the consolidated balance sheets under Regulatory Assets (see Note 11). Since implementing the RAC in 1992, SJG has recovered $154.2 million through rates.
CLEP - The CLEP recovers costs associated with SJG’s energy efficiency and renewable energy programs required under the NJCEP. For the preceding three years, regulatory actions regarding the CLEP were as follows:
•June 2017 - The BPU approved a NJCEP funding level of $344.7 million through June 2018, of which SJG was responsible for $12.7 million.
•June 2018 - The BPU approved a NJCEP funding level of $344.7 million through June 2019, of which SJG is responsible for $12.7 million.
•August 2019 - The BPU approved an update to the NJCEP funding level of $344.7 million through June 2020, of which SJG is responsible for $13.2 million.
USF - The USF is a statewide program through which funds for the USF and Lifeline Credit and Tenants Assistance Programs are collected from customers of all New Jersey electric and gas utilities. USF adjustments affect cash flows but do not directly affect revenue or earnings as related costs are deferred and recovered through rates on an on-going basis.
For the preceding three years, regulatory actions regarding the USF (separate from the RAC and CLEP portions of the SBC) were as follows:
•June 2017 - SJG made its annual USF filing, along with the State’s other gas utilities, proposing to decrease the statewide gas revenues by $16.3 million. This proposal was designed to decrease SJG’s annual USF revenue by $2.0 million.
•September 2017 - The BPU approved the statewide budget of $38.3 million for all the State’s gas utilities. SJG's portion of the total was approximately $3.2 million, resulting in a $2.2 million decrease to its USF recoveries effective October 1, 2017.
•June 2018 - SJG made its annual USF filing, along with the State's other gas utilities, proposing to decrease statewide electric and gas revenues by $10.4 million. This proposal included an increase to SJG's annual USF recoveries of $0.9 million.
•September 2018 - The BPU approved the statewide USF annual 2018-2019 budget for all of New Jersey's gas utilities. SJG's portion of the total is approximately $3.7 million, resulting in a $0.9 million increase to its USF recoveries, effective October 1, 2018.
•June 2019 - SJG made its annual USF filing, along with the State’s other gas utilities, proposing to decrease statewide gas revenues by $6.7 million. This proposal included an increase to SJG’s annual USF recoveries of $1.0 million.
•September 2019 - The BPU approved a statewide USF annual 2019-2020 budget for all the State’s gas utilities, which included an increase of approximately $1.0 million in SJG’s USF recoveries, effective October 1, 2019.
The BGSS, CIP and USF approvals discussed above do not impact SJG's earnings. They represent changes in the cash requirements of SJG corresponding to cost changes and/or previously over/under recoveries from ratepayers associated with each respective mechanism.
Other Regulatory Matters -
Unbundling - This allows all natural gas consumers to select their natural gas commodity supplier. As of December 31, 2019, 21,693 of SJG's customers were purchasing their gas commodity from someone other than SJG. Customers choosing to purchase natural gas from providers other than the utility are charged for the cost of gas by the marketer. While customer choice can reduce utility revenues, it does not negatively affect SJG's net income or financial condition as the resulting decrease in utility revenues is offset by a corresponding decrease in gas costs. The BPU continues to allow for full recovery of prudently incurred natural gas costs through the BGSS. Unbundling did not change the fact that SJG still recovers cost of service, including certain deferred costs, through base rates.
Pipeline Integrity Costs - SJG is permitted to defer and recover incremental costs incurred as a result of Pipeline Integrity Management regulations, which are aimed at enhancing public safety and reliability. The regulations require that utilities use a comprehensive analysis to assess, evaluate, repair and validate the integrity of certain transmission lines in the event of a leak or failure. SJG is authorized to defer future program costs, including related carrying costs, for recovery in the next base rate case proceeding, subject to review by the BPU.
Tax Reform - In March 2018, SJG filed a petition with the BPU for a change in rates, customer refund and rider associated with the implementation of Tax Reform. The BPU subsequently approved an interim rate reduction, effective April 1, 2018, to reflect the change in the corporate tax rate within SJG's base rates.
In September 2018, the BPU granted final approval of SJG's request to implement changes in the corporate tax rate, from 35% to 21%, within SJG's base rate, in accordance with Tax Reform, including:
◦A final base rate adjustment to reflect an annual revenue reduction of approximately $25.9 million, effective April 1, 2018;
◦A one-time customer refund was issued in October 2018 of approximately $13.8 million, including interest, for over collected tax during the period January 1, 2018 through September 30, 2018; and
◦A customer refund of approximately $27.5 million for "Unprotected" EDIT through a separate tariff rider over a five-year period effective October 1, 2018.
In March 2019, SJG submitted a compliance filing, pursuant to the September 2018 Order, identifying the revised estimated EDIT balances and the proposed amortization and refund mechanism for the "Protected" EDIT Balance. The matter is still pending BPU approval.
In June 2019, SJG filed its first annual Tax Act Rider petition, pursuant to the September 2018 Order, requesting a rate adjustment to refund approximately $6.8 million related to SJG’s "Protected" and "Unprotected" EDIT. The matter is currently pending BPU approval.
Filings and petitions described above are still pending, unless otherwise indicated.
ETG:
As part of the Acquisition approval by the BPU, the Company was required to provide ETG customers with a credit of $15.0 million within ninety days of the Acquisition closing date, which was July 1, 2018. ETG provided a one-time bill credit to all customers by September 2018.
Rate Case - In April 2019, ETG filed a petition with the BPU requesting a base rate revenue increase to recognize the infrastructure investments made to maintain the safety and reliability of its natural gas system. In November 2019, the BPU issued an Order that permitted ETG to increase base rate revenues by $34.0 million with new rates in effect November 15, 2019. The Order also provides for an overall after-tax rate of return of approximately 6.5%, with a return on equity of approximately 9.6% and a common equity component of approximately 51.5%.
Tax Reform - In March 2018, ETG filed a petition with the BPU requesting an annual reduction of $10.9 million, effective April 1, 2018, which reflected the reduced corporate tax rate as a result of Tax Reform. The BPU authorized ETG to implement its proposed base rate reduction on April 1, 2018 on an interim basis. In June 2018, the BPU approved a final base rate reduction of $12.1 million which was implemented by ETG on July 1, 2018.
In June 2018, the BPU authorized ETG to issue a one-time customer refund for over-collected tax during the period January 1, 2018 though June 30, 2018. ETG issued a one-time customer refund of $5.2 million, including interest, for the over-collected taxes in July and August 2018 as bill credits.
The current effective rate mechanisms reflected in ETG’s tariff are as follows:
IIP - Consistent with Acquisition approval, SJI was required to develop a plan, in concert with the BPU and the New Jersey Division of Rate Counsel, to address the replacement of ETG's aging infrastructure. In October 2018, ETG filed an IIP petition with the BPU pursuant to rules adopted by the BPU in December 2017 pertaining to utility infrastructure investments. The IIP petition sought authority to recover the costs associated with ETG's initial investment of approximately $518.0 million from 2019-2023 to, among other things, replace its cast-iron and low-pressure vintage main and related services. The IIP petition included a request for timely recovery of ETG's investment on a semi-annual basis through a separate rate mechanism.
In June 2019, the BPU approved a $300.0 million IIP effective July 1, 2019. The Order authorized the recovery of costs associated with ETG’s investments of approximately $300.0 million between 2019-2024 to replace its cast-iron and bare steel vintage main and related services. The Order provides for annual recovery of ETG's investments through a separate rate mechanism.
BGSS Clause - The BGSS for ETG is similar to that of SJG defined above. For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the BGSS were as follows:
•May 2018 - The BPU approved, on a final basis, the provisional rates that were authorized by the BPU in its September 2017 Order, effective June 2018.
•May 2018 - ETG filed its annual BGSS filing with the BPU, requesting a $7.1 million decrease in gas cost recoveries. This was approved in September 2018.
•December 2018 - ETG submitted a notice of intent to self-implement a BGSS rate adjustment based on a 5% increase of the monthly bill of a typical residential customer, effective February 1, 2019; that adjustment took effect on February 1, 2019.
•May 2019 - ETG filed its annual BGSS filing with the BPU, requesting to maintain its current BGSS-P rate. As ETG requested to maintain its current rate there was no corresponding increase or decrease in gas cost recoveries requested. This was approved on a provisional basis effective October 1, 2019.
EEP - The EEP rate enables ETG to recover the costs of its EEP as authorized by the BPU. ETG’s EEP consists of a range of rebates and related offers, including, for example, various customer education and outreach initiatives, as well as an on-line customer dashboard, that are designed to encourage customers to conserve energy and to provide them with information on how to lower their gas bills. ETG has authorization from the BPU to offer its EEP through February 29, 2020 with a total budget of approximately $3.0 million.
For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the EEP were as follows:
•June 2018 - ETG filed to extend its EEP through December 2019.
•August 2018 - The BPU approved a revenue increase of $1.2 million to an annual revenue of $2.2 million effective September 2018 to continue recovering the costs of, and the allowed return on, prior investments associated with its EEP.
•August 2018 - ETG filed its annual EEP rate adjustment petition, requesting a revenue increase of $1.3 million to an annual revenue of $2.2 million to continue recovering the costs of, and the allowed return on, prior investments associated with its EEP.
•October 2018 - The Board approved the extension of the EEP through February 2019, consistent in all other respects with the Board's April 2017 Order.
•January 2019 - ETG entered into a Stipulation with Board Staff and the New Jersey Division of Rate Counsel extending its EEP through February 29, 2020 at a total budget of approximately $3.0 million. The BPU approved in February 2019 the Stipulation.
•April 2019 - The BPU approved a revenue increase of $1.3 million associated with ETG’s annual EEP rate adjustment filing, effective May 1, 2019.
•July 2019 - ETG filed its annual EEP rate adjustment petition, requesting a $1.0 million increase in revenues to continue recovering the costs of, and the allowed return on, investments associated with its EEP. This matter is currently pending BPU approval.
WNC - The WNC rate allows ETG to implement surcharges or credits during the months of October through May to compensate for weather-related changes in customer usage from the previous winter period.
For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the WNC were as follows:
•August 2018 - ETG filed its annual WNC rate adjustment petition, requesting a revenue decrease of $0.8 million to an annual revenue of $6.3 million to recover a deficiency from warmer than normal weather. This was approved in October 2018.
•July 2019 - ETG filed its annual WNC rate adjustment petition, requesting a $7.8 million decrease in revenues from the prior filing to return a net revenue excess of $1.6 million primarily due to colder than normal weather. The requested rate was approved, on a provisional basis, effective November 1, 2019.
OSMC - The OSMC rate is designed to flow back to ETG’s firm customers the margins received from on-system sales and transportation services.
For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the OSMC were as follows:
•August 2018 - ETG filed its annual OSMC rate adjustment petition, requesting a revenue increase of $1.1 million. This was approved in October 2018.
•July 2019 - ETG filed its annual OSMC rate adjustment petition, requesting a $0.2 million decrease in revenues to return an over collection. The requested rate was approved on a provisional basis, effective November 1, 2019.
SBC - Similar to SJG, the SBC allows ETG to recover costs related to several BPU-mandated programs, including the RAC, the NJCEP and the USF program. SBC adjustments affect revenue and cash flows but do not directly affect earnings as related costs are deferred and recovered through rates on an on-going basis.
RAC - The RAC is similar to that of SJG defined above. As of December 31, 2019, ETG had unamortized environmental remediation balance of $3.5 million on the consolidated balance sheet as a regulatory liability.
For the preceding two years, inclusive of the period following the Acquisition, regulatory actions regarding the RAC were as follows:
•August 2018 - ETG filed its annual RAC filing with the BPU, requesting a $6.9 million increase in RAC recoveries. This was approved in May 2019, effective June 1, 2019.
•October 2018 - The BPU authorized ETG to maintain the current rate with no change in RAC recoveries, effective November 2018.
•July 2019 - ETG filed its annual RAC rate adjustment petition, requesting a $6.1 million increase in revenues to continue recovering the costs of remediation. This matter is currently pending BPU approval.
CEP - The CEP recovers costs associated with State mandated NJCEP related to ETG’s energy efficiency and renewable energy programs. In August 2019, the BPU approved a NJCEP funding level of $344.7 million through June 2020, of which ETG is responsible for $11.5 million.
For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the CEP were as follows:
•August 2018 - ETG filed its annual CEP rate adjustment petition, requesting a revenue decrease of $1.6 million to an annual revenue of $10.0 million to recovery costs mandated by the Board. This was approved in October 2018.
•July 2019 - ETG filed its annual CEP rate adjustment petition, requesting a $0.1 million decrease in revenues to return an over collection. The requested rate was approved, on a provisional basis, effective November 1, 2019.
USF - The USF is similar to that of SJG defined above.
For the preceding two years, inclusive of the period following the Acquisition of ETG by SJI, regulatory actions regarding the USF were as follows:
•June 2018 - ETG made its annual USF filing, along with the State’s other gas utilities, proposing to increase statewide electric and gas revenues by $7.2 million. This proposal included an increase to ETG’s annual USF recoveries of $0.8 million.
•September 2018 - The BPU approved the statewide budget of $45.5 million for all the State's gas utilities. ETG’s portion of the total is approximately $4.8 million, resulting in a $0.8 million increase to its USF recoveries, effective October 1, 2018.
•June 2019 - ETG, along with the other NJ gas utilities, filed jointly for statewide USF and Lifeline rate increases. The estimated revenue increase for ETG is approximately $0.8 million.
•September 2019 - The BPU approved the statewide USF annual 2019-2020 budget for all the State’s gas utilities, which included an increase of approximately $0.8 million in ETG’s USF recoveries, effective October 1, 2019.
Aside from EEP and WNC and carrying cost income/expense on the BGSS (expense only), CEP, RAC and USF, the clauses discussed above do not impact ETG’s earnings. They represent changes in the cash requirements of ETG corresponding to cost changes and/or previously over/under recoveries from ratepayers associated with each respective mechanism.
ELK:
As part of the Acquisition approval by the MPSC, the Company was required to provide ELK customers with a one-time bill credit of $0.3 million. Consistent with this requirement, ELK issued one-time bill credits to all customers in September 2018.
In June 2018, ELK filed a base rate case application with the MPSC. In January 2019, the Public Utility Law Judge issued a proposed ruling approving a settlement in which the parties agreed to a revenue increase of approximately 90,000, with a 9.8% return on equity and a 6.98% overall return. In February 2019, the Commission approved ELK's new rates effective February 20, 2019.
Currently effective rate mechanisms reflected in ELK's tariff include a PGA and RNA. The PGA is a cost pass through for cost incurred from purchasing gas supplies for customers. Over/under recoveries are reconciled annually. The Company earns no profits on the PGA. The RNA is applicable to residential and commercial heating customers having a stated monthly revenue per customer. The primary variance is due to weather. The RNA amounts are established in a rate case for each customer grouping based on normal weather and the resultant average revenues per customer. The revenue excess or deficiency is calculated monthly and trued-up on a rolling twelve-month basis.
As discussed in Note 1, in December 2019, the Company announced it had entered into an agreement to sell ELK to a third-party buyer for approximately $15.0 million, pending MPSC approval. This transaction is expected to close in the middle of 2020.
11. REGULATORY ASSETS & REGULATORY LIABILITIES:
The discussion under Note 10 is integral to the following explanations of specific regulatory assets and liabilities.
The Utilities' Regulatory Assets consisted of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
SJG
|
ETG
|
ELK
|
Total SJI
|
Environmental Remediation Costs:
|
|
|
|
|
Expended - Net
|
$
|
156,279
|
|
$
|
16,955
|
|
$
|
—
|
|
$
|
173,234
|
|
Liability for Future Expenditures
|
131,262
|
|
101,083
|
|
—
|
|
232,345
|
|
Insurance Recovery Receivables
|
—
|
|
(20,423)
|
|
—
|
|
(20,423)
|
|
Deferred Asset Retirement Obligation Costs
|
36,515
|
|
18,108
|
|
—
|
|
54,623
|
|
Deferred Pension Costs - Unrecognized Prior Service Cost
|
—
|
|
37,378
|
|
—
|
|
37,378
|
|
Deferred Pension and Other Postretirement Benefit Costs
|
72,010
|
|
1,825
|
|
—
|
|
73,835
|
|
Deferred Gas Costs - Net
|
49,469
|
|
5,301
|
|
293
|
|
55,063
|
|
|
|
|
|
|
SBC Receivable
|
1,478
|
|
—
|
|
—
|
|
1,478
|
|
Deferred Interest Rate Contracts
|
7,856
|
|
—
|
|
—
|
|
7,856
|
|
EET
|
12,877
|
|
—
|
|
—
|
|
12,877
|
|
Pipeline Supplier Service Charges
|
525
|
|
—
|
|
—
|
|
525
|
|
Pipeline Integrity Cost
|
6,516
|
|
—
|
|
—
|
|
6,516
|
|
AFUDC - Equity Related Deferrals
|
10,712
|
|
—
|
|
—
|
|
10,712
|
|
WNC
|
—
|
|
—
|
|
231
|
|
231
|
|
Other Regulatory Assets
|
10,678
|
|
9,004
|
|
—
|
|
19,682
|
|
|
|
|
|
|
Total Regulatory Assets
|
$
|
496,177
|
|
$
|
169,231
|
|
$
|
524
|
|
$
|
665,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
SJG
|
ETG
|
ELK
|
Total SJI
|
|
Environmental Remediation Costs:
|
|
|
|
|
|
Expended - Net
|
$
|
136,227
|
|
$
|
10,875
|
|
$
|
—
|
|
$
|
147,102
|
|
|
Liability for Future Expenditures
|
148,071
|
|
104,594
|
|
—
|
|
252,665
|
|
|
Deferred Asset Retirement Obligation Costs
|
31,096
|
|
—
|
|
—
|
|
31,096
|
|
|
Deferred Pension Costs - Unrecognized Prior Service Cost
|
—
|
|
40,612
|
|
14
|
|
40,626
|
|
|
Deferred Pension and Other Postretirement Benefit Costs
|
80,121
|
|
2,607
|
|
30
|
|
82,758
|
|
|
Deferred Gas Costs - Net
|
57,889
|
|
—
|
|
289
|
|
58,178
|
|
|
|
|
|
|
|
|
SBC Receivable
|
2,173
|
|
—
|
|
—
|
|
2,173
|
|
|
Deferred Interest Rate Contracts
|
5,867
|
|
—
|
|
—
|
|
5,867
|
|
|
EET
|
2,319
|
|
—
|
|
—
|
|
2,319
|
|
|
Pipeline Supplier Service Charges
|
617
|
|
—
|
|
—
|
|
617
|
|
|
Pipeline Integrity Cost
|
5,140
|
|
—
|
|
—
|
|
5,140
|
|
|
AFUDC - Equity Related Deferrals
|
13,914
|
|
—
|
|
—
|
|
13,914
|
|
|
WNC
|
—
|
|
3,210
|
|
139
|
|
3,349
|
|
|
Other Regulatory Assets
|
8,931
|
|
8,023
|
|
211
|
|
17,165
|
|
|
|
|
|
|
|
|
Total Regulatory Assets
|
$
|
492,365
|
|
$
|
169,921
|
|
$
|
683
|
|
$
|
662,969
|
|
|
Except where noted below, all regulatory assets are or are expected to be recovered through utility rate charges, as detailed in the following discussion. The Utilities are currently permitted to recover interest on Environmental Remediation Costs, SBC Receivable, EET and Pipeline Integrity Costs, while the other assets are being recovered without a return on investment.
Environmental Remediation Costs - SJG and ETG have regulatory assets associated with environmental costs related to the cleanup of environmental sites. SJG has 12 sites where SJG or its predecessors previously operated gas manufacturing plants, while ETG is subject to environmental remediation liabilities associated with five former manufactured gas plant sites in New Jersey. "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of ASC 980, as the BPU allows SJG and ETG to recover such expenditures through the RAC. "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. SJG and ETG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the consolidated balance sheets under the captions "Current Liabilities" (SJI and SJG) and "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs through the RAC over seven-year periods after they are incurred. Environmental remediation costs at ETG are recoverable from customers through the RAC approved by the BPU. "Insurance Recovery Receivables" represents an insurance settlement executed in the fourth quarter of 2019 with a third party. This settlement, which is expected to be received in installments through the end of 2021, will be returned to ETG's customers through the RAC. Of this total, $6.8 million was received by ETG in January 2020 (see Note 22).
Deferred ARO Costs - The Utilities record AROs primarily related to the legal obligation to cut and cap gas distribution pipelines when taking those pipelines out of service. Deferred ARO costs represent the period to period passage of time (accretion) and the revision to cash flows originally estimated to settle the retirement obligation (see Note 1). The Deferred ARO Costs regulatory asset increased year over year due to revisions to the settlement timing, retirement costs, and changes to inflation and discount rates used to measure the expected retirement costs combined with the addition of ETG's ARO recorded through purchase accounting. Corresponding increases are made to the ARO liability (see Note 1), thus having no impact on earnings.
Deferred Pension Costs - Unrecognized Prior Service Cost - The BPU approved ETG to recover costs related to ETG's unrecognized prior service cost and actuarial gains/losses for pension and postretirement benefits. This ETG deferred asset is being amortized over 13.5 years for pension and over 7.7 years for postretirement benefits.
Deferred Pension and Other Postretirement Benefit Costs - The BPU authorized SJG and ETG and the MPSC authorized ELK to recover costs related to postretirement benefits under the accrual method of accounting consistent with GAAP. SJI's regulatory asset represents the recognition of the underfunded positions of SJIU's pension and other postretirement benefit plans. Subsequent adjustments to this balance occur annually to reflect changes in the funded positions of these benefit plans caused by changes in actual plan experience as well as assumptions of future experience (see Note 12).
Deferred Gas Costs - Net - Over/under collections of gas costs are monitored through SJG's and ETG's BGSS clause. Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability (see Note 10). Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval (see Note 16).
SBC Receivable - This regulatory asset primarily represents the deferred expenses incurred under the NJCEP, which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs(see Note 10).
Deferred Interest Rate Contracts - These amounts represent the market value of interest rate derivatives as discussed further in Note 16.
EET - The EET Regulatory Asset increased year over year due to expenditures in excess of recoveries.
Pipeline Supplier Service Charges - This regulatory asset represents costs necessary to maintain adequate supply and system pressures, which are being recovered on a monthly basis through the BGSS over the term of the underlying supplier contracts (see Note 10).
Pipeline Integrity Cost - As part of SJG's October 2017 base rate increase, SJG was permitted to recover previously deferred pipeline integrity costs incurred through October 2017. In addition, SJG is authorized to defer future program costs, including related carrying costs, for recovery in SJG's next base rate proceeding, subject to review by the BPU (see Note 10).
AFUDC Equity Related Deferrals - This regulatory asset represents the future revenue to recover the future income taxes related to the deferred tax liability for the equity component of AFUDC. The deferred amount is being amortized over the life of the associated utility plant.
WNC - The tariffs for ETG include a weather normalization clause that reduces customer bills when winter weather is colder than normal and increases customer bills when winter weather is warmer than normal.
Other Regulatory Assets - Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates. Included in Other Regulatory Assets for SJG is the impact of the ERIP on SJG employees, see Note 1.
The Utilities' Regulatory Liabilities consisted of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
SJG
|
ETG
|
ELK
|
Total SJI
|
|
Excess Plant Removal Costs
|
$
|
16,333
|
|
$
|
36,343
|
|
$
|
—
|
|
$
|
52,676
|
|
|
Excess Deferred Taxes
|
251,355
|
|
117,695
|
|
—
|
|
369,050
|
|
|
Deferred Revenues - Net
|
—
|
|
52
|
|
—
|
|
52
|
|
|
CIP Payable
|
6,794
|
|
—
|
|
—
|
|
6,794
|
|
|
Amounts to be Refunded to Customers
|
—
|
|
10,625
|
|
—
|
|
10,625
|
|
|
WNC
|
—
|
|
2,684
|
|
—
|
|
2,684
|
|
|
Other Regulatory Liabilities
|
—
|
|
1,037
|
|
—
|
|
1,037
|
|
|
|
|
|
|
|
|
Total Regulatory Liabilities
|
$
|
274,482
|
|
$
|
168,436
|
|
$
|
0
|
|
$
|
442,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
SJG
|
ETG
|
ELK
|
Total SJI
|
|
Excess Plant Removal Costs
|
$
|
20,805
|
|
$
|
47,909
|
|
$
|
1,393
|
|
$
|
70,107
|
|
|
Excess Deferred Taxes
|
259,863
|
|
118,757
|
|
1,231
|
|
379,851
|
|
|
Deferred Revenues - Net
|
—
|
|
3,188
|
|
—
|
|
3,188
|
|
|
CIP Payable
|
5,871
|
|
—
|
|
—
|
|
5,871
|
|
|
Amounts to be Refunded to Customers
|
—
|
|
17,039
|
|
—
|
|
17,039
|
|
|
Other Regulatory Liabilities
|
—
|
|
2,443
|
|
—
|
|
2,443
|
|
|
|
|
|
|
|
|
Total Regulatory Liabilities
|
$
|
286,539
|
|
$
|
189,336
|
|
$
|
2,624
|
|
$
|
478,499
|
|
|
Excess Plant Removal Costs - The Utilities accrue and collect for cost of removal of utility property. This regulatory liability represents customer collections in excess of actual expenditures, which will be returned to customers as a reduction to depreciation expense. The Excess Plant Removal Costs Liability decreased year over year primarily due to the actual removal costs exceeding the collections in 2019.
Excess Deferred Taxes - This liability is recognized as a result of Tax Reform enacted into law on December 22, 2017 (See Notes 1 and 4). The decrease in this regulatory liability year over year is related to excess tax amounts returned to customers through customer billings. The Unprotected amount of excess deferred taxes of $26.1 million will be returned to customers over a five year period. The determination of the treatment for the remaining amount of excess deferred taxes will be deferred until SJG's next base rate case as approved by the BPU. (See Note 10).
Deferred Revenues - Net - Over/under collections of gas costs are monitored through the ETG's BGSS mechanism. Net under collected gas costs are classified as a regulatory asset and net over collected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval.
CIP Payable - The CIP tracking mechanism at SJG adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was more than the established baseline during 2019, resulting in a regulatory liability. This is primarily the result of cold weather experienced in the region.
WNC - The tariffs for ETG include a WNC that reduces customer bills when winter weather is colder than normal and increases customer bills when winter weather is warmer than normal. The overall reduction of ETG's weather normalization from a $3.2 million regulatory asset at December 31, 2018 to a $2.7 million regulatory liability at December 31, 2019, was due to warmer weather.
Amounts to be Refunded to Customers - See "AMA" section in Note 1.
12. PENSION AND OTHER POSTRETIREMENT BENEFITS:
SJI has several defined benefit pension plans and other postretirement benefit plans. SJG participates in the defined benefit pension plans and other postretirement benefit plans of SJI. For non-ETG and ELK employees, participation in the Company's qualified defined benefit pension plans was closed to new employees beginning in 2003; however, employees who are not eligible for these pension plans are eligible to receive an enhanced version of SJI's defined contribution plan. As part of the Acquisition, SJI acquired the entities' existing pension and other post-employment plans. The plans include a qualified defined benefit, trusteed, pension plan covering most eligible employees that is funded in accordance with the requirements of the ERISA. Approximately 35% and 34% of SJI's and SJG's current, full-time, regular employees, respectively, will be entitled to annuity payments upon retirement. The Company also provides certain non-qualified benefit and defined contribution pensions plans for a selected group of the Company's management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, SJI provides health care and life insurance benefits for eligible retired employees through a postretirement benefit plan.
Net periodic benefit cost related to the SJI employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
Pension Benefits
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Service Cost
|
$
|
5,583
|
|
|
$
|
6,442
|
|
|
$
|
4,989
|
|
Interest Cost
|
17,294
|
|
|
13,778
|
|
|
11,772
|
|
Expected Return on Plan Assets
|
(20,195)
|
|
|
(18,672)
|
|
|
(14,105)
|
|
Amortizations:
|
|
|
|
|
|
Prior Service Cost
|
105
|
|
|
116
|
|
|
131
|
|
Actuarial Loss
|
9,550
|
|
|
11,528
|
|
|
10,282
|
|
Net Periodic Benefit Cost
|
12,337
|
|
|
13,192
|
|
|
13,069
|
|
Curtailment and Special Termination Costs
|
955
|
|
|
7,324
|
|
|
—
|
|
Capitalized Benefit Costs
|
(2,008)
|
|
|
(2,243)
|
|
|
(4,723)
|
|
Deferred Benefit Costs
|
(2,411)
|
|
|
(1,987)
|
|
|
(527)
|
|
Total Net Periodic Benefit Expense
|
$
|
8,873
|
|
|
$
|
16,286
|
|
|
$
|
7,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
Other Postretirement Benefits
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Service Cost
|
$
|
533
|
|
|
$
|
945
|
|
|
$
|
910
|
|
Interest Cost
|
2,884
|
|
|
2,430
|
|
|
2,418
|
|
Expected Return on Plan Assets
|
(4,571)
|
|
|
(4,286)
|
|
|
(3,411)
|
|
Amortizations:
|
|
|
|
|
|
Prior Service Credits
|
(561)
|
|
|
(344)
|
|
|
(344)
|
|
Actuarial Loss
|
1,163
|
|
|
903
|
|
|
1,238
|
|
Net Periodic Benefit (Credit) Cost
|
(552)
|
|
|
(352)
|
|
|
811
|
|
Curtailment and Special Termination Costs
|
—
|
|
|
1,286
|
|
|
(106)
|
|
Capitalized Benefit Costs
|
(201)
|
|
|
(290)
|
|
|
(46)
|
|
Deferred Benefit Costs
|
357
|
|
|
580
|
|
|
—
|
|
Total Net Periodic Benefit (Income) Expense
|
$
|
(396)
|
|
|
$
|
1,224
|
|
|
$
|
659
|
|
Net periodic benefit cost related to the SJG employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
Pension Benefits
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Service Cost
|
$
|
3,621
|
|
|
$
|
5,073
|
|
|
$
|
4,303
|
|
Interest Cost
|
11,067
|
|
|
10,010
|
|
|
9,925
|
|
Expected Return on Plan Assets
|
(11,028)
|
|
|
(12,513)
|
|
|
(11,366)
|
|
Amortization:
|
|
|
|
|
|
Prior Service Cost
|
95
|
|
|
112
|
|
|
127
|
|
Actuarial Loss
|
8,224
|
|
|
10,074
|
|
|
8,692
|
|
Net Periodic Benefit Cost
|
11,979
|
|
|
12,756
|
|
|
11,681
|
|
Capitalized Benefit Costs
|
(1,437)
|
|
|
(1,943)
|
|
|
(4,723)
|
|
Affiliate SERP Allocations
|
(3,541)
|
|
|
(3,861)
|
|
|
(2,235)
|
|
Deferred Benefit Costs
|
(2,411)
|
|
|
(1,987)
|
|
|
(527)
|
|
Total Net Periodic Benefit Expense
|
$
|
4,590
|
|
|
$
|
4,965
|
|
|
$
|
4,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
Other Postretirement Benefits
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Service Cost
|
$
|
343
|
|
|
$
|
583
|
|
|
$
|
582
|
|
Interest Cost
|
1,863
|
|
|
1,698
|
|
|
1,897
|
|
Expected Return on Plan Assets
|
(3,220)
|
|
|
(3,449)
|
|
|
(3,101)
|
|
Amortization:
|
|
|
|
|
|
Prior Service Credits
|
(474)
|
|
|
(257)
|
|
|
(257)
|
|
Actuarial Loss
|
1,042
|
|
|
695
|
|
|
972
|
|
Net Periodic Benefit (Credit) Cost
|
(446)
|
|
|
(730)
|
|
|
93
|
|
Capitalized Benefit Costs
|
(155)
|
|
|
(257)
|
|
|
(46)
|
|
Deferred Benefit Costs
|
357
|
|
|
580
|
|
|
—
|
|
Total Net Periodic Benefit (Income) Expense
|
$
|
(244)
|
|
|
$
|
(407)
|
|
|
$
|
47
|
|
Curtailment and Special Termination Costs reflected in the tables above relate to the ERIP offered in 2018 as discussed in Note 1. Capitalized benefit costs reflected in the tables above relate to the Utilities' construction programs. Effective January 1, 2018, SJI and SJG adopted FASB ASU 2017-07 which stipulates that only the service cost component of net benefit cost is eligible for capitalization. In SJG's rate case settlement in October 2017, the BPU allowed deferral until the next base rate case of incremental expense associated with the adoption.
Companies with publicly traded equity securities that sponsor a postretirement benefit plan are required to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans and recognize changes in the funded status in the year in which the changes occur. Changes in funded status are generally reported in Other Comprehensive Loss; however, since the Utilities recover all prudently incurred pension and postretirement benefit costs from its ratepayers, a significant portion of the charges resulting from the recording of additional liabilities under this requirement are reported as regulatory assets (see Note 11).
Details of the activity within the Regulatory Asset and AOCL associated with Pension and Other Postretirement Benefits are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
Regulatory Assets
|
|
|
|
Accumulated Other
Comprehensive Loss
(pre-tax)
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
Balance at January 1, 2018
|
$
|
64,969
|
|
|
$
|
13,242
|
|
|
$
|
53,932
|
|
|
$
|
3,506
|
|
|
|
|
|
|
|
|
|
Amounts Arising during the Period:
|
|
|
|
|
|
|
|
Net Actuarial Gain (Loss)
|
8,637
|
|
|
5,662
|
|
|
(5,953)
|
|
|
(1,819)
|
|
Prior Service Credit
|
70
|
|
|
(3,247)
|
|
|
—
|
|
|
(2,471)
|
|
Other (Curtailments, Settlements, Special Termination)
|
—
|
|
|
—
|
|
|
—
|
|
|
1,586
|
|
Amounts Amortized to Net Periodic Costs:
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
(6,025)
|
|
|
(695)
|
|
|
(5,450)
|
|
|
(199)
|
|
Prior Service (Credits) Cost
|
(112)
|
|
|
257
|
|
|
(4)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
67,539
|
|
|
15,219
|
|
|
42,525
|
|
|
687
|
|
|
|
|
|
|
|
|
|
Amounts Arising during the Period:
|
|
|
|
|
|
|
|
Net Actuarial (Loss) Gain
|
(404)
|
|
|
(2,400)
|
|
|
12,865
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Amortized to Net Periodic Costs:
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
(5,456)
|
|
|
(1,042)
|
|
|
(4,094)
|
|
|
(121)
|
|
Prior Service Cost
|
(95)
|
|
|
474
|
|
|
(11)
|
|
|
87
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
$
|
61,584
|
|
|
$
|
12,251
|
|
|
$
|
51,285
|
|
|
$
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
Regulatory Assets
|
|
|
|
Accumulated Other Comprehensive Loss (pre-tax)
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
Balance at January 1, 2018
|
$
|
64,969
|
|
|
$
|
13,242
|
|
|
$
|
39,356
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Amounts Arising during the Period:
|
|
|
|
|
|
|
|
Net Actuarial Gain (Loss)
|
6,590
|
|
|
5,071
|
|
|
(911)
|
|
|
—
|
|
Prior Service Credit (Cost)
|
70
|
|
|
(3,247)
|
|
|
—
|
|
|
—
|
|
Other (Curtailments, Settlements, Special Termination)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amounts Amortized to Net Periodic Costs:
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
(6,025)
|
|
|
(695)
|
|
|
(4,049)
|
|
|
—
|
|
Prior Service (Cost) Credit
|
(111)
|
|
|
257
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
65,493
|
|
|
14,628
|
|
|
34,396
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Amounts Arising during the Period:
|
|
|
|
|
|
|
|
Net Actuarial Gain (Loss)
|
726
|
|
|
(2,718)
|
|
|
10,562
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Amortized to Net Periodic Costs:
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
(5,456)
|
|
|
(1,042)
|
|
|
(2,768)
|
|
|
—
|
|
Prior Service (Cost) Credit
|
(95)
|
|
|
474
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
$
|
60,668
|
|
|
$
|
11,342
|
|
|
$
|
42,190
|
|
|
$
|
—
|
|
The estimated costs that will be amortized from Regulatory Assets for SJI and SJG into net periodic benefit costs in 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
SJI and SJG (costs (credits) are the same for both entities):
|
Pension Benefits
|
|
Other Postretirement Benefits
|
Prior Service Cost/(Credit)
|
$
|
95
|
|
|
$
|
(474)
|
|
Net Actuarial Loss
|
$
|
5,385
|
|
|
$
|
665
|
|
The estimated costs that will be amortized from SJI and SJG AOCL into net periodic benefit costs in 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
Prior Service Cost/(Credit)
|
$
|
11
|
|
|
$
|
(102)
|
|
Net Actuarial Loss
|
$
|
5,091
|
|
|
$
|
104
|
|
|
|
|
|
SJG:
|
|
|
|
Prior Service Cost/(Credit)
|
$
|
—
|
|
|
$
|
—
|
|
Net Actuarial Loss
|
$
|
3,696
|
|
|
$
|
—
|
|
A reconciliation of the plans' benefit obligations, fair value of plan assets, funded status and amounts recognized in SJI's consolidated balance sheets follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
Pension Benefits
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in Benefit Obligations:
|
|
|
|
|
|
|
|
Benefit Obligation at Beginning of Year
|
$
|
402,156
|
|
|
$
|
316,289
|
|
|
$
|
69,511
|
|
|
$
|
62,283
|
|
Acquisition Opening Obligation
|
—
|
|
|
100,362
|
|
|
—
|
|
|
13,195
|
|
Service Cost
|
5,583
|
|
|
6,442
|
|
|
533
|
|
|
945
|
|
Interest Cost
|
17,294
|
|
|
13,778
|
|
|
2,884
|
|
|
2,430
|
|
Actuarial Loss (Gain)
|
44,047
|
|
|
(26,274)
|
|
|
5,228
|
|
|
(3,534)
|
|
Retiree Contributions
|
—
|
|
|
—
|
|
|
59
|
|
|
265
|
|
Plan Amendments
|
955
|
|
|
7,394
|
|
|
—
|
|
|
(3,012)
|
|
Benefits Paid
|
(30,662)
|
|
|
(15,835)
|
|
|
(4,556)
|
|
|
(3,061)
|
|
Benefit Obligation at End of Year
|
$
|
439,373
|
|
|
$
|
402,156
|
|
|
$
|
73,659
|
|
|
$
|
69,511
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Year
|
$
|
287,220
|
|
|
$
|
216,065
|
|
|
$
|
70,531
|
|
|
$
|
57,922
|
|
Acquisition Beginning Fair Value
|
—
|
|
|
94,685
|
|
|
—
|
|
|
15,659
|
|
Actual Return on Plan Assets
|
51,812
|
|
|
(10,399)
|
|
|
11,990
|
|
|
(3,050)
|
|
Employer Contributions
|
4,127
|
|
|
2,704
|
|
|
4,498
|
|
|
2,796
|
|
Retiree Contributions
|
—
|
|
|
—
|
|
|
59
|
|
|
265
|
|
Benefits Paid
|
(30,662)
|
|
|
(15,835)
|
|
|
(4,556)
|
|
|
(3,061)
|
|
Fair Value of Plan Assets at End of Year
|
$
|
312,497
|
|
|
$
|
287,220
|
|
|
$
|
82,522
|
|
|
$
|
70,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status at End of Year:
|
$
|
(126,876)
|
|
|
$
|
(114,936)
|
|
|
$
|
8,863
|
|
|
$
|
1,020
|
|
Amounts Related to Unconsolidated Affiliate
|
(2)
|
|
|
(147)
|
|
|
233
|
|
|
320
|
|
Accrued Net Benefit (Cost) Credit at End of Year
|
$
|
(126,878)
|
|
|
$
|
(115,083)
|
|
|
$
|
9,096
|
|
|
$
|
1,340
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Statement of Financial Position Consist of:
|
|
|
|
|
|
|
|
Current Liabilities
|
$
|
(3,727)
|
|
|
$
|
(3,631)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Noncurrent Liabilities
|
(123,151)
|
|
|
(111,452)
|
|
|
9,096
|
|
|
1,340
|
|
Net Amount Recognized at End of Year
|
$
|
(126,878)
|
|
|
$
|
(115,083)
|
|
|
$
|
9,096
|
|
|
$
|
1,340
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Regulatory Assets Consist of:
|
|
|
|
|
|
|
|
Prior Service Costs (Credits)
|
$
|
292
|
|
|
$
|
162
|
|
|
$
|
(5,290)
|
|
|
$
|
(5,765)
|
|
Net Actuarial Loss
|
61,292
|
|
|
67,377
|
|
|
17,541
|
|
|
20,984
|
|
|
$
|
61,584
|
|
|
$
|
67,539
|
|
|
$
|
12,251
|
|
|
$
|
15,219
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of (pre-tax):
|
|
|
|
|
|
|
|
Prior Service Costs (Credits)
|
$
|
32
|
|
|
$
|
268
|
|
|
$
|
(1,619)
|
|
|
$
|
(1,707)
|
|
Net Actuarial Loss
|
51,253
|
|
|
42,257
|
|
|
2,583
|
|
|
2,394
|
|
|
$
|
51,285
|
|
|
$
|
42,525
|
|
|
$
|
964
|
|
|
$
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
Other
|
|
|
|
Pension Benefits
|
|
|
|
Postretirement Benefits
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in Benefit Obligations:
|
|
|
|
|
|
|
|
Benefit Obligation at Beginning of Year
|
$
|
264,823
|
|
|
$
|
269,066
|
|
|
$
|
44,882
|
|
|
$
|
49,098
|
|
Service Cost
|
3,621
|
|
|
5,073
|
|
|
343
|
|
|
583
|
|
Interest Cost
|
11,067
|
|
|
10,010
|
|
|
1,863
|
|
|
1,698
|
|
Actuarial Loss (Gain)
|
24,020
|
|
|
(13,009)
|
|
|
3,481
|
|
|
(1,271)
|
|
Retiree Contributions
|
—
|
|
|
—
|
|
|
6
|
|
|
143
|
|
Plan Amendments
|
—
|
|
|
4,169
|
|
|
—
|
|
|
(3,247)
|
|
Benefits Paid
|
(17,014)
|
|
|
(10,486)
|
|
|
(3,269)
|
|
|
(2,122)
|
|
Benefit Obligation at End of Year
|
$
|
286,517
|
|
|
$
|
264,823
|
|
|
$
|
47,306
|
|
|
$
|
44,882
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Year
|
$
|
160,285
|
|
|
$
|
174,277
|
|
|
$
|
49,770
|
|
|
$
|
52,663
|
|
Actual Return on Plan Assets
|
23,760
|
|
|
(6,175)
|
|
|
9,419
|
|
|
(2,893)
|
|
Employer Contributions
|
3,927
|
|
|
2,669
|
|
|
3,264
|
|
|
1,979
|
|
Retiree Contributions
|
—
|
|
|
—
|
|
|
6
|
|
|
143
|
|
Benefits Paid
|
(17,013)
|
|
|
(10,486)
|
|
|
(3,269)
|
|
|
(2,122)
|
|
Fair Value of Plan Assets at End of Year
|
$
|
170,959
|
|
|
$
|
160,285
|
|
|
$
|
59,190
|
|
|
$
|
49,770
|
|
|
|
|
|
|
|
|
|
Funded Status at End of Year:
|
|
|
|
|
|
|
|
Accrued Net Benefit (Cost) Credit at End of Year
|
$
|
(115,558)
|
|
|
$
|
(104,538)
|
|
|
$
|
11,884
|
|
|
$
|
4,888
|
|
Amounts Recognized in the Statement of Financial Position Consist of:
|
|
|
|
|
|
|
|
Current Liabilities
|
$
|
(3,693)
|
|
|
$
|
(3,597)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Noncurrent Liabilities
|
(111,865)
|
|
|
(100,941)
|
|
|
11,884
|
|
|
4,888
|
|
Net Amount Recognized at End of Year
|
$
|
(115,558)
|
|
|
$
|
(104,538)
|
|
|
$
|
11,884
|
|
|
$
|
4,888
|
|
Amounts Recognized in Regulatory Assets Consist of:
|
|
|
|
|
|
|
|
Prior Service Costs (Credits)
|
$
|
292
|
|
|
$
|
163
|
|
|
$
|
(5,290)
|
|
|
$
|
(5,765)
|
|
Net Actuarial Loss
|
60,376
|
|
|
65,330
|
|
|
16,632
|
|
|
20,393
|
|
Net Amount Recognized at End of Year
|
$
|
60,668
|
|
|
$
|
65,493
|
|
|
$
|
11,342
|
|
|
$
|
14,628
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
$
|
42,190
|
|
|
$
|
34,396
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The PBO and ABO of SJI's qualified employee pension plans were $354.9 million and $335.6 million, respectively, as of December 31, 2019; and $329.2 million and $309.4 million, respectively, as of December 31, 2018. The ABO of these plans exceeded the value of the plan assets as of December 31, 2019 and 2018. The value of these assets were $312.5 million and $287.2 million as of December 31, 2019 and 2018, respectively, and can be seen in the SJI table above under "Change in Plan Assets." The PBO and ABO for SJI's non-funded SERP were $84.5 million and $80.5 million, respectively, as of December 31, 2019; and $73.0 million and $69.5 million, respectively, as of December 31, 2018. SJI's SERP obligation is reflected in the tables above and has no assets.
The PBO and ABO of SJG's qualified employee pension plans were $199.3 million and $188.1 million, respectively, as of December 31, 2019; and $188.1 million and $176.8 million, respectively, as of December 31, 2018. The ABO of these plans exceeded the value of the plan assets as of December 31, 2019 and 2018. The value of these assets were $171.0 million and $160.3 million as of December 31, 2019 and 2018, respectively, and can be seen in the SJG table above under "Change in Plan Assets." The PBO and ABO for SJG's non-funded SERP were $84.1 million and $80.1 million, respectively, as of December 31, 2019; and $72.6 million and $69.1 million, respectively, as of December 31, 2018. SJG's SERP obligation is reflected in the tables above and has no assets.
The weighted-average assumptions used to determine benefit obligations for SJI and SJG at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
Other Postretirement Benefits
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Discount Rate
|
3.49
|
%
|
|
4.39
|
%
|
|
3.43
|
%
|
|
3.63
|
%
|
Rate of Compensation Increase
|
3.00
|
%
|
|
3.50
|
%
|
|
3.00
|
%
|
|
3.50
|
%
|
The weighted-average assumptions used to determine net periodic benefit cost (credit) for SJI and SJG for the years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Discount Rate
|
4.39
|
%
|
|
3.73
|
%
|
|
4.30
|
%
|
|
4.31
|
%
|
|
4.13
|
%
|
|
4.13
|
%
|
Expected Long-Term Return on Plan Assets
|
7.25
|
%
|
|
7.25
|
%
|
|
7.25
|
%
|
|
6.75
|
%
|
|
6.75
|
%
|
|
6.50
|
%
|
Rate of Compensation Increase
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
In 2014, the SOA released new mortality tables (RP-2014), which the Company adopted as of December 31, 2014. Since then, the SOA has updated the mortality projection on an annual basis. The Company utilizes the most current projection tables available. The obligations as of December 31, 2019, 2018 and 2017, disclosed herein, reflect the use of the updated projection tables applicable to those years.
The discount rates used to determine the benefit obligations at December 31, 2019 and 2018, which are used to determine the net periodic benefit cost for the subsequent year, were based on a portfolio model of high-quality investments with maturities that match the expected benefit payments under our pension and other postretirement benefit plans.
The expected long-term return on plan assets (“return”) has been determined by applying long-term capital market projections provided by our pension plan Trustee to the asset allocation guidelines, as defined in SJI's and SJG's investment policy, to arrive at a weighted average return. For certain other equity securities held by an investment manager outside of the control of the Trustee, the return has been determined based on historic performance in combination with long-term expectations. The return for the other postretirement benefits plan is determined in the same manner as discussed above; however, the expected return is reduced based on the taxable nature of the underlying trusts.
PLAN ASSETS - SJI's and SJG's overall investment strategy for pension plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans. SJI and SJG have implemented this diversification strategy primarily with commingled common/collective trust funds. The target allocations for pension plan assets are 40-70 percent U.S. equity securities, 10-25 percent international equity securities, 25-60 percent fixed income investments, and 0-20 percent to all other types of investments. Equity securities include investments in commingled common/collective trust funds as well as large-cap and mid-cap companies. Fixed income securities include commingled common/collective trust funds, group annuity contracts for pension payments, and hedge funds. Other types of investments include investments in private equity funds and real estate funds that follow several different strategies.
The strategy recognizes that risk and volatility are present to some degree with all types of investments. SJI and SJG seek to avoid high levels of risk at the total fund level through diversification by asset class, style of manager, and sector and industry limits. Specifically prohibited investments include, but are not limited to, venture capital, margin trading, commodities and securities of companies with less than $250.0 million capitalization (except in the small-cap portion of the fund where capitalization levels as low as $50.0 million are permissible). These restrictions are only applicable to individual investment managers with separately managed portfolios and do not apply to mutual funds or commingled trusts.
SJI evaluated its pension and other postretirement benefit plans' asset portfolios for the existence of significant concentrations of credit risk as of December 31, 2019. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of December 31, 2019, there were no significant concentrations (defined as greater than 10 percent of plan assets) of risk in SJI's pension and other postretirement benefit plan assets.
GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. This hierarchy groups assets into three distinct levels, as fully described in Note 17, which will serve as the basis for presentation throughout the remainder of this Note.
The fair values of SJI's and SJG's pension plan assets at December 31, 2019 and 2018 by asset category are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
Cash / Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
2,493
|
|
|
|
|
$
|
2,493
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
STIF-Type Instrument (a)
|
1,702
|
|
|
|
|
1,676
|
|
|
26
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Large-Cap (b)
|
30,863
|
|
|
|
|
30,863
|
|
|
—
|
|
|
—
|
|
U.S. Mid-Cap (b)
|
5,862
|
|
|
|
|
5,862
|
|
|
—
|
|
|
—
|
|
U.S. Small-Cap (b)
|
3,958
|
|
|
|
|
3,958
|
|
|
—
|
|
|
—
|
|
International (b)
|
33,523
|
|
|
|
|
33,523
|
|
|
—
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Insurance Contract (c)
|
2,756
|
|
|
|
|
—
|
|
|
—
|
|
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
Core Plus Fixed Income (d)
|
23,664
|
|
|
|
|
17,132
|
|
|
|
$
|
6,532
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
104,821
|
|
|
|
|
$
|
95,507
|
|
|
$
|
6,558
|
|
|
$
|
2,756
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
|
|
Private Equity Fund (e)
|
$
|
9,650
|
|
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - Real Estate (f)
|
11,190
|
|
|
|
|
|
|
|
|
|
|
20,840
|
|
|
|
|
|
|
|
|
Other Common/Collective Trust Funds (g):
|
|
|
|
|
|
|
|
|
|
Cash/Cash Equivalents
|
23,965
|
|
|
|
|
|
|
|
|
|
Equity Securities - U.S.
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,386
|
|
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
46,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to reconcile to fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
Pension Trust Receivables (h)
|
161,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
312,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
Cash / Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
92,224
|
|
|
|
|
$
|
92,224
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
STIF-Type Instrument (a)
|
1,653
|
|
|
|
|
—
|
|
|
1,653
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Large-Cap (b)
|
13,684
|
|
|
|
|
13,684
|
|
|
—
|
|
|
—
|
|
U.S. Mid-Cap (b)
|
1,502
|
|
|
|
|
1,502
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
International (b)
|
2,327
|
|
|
|
|
2,327
|
|
|
—
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Insurance Contract (c)
|
8,453
|
|
|
|
|
—
|
|
|
—
|
|
|
8,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
119,843
|
|
|
|
|
$
|
109,737
|
|
|
$
|
1,653
|
|
|
$
|
8,453
|
|
|
|
|
|
|
|
|
|
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
|
|
Private Equity Fund (e)
|
$
|
8,867
|
|
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - Real Estate (f)
|
9,737
|
|
|
|
|
|
|
|
|
|
|
18,604
|
|
|
|
|
|
|
|
|
|
Other Common/Collective Trust Funds (g):
|
|
|
|
|
|
|
|
|
|
Cash/Cash Equivalents
|
696
|
|
|
|
|
|
|
|
|
|
Equity Securities - U.S.
|
63,418
|
|
|
|
|
|
|
|
|
|
Equity Securities - International
|
33,391
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
51,268
|
|
|
|
|
|
|
|
|
|
|
148,773
|
|
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
$
|
167,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
287,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
Cash / Cash Equivalents:
|
|
|
|
|
|
|
|
Cash
|
$
|
1,482
|
|
|
$
|
1,482
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
STIF-Type Instrument (a)
|
21
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Insurance Contract (c)
|
2,216
|
|
|
—
|
|
|
—
|
|
|
2,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
3,719
|
|
|
$
|
1,482
|
|
|
$
|
21
|
|
|
$
|
2,216
|
|
|
|
|
|
|
|
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
Private Equity Fund (e)
|
$
|
7,761
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - Real Estate (f)
|
8,999
|
|
|
|
|
|
|
|
|
16,760
|
|
|
|
|
|
|
|
Other Common/Collective Trust Funds (g):
|
|
|
|
|
|
|
|
Cash/Cash Equivalents
|
19,273
|
|
|
|
|
|
|
|
Equity Securities - U.S.
|
1,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,416
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
37,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to reconcile to fair value of plan assets:
|
|
|
|
|
|
|
|
Pension Trust Receivables (h)
|
130,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
170,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
Cash / Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
19
|
|
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
STIF-Type Instrument (a)
|
1,359
|
|
|
|
|
—
|
|
|
1,359
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Large-Cap (b)
|
11,247
|
|
|
|
|
11,247
|
|
|
—
|
|
|
—
|
|
U.S. Mid-Cap (b)
|
1,234
|
|
|
|
|
1,234
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
International (b)
|
1,912
|
|
|
|
|
1,912
|
|
|
—
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed Insurance Contract (c)
|
6,947
|
|
|
|
|
—
|
|
|
—
|
|
|
6,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
22,718
|
|
|
|
|
$
|
14,412
|
|
|
$
|
1,359
|
|
|
$
|
6,947
|
|
|
|
|
|
|
|
|
|
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
|
|
Private Equity Fund (e)
|
$
|
7,288
|
|
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - Real Estate (f)
|
8,003
|
|
|
|
|
|
|
|
|
|
|
15,291
|
|
|
|
|
|
|
|
|
|
Other Common/Collective Trust Funds (g):
|
|
|
|
|
|
|
|
|
|
Cash/Cash Equivalents
|
572
|
|
|
|
|
|
|
|
|
|
Equity Securities - U.S.
|
52,123
|
|
|
|
|
|
|
|
|
|
Equity Securities - International
|
27,444
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
42,137
|
|
|
|
|
|
|
|
|
|
|
122,276
|
|
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
$
|
137,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
160,285
|
|
|
|
|
|
|
|
|
|
(a)This category represents short-term investment funds held for the purpose of funding disbursement payment arrangements. Underlying assets are valued based on quoted prices in active markets, or where quoted prices are not available, based on models using observable market information. Since not all values can be obtained from quoted prices in active markets, these funds are classified as Level 2 investments.
(b)This category of equity investments represents a managed portfolio of common stock investments in five sectors: telecommunications, electric utilities, gas utilities, water and energy. These common stocks are actively traded on exchanges and price quotes for these shares are readily available. These common stocks are classified as Level 1 investments.
(c)This category represents SJI’s Group Annuity contracts with a nationally recognized life insurance company. The contracts are the assets of the plan, while the underlying assets of the contracts are owned by the contract holder. Valuation is based on a formula and calculation specified within the contract. Since the valuation is based on the reporting entity’s own assumptions, these contracts are classified as Level 3 investments.
(d)This category represents investments using a value-oriented fixed income strategy that invests primarily in a diversified mix of U.S. dollar-denominated investment-grade fixed income securities, with a predominant focus on investment-grade securities across all market sectors and maturities, as well as other alternatives such as high-yield bonds, emerging markets debt, and non-dollar bonds.
(e)This category represents a limited partnership which includes several investments in U.S. leveraged buyout, venture capital, and special situation funds. Fund valuations are reported on a 90 to 120 day lag and, therefore, the value reported herein represents the market value as of June or September 30, 2019 and 2018, respectively, with cash flow changes through December applied. The fund’s investments are stated at fair value, which is generally based on the valuations provided by the general partners or managers of such investments.
(f)This category represents real estate common/collective trust fund investments through a commingled employee benefit trust. These commingled funds are part of a direct investment in a pool of real estate properties. These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications.
(g)This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets. Also included in these funds are interest rate swaps, asset backed securities, mortgage backed securities and other investments with observable market values.
(h)Primarily receivables for investment securities sold.
Fair Value Measurement Using Significant
Unobservable Inputs (Level 3)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
Guaranteed
|
|
|
|
Private
|
|
|
|
|
|
Insurance
|
|
|
|
Equity
|
|
Real
|
|
|
|
Contract
|
|
|
|
Funds
|
|
Estate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
$
|
9,211
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,211
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
(53)
|
|
|
|
|
—
|
|
|
—
|
|
|
(53)
|
|
Relating to assets sold during the period
|
13
|
|
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Purchases, Sales and Settlements
|
(718)
|
|
|
|
|
—
|
|
|
—
|
|
|
(718)
|
|
Balance at December 31, 2018
|
8,453
|
|
|
|
|
—
|
|
|
—
|
|
|
8,453
|
|
Actual return on plan assets:
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Relating to assets still held at the reporting date
|
144
|
|
|
|
|
—
|
|
|
—
|
|
|
144
|
|
Relating to assets sold during the period
|
226
|
|
|
|
|
—
|
|
|
—
|
|
|
226
|
|
Purchases, Sales and Settlements
|
(6,067)
|
|
|
|
|
—
|
|
|
—
|
|
|
(6,067)
|
|
Balance at December 31, 2019
|
$
|
2,756
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
Guaranteed
Insurance
Contract
|
|
|
|
Private
Equity
Funds
|
|
Real
Estate
|
|
Total
|
Balance at January 1, 2018
|
$
|
7,429
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,429
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
98
|
|
|
|
|
—
|
|
|
—
|
|
|
98
|
|
Relating to assets sold during the period
|
11
|
|
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Purchases, Sales and Settlements
|
(591)
|
|
|
|
|
—
|
|
|
—
|
|
|
(591)
|
|
Balance at December 31, 2018
|
$
|
6,947
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,947
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
(34)
|
|
|
|
|
—
|
|
|
—
|
|
|
(34)
|
|
Relating to assets sold during the period
|
182
|
|
|
|
|
—
|
|
|
—
|
|
|
182
|
|
Purchases, Sales and Settlements
|
(4,879)
|
|
|
|
|
—
|
|
|
—
|
|
|
(4,879)
|
|
Balance at December 31, 2019
|
$
|
2,216
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,216
|
|
As with the pension plan assets, SJI's and SJG's overall investment strategy for post-retirement benefit plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans. SJI and SJG have implemented this diversification strategy with a mix of common/collective trust funds, mutual funds and Company-owned life insurance policies. The target allocations for post-retirement benefit plan assets are 55-75 percent U.S. equity securities, 10-20 percent international equity securities, 25-45 percent fixed income investments and 0-7 percent to all other types of investments. Equity securities include investments in large-cap, mid-cap and small-cap companies within mutual funds or common/collective trust funds. Fixed income securities within the common/collective trust fund include primarily investment grade, U.S. Government and mortgage-backed financial instruments. The insurance policies are backed by a series of commingled trust investments held by the insurance carrier.
The fair values of SJI's and SJG's other postretirement benefit plan assets at December 31, 2019 and 2018 by asset category are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
Cash
|
$
|
2,020
|
|
|
$
|
2,020
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities:
|
|
|
|
|
|
|
|
U.S. Large-Cap (a)
|
5,585
|
|
|
5,585
|
|
|
—
|
|
|
—
|
|
U.S. Mid-Cap (a)
|
1,038
|
|
|
1,038
|
|
|
—
|
|
|
—
|
|
U.S. Small-Cap (a)
|
|
695
|
|
|
695
|
|
|
—
|
|
|
—
|
|
U.S. International (a)
|
5,915
|
|
|
5,915
|
|
|
—
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
Core Plus Fixed Income (c)
|
1,529
|
|
|
777
|
|
|
|
752
|
|
|
—
|
|
Mutual Funds - Bonds (a)
|
2,588
|
|
|
2,588
|
|
|
—
|
|
|
—
|
|
Other Types of Investments:
|
|
|
|
|
|
|
|
STIF-Type Instrument
|
99
|
|
|
99
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
19,469
|
|
|
$
|
18,717
|
|
|
$
|
752
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Owned Life Insurance (b)
|
$
|
15,820
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
$
|
15,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to reconcile to fair value of plan assets:
|
|
|
|
|
|
|
|
Pension Trust Receivables (d)
|
$
|
47,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
82,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2018:
|
|
|
|
|
|
|
|
Cash
|
$
|
16,720
|
|
|
$
|
16,720
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other Types of Investments:
|
|
|
|
|
|
|
|
Mutual Funds - REITS (a)
|
$
|
822
|
|
|
$
|
822
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
17,542
|
|
|
$
|
17,542
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds (b):
|
|
|
|
|
|
|
|
Equity Securities - U.S.
|
$
|
14,069
|
|
|
|
|
|
|
|
Equity Securities - International
|
9,720
|
|
|
|
|
|
|
|
Fixed Income
|
15,315
|
|
|
|
|
|
|
|
Company Owned Life Insurance (b)
|
13,885
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
$
|
52,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
70,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Cash
|
$
|
1,895
|
|
|
$
|
1,895
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
1,895
|
|
|
$
|
1,895
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Owned Life Insurance (b)
|
14,843
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
$
|
14,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to reconcile to fair value of plan assets:
|
|
|
|
|
|
|
|
Pension Trust Receivables (d)
|
42,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
59,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2018
|
|
|
|
|
|
|
|
Cash
|
$
|
859
|
|
|
$
|
859
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other Types of Investments:
|
|
|
|
|
|
|
|
Mutual Funds - REITS (a)
|
$
|
740
|
|
|
$
|
740
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Subtotal Fair Value
|
$
|
1,599
|
|
|
$
|
1,599
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Measured at net asset value practical expedient:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds (b):
|
|
|
|
|
|
|
|
Equity Securities - U.S.
|
$
|
12,645
|
|
|
|
|
|
|
|
Equity Securities - International
|
8,735
|
|
|
|
|
|
|
|
Fixed Income
|
13,764
|
|
|
|
|
|
|
|
Company Owned Life Insurance (b)
|
13,027
|
|
|
|
|
|
|
|
Subtotal measured at net asset value practical expedient
|
$
|
48,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
$
|
49,770
|
|
|
|
|
|
|
|
(a)This category represents mutual fund investments. The mutual funds are actively traded on exchanges and price quotes for the shares are readily available. These mutual funds are classified as Level 1 investments.
(b)This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets. Also included in these funds are interest rate swaps, asset backed securities, mortgage backed securities and other investments with observable market values. This category also represents Company-owned life insurance policies with a nationally known life insurance company. The value of these policies is backed by a series of common/collective trust funds held by the insurance carrier.
(c)This category represents investments using a value-oriented fixed income strategy that invests primarily in a diversified mix of U.S. dollar-denominated investment-grade fixed income securities, with a predominant focus on investment-grade securities across all market sectors and maturities, as well as other alternatives such as high-yield bonds, emerging markets debt, and non-dollar bonds.
(d)Primarily receivables for investment securities sold.
FUTURE BENEFIT PAYMENTS - The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
Pension Benefits
|
|
Other Postretirement Benefits
|
2020
|
$
|
23,181
|
|
|
$
|
5,574
|
|
2021
|
$
|
22,520
|
|
|
$
|
5,519
|
|
2022
|
$
|
23,234
|
|
|
$
|
5,414
|
|
2023
|
$
|
23,795
|
|
|
$
|
5,283
|
|
2024
|
$
|
24,434
|
|
|
$
|
5,009
|
|
2025 - 2029
|
$
|
131,577
|
|
|
$
|
21,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
Pension Benefits
|
|
Other
Postretirement Benefits
|
2020
|
$
|
13,078
|
|
|
$
|
3,818
|
|
2021
|
$
|
13,464
|
|
|
$
|
3,747
|
|
2022
|
$
|
13,890
|
|
|
$
|
3,666
|
|
2023
|
$
|
14,319
|
|
|
$
|
3,598
|
|
2024
|
$
|
14,985
|
|
|
$
|
3,415
|
|
2025 - 2029
|
$
|
84,989
|
|
|
$
|
14,366
|
|
CONTRIBUTIONS - SJI contributed $10.0 million to the pension plans in January 2017, of which SJG contributed $8.0 million. SJI and SJG did not make contributions to its employee pension plans in 2018 or 2019. Payments related to the unfunded SERP plan for SJI and SJG in 2019, 2018 and 2017 were $4.1 million, $2.7 million and $2.4 million, respectively. SERP payments for SJI and SJG are expected to approximate $3.7 million in 2020. Prior to the base rate case settlement in October 2017, SJG also had a regulatory obligation to contribute approximately $3.6 million annually to its other postretirement benefit plans’ trusts, less direct costs incurred. The October 2017 rate case settlement allows SJG to modify the future requirement level up to a limit that represents full funding of its obligation and to the maximum tax deduction allowed.
As part of the Acquisition, SJI acquired the existing pension and other post-employment benefit plans. The plans include a qualified defined benefit, trusteed, pension plan covering most eligible employees. The qualified pension plan is funded in accordance with requirements of the ERISA. The Company also provides certain non-qualified defined benefit and defined contribution pension plans for a selected group of the Company's management and highly compensated employees. Benefits under these non-qualified pension plans are funded on a cash basis. In addition, the entities also have a postretirement benefit plan, which provides certain medical care and life insurance benefits for eligible retired employees through a postretirement benefit plan. In 2018, SJI's Pension and Other Postretirement Benefits Liabilities balance was increased by $3.2 million, which is the fair value of the acquired ETG and ELK Pension and Other Postretirement Benefits Liabilities at the time of the acquisition. The value of ETG and ELK's Pension and Other Postretirement Benefits Liabilities as of December 31, 2018 is $5.1 million.
DEFINED CONTRIBUTION PLAN - SJI and SJG offer a Savings Plan to eligible employees. For employees eligible for participation in the defined benefit pension plan, SJI and SJG match 50% of participants' contributions up to 6% of base compensation. For employees who are not eligible for participation in the defined benefit pension plans, SJI and SJG match 50% of participants' contributions up to 8% of base compensation. Employees not eligible for the pension plans also receive a year-end contribution of $1,500, if 10 or fewer years of service, or $2,000, if more than 10 years of service. The amount expensed and contributed for the matching provision of the Savings Plan for SJI approximated $3.4 million, $3.3 million and $2.6 million for the years ended December 31, 2019, 2018 and 2017, respectively, and $1.2 million, $1.8 million and $1.6 million for SJG for the years ended December 31, 2019, 2018 and 2017, respectively.
13. LINES OF CREDIT:
Credit facilities and available liquidity as of December 31, 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Total Facility
|
|
Usage
|
|
Available Liquidity
|
|
Expiration Date
|
SJI:
|
|
|
|
|
|
|
|
|
SJI Syndicated Revolving Credit Facility
|
|
$
|
500,000
|
|
|
$
|
432,600
|
|
(A)
|
$
|
67,400
|
|
|
August 2022
|
Revolving Credit Facility
|
|
50,000
|
|
|
50,000
|
|
|
—
|
|
|
September 2020
|
Term Loan Credit Agreement
|
|
100,000
|
|
|
100,000
|
|
|
—
|
|
|
September 2020
|
|
|
|
|
|
|
|
|
|
Total SJI
|
|
650,000
|
|
|
582,600
|
|
|
67,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Paper Program/Revolving Credit
Facility
|
|
200,000
|
|
|
172,100
|
|
(B)
|
27,900
|
|
|
August 2022
|
Uncommitted Bank Line
|
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
September 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SJG
|
|
210,000
|
|
|
172,100
|
|
|
37,900
|
|
|
|
|
|
|
|
|
|
|
|
|
ETG/ELK:
|
|
|
|
|
|
|
|
|
ETG/ELK Revolving Credit Facility
|
|
200,000
|
|
|
105,300
|
|
(C)
|
94,700
|
|
|
June 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,060,000
|
|
|
$
|
860,000
|
|
|
$
|
200,000
|
|
|
|
(A) Includes letters of credit outstanding in the amount of $9.5 million.
(B) Includes letters of credit outstanding in the amount of $0.8 million.
(C) Includes letters of credit outstanding in the amount of $1.0 million.
For SJI, the $860.0 million of usage in the table above, less the letters of credit noted in (A)-(C), equal the $848.7 million recorded as Notes Payable on the consolidated balance sheet as of December 31, 2019. For SJG, the $172.1 million of usage in the table above, less the letters of credit noted in (B), equal the $171.3 million recorded as Notes Payable on the balance sheet as of December 31, 2019.
In June 2019, SJI entered into an amendment to its Five Year Revolving Credit Agreement ("Credit Agreement"), expiring in August 2022, that increased by $100.0 million the amount SJI can borrow under the Credit Agreement in the form of revolving loans from a total aggregate amount of $400.0 million to $500.0 million. In addition, as part of the total $500.0 million extension of credit, the Credit Agreement provides for swingline loans (in an amount not to exceed an aggregate of $50.0 million) and letters of credit (in an amount not to exceed an aggregate of $200.0 million), each at the applicable interest rates specified in the Credit Agreement. Subject to certain conditions set forth in the Credit Agreement, the Company may increase the revolving credit facility up to a maximum aggregate amount of $100.0 million (for a total facility of up to $600.0 million), although no lender is obligated to increase its commitment.
On September 23, 2019, SJI entered into an unsecured $100.0 million term loan credit agreement. The entire amount was borrowed on September 23, 2019. The maturity date of the term loan is September 18, 2020. Any amounts repaid prior to the maturity date cannot be reborrowed. The term loan bears interest at a variable base rate or a variable LIBOR rate, at the Company’s election.
SJI (as a guarantor to ELK's obligation under this revolving credit agreement), ETG and ELK (as Borrowers) have a $200.0 million, two-year revolving credit agreement with several lenders. The revolving credit agreement provides for the extension of credit to the Borrowers in a total aggregate amount of $200.0 million ($190.0 million for ETG; $10.0 million for ELK, which was amended during 2019 pursuant to Section 2.03(b) of the Second Amendment to Two-Year Revolving Credit Agreement and Extension Agreement), in the form of revolving loans up to a full amount of $200.0 million, swingline loans in an amount not to exceed an aggregate of $20.0 million and letters of credit in an amount not to exceed an aggregate of $50.0 million, each at the applicable interest rates specified in the revolving credit agreement. Subject to certain conditions set forth in the revolving credit agreement, ETG may increase the revolving credit facility up to a maximum aggregate amount of $50.0 million (for a total revolving facility of up to $250.0 million). In June 2019, this revolving credit agreement was amended to add SJIU as an additional Borrower and to extend the termination date from June 2020 to June 2021. This facility contains one financial covenant, limiting the ratio of indebtedness to total capitalization (as defined in the credit agreement) of each Borrower to not more than 0.70 to 1, measured at the end of each fiscal quarter. ETG and ELK were in compliance with this covenant at December 31, 2019.
The Utilities' facilities are restricted as to use and availability specifically to the respective Utilities; however, if necessary, the SJI facilities can also be used to support the liquidity needs of the Utilities. All committed facilities contain one financial covenant limiting the ratio of indebtedness to total capitalization of the applicable borrowers (as defined in the respective credit agreements), measured on a quarterly basis. SJI and the Utilities were in compliance with these covenants as of December 31, 2019. Borrowings under these credit facilities are at market rates.
SJI's weighted average interest rate on these borrowings (which includes SJG and ETG/ELK), which changes daily, was 2.67%, 3.32% and 2.46% at December 31, 2019, 2018 and 2017, respectively. SJG's weighted average interest rate on these borrowings, which changes daily, was 1.99%, 2.96% and 1.88% at December 31, 2019, 2018 and 2017, respectively.
SJI's average borrowings outstanding under these credit facilities (which includes SJG and ETG/ELK), not including letters of credit, during the years ended December 31, 2019 and 2018 were $560.2 million and $265.5 million, respectively. The maximum amounts outstanding under these credit facilities (which includes SJG and ETG/ELK), not including letters of credit, during the years ended December 31, 2019 and 2018 were $907.5 million and $497.0 million, respectively.
SJG's average borrowings outstanding under its credit facilities, not including letters of credit, during the years ended December 31, 2019 and 2018 were $113.3 million and $86.0 million, respectively. The maximum amount outstanding under these credit facilities, not including letters of credit, during the years ended December 31, 2019 and 2018 were $196.5 million and $177.0 million, respectively.
The SJI and the Utilities principal credit facilities are provided by a syndicate of banks. The NPA for Senior Unsecured Notes issued by SJI contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective NPA or credit agreement) to not more than 0.70 to 1, measured at the end of each fiscal quarter. For SJI, the equity units are treated as equity (as opposed to how they are classified on the consolidated balance sheet, as long-term debt) for purposes of the covenant calculation. SJI and SJG were in compliance with this covenant as of December 31, 2019. However, one SJG bank facility still contains a financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreement) to not more than 0.65 to 1, measured at the end of each fiscal quarter. As a result, SJG must ensure that the ratio of indebtedness to total capitalization (as defined in the respective credit agreement) does not exceed 0.65 to 1, as measured at the end of each fiscal quarter. SJG is was in compliance with this covenant as of December 31, 2019.
SJG has a commercial paper program under which SJG may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of $200.0 million. The notes have fixed maturities which vary by note, but may not exceed 270 days from the date of issue. Proceeds from the notes are used for general corporate purposes. SJG uses the commercial paper program in tandem with its $200.0 million revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of $200.0 million.
14. LONG-TERM DEBT:
Outstanding Long-Term Debt at December 31 consisted of the following:
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|
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|
|
|
|
|
|
|
|
2019
|
|
2018
|
Long-Term Debt (A):
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|
|
|
|
|
SJG:
|
|
|
|
|
|
First Mortgage Bonds: (B)
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|
|
|
|
|
5.587%
|
|
Series due 2019 (C)
|
|
—
|
|
|
10,000
|
|
3.00%
|
|
Series due 2024 (D)
|
|
50,000
|
|
|
50,000
|
|
3.03%
|
|
Series due 2024 (E)
|
|
35,000
|
|
|
35,000
|
|
3.63%
|
|
Series due 2025 (F)
|
|
5,455
|
|
|
6,364
|
|
4.84%
|
|
Series due 2026 (G)
|
|
15,000
|
|
|
15,000
|
|
4.93%
|
|
Series due 2026 (H)
|
|
45,000
|
|
|
45,000
|
|
4.03%
|
|
Series due 2027 (H)
|
|
45,000
|
|
|
45,000
|
|
4.01%
|
|
Series due 2030 (I)
|
|
34,000
|
|
|
42,000
|
|
4.23%
|
|
Series due 2030
|
|
30,000
|
|
|
30,000
|
|
3.74%
|
|
Series due 2032 (J)
|
|
35,000
|
|
|
35,000
|
|
5.55%
|
|
Series due 2033
|
|
32,000
|
|
|
32,000
|
|
6.213%
|
|
Series due 2034
|
|
10,000
|
|
|
10,000
|
|
5.45%
|
|
Series due 2035
|
|
10,000
|
|
|
10,000
|
|
3.00%
|
|
Series due 2047
|
|
200,000
|
|
|
200,000
|
|
Series A 2006 Bonds at variable rates due 2036 (K)
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|
|
24,900
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|
|
24,900
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|
SJG Term Loan (L)
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|
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400,000
|
|
|
310,000
|
|
Total SJG Long-Term Debt Outstanding (T)
|
|
|
$
|
971,355
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|
|
$
|
900,264
|
|
Less SJG Current Maturities
|
|
|
(417,909)
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|
|
(18,909)
|
|
Total SJG Long-Term Debt (T)
|
|
|
$
|
553,446
|
|
|
$
|
881,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
SJI:
|
|
|
|
|
|
3.30%
|
|
Series due 2019 (M)
|
|
—
|
|
|
60,000
|
|
3.30%
|
|
Series due 2019 (M)
|
|
—
|
|
|
30,000
|
|
3.30%
|
|
Series due 2019 (M)
|
|
—
|
|
|
50,000
|
|
3.71%
|
|
Series C 2012 Notes due 2022
|
|
35,000
|
|
|
35,000
|
|
3.47%
|
|
Series due 2024
|
|
25,000
|
|
|
25,000
|
|
3.71%
|
|
Series due 2027
|
|
25,000
|
|
|
25,000
|
|
3.57%
|
|
Series 2017A-2 due 2025
|
|
25,000
|
|
|
25,000
|
|
3.81%
|
|
Series 2017B-2 due 2028
|
|
25,000
|
|
|
25,000
|
|
3.43%
|
|
Series 2018A due 2021
|
|
90,000
|
|
|
90,000
|
|
4.07%
|
|
Series 2018B due 2028
|
|
80,000
|
|
|
80,000
|
|
4.17%
|
|
Series 2018C due 2030
|
|
80,000
|
|
|
80,000
|
|
5.625%
|
|
Junior Subordinated Notes due 2079 (N)
|
|
200,000
|
|
|
$
|
—
|
|
Series Notes at variable rates due 2019 (M)
|
|
|
—
|
|
|
40,000
|
|
Series Notes at variable rates due 2019 (M)
|
|
|
—
|
|
|
60,000
|
|
South Jersey Industries Term Loan at variable rates due 2020 (O)
|
|
|
50,000
|
|
|
50,000
|
|
Convertible Equity Units (M, P)
|
|
|
287,500
|
|
|
287,500
|
|
Series 2018D Notes at variable rates due 2019 (Q)
|
|
|
—
|
|
|
475,000
|
|
ETG:
|
|
|
|
|
|
First Mortgage Bonds
|
|
|
|
|
|
4.02%
|
|
Series 2018A-1 due 2028 (R)
|
|
50,000
|
|
|
50,000
|
|
4.22%
|
|
Series 2018A-2 due 2033 (R)
|
|
55,000
|
|
|
55,000
|
|
4.29%
|
|
Series 2018A-3 due 2038 (R)
|
|
150,000
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.37%
|
|
Series 2018A-4 due 2048 (R)
|
|
200,000
|
|
|
200,000
|
|
4.52%
|
|
Series 2018A-5 due 2058 (R)
|
|
75,000
|
|
|
75,000
|
|
2.84%
|
|
Series 2019 A-1 due 2029 (S)
|
|
40,000
|
|
|
—
|
|
2.84%
|
|
Series 2019 A-2 due 2029 (S)
|
|
35,000
|
|
|
—
|
|
2.94%
|
|
Series 2019 A-3 due 2031 (S)
|
|
25,000
|
|
|
—
|
|
2.94%
|
|
Series 2019 A-4 due 2031 (S)
|
|
45,000
|
|
|
—
|
|
Total SJI Consolidated Long-Term Debt Outstanding (T)
|
|
|
$
|
2,568,855
|
|
|
$
|
2,867,764
|
|
Less SJI Consolidated Current Maturities
|
|
|
(467,909)
|
|
|
(733,909)
|
|
Total SJI Consolidated Long-Term Debt (T)
|
|
|
$
|
2,100,946
|
|
|
$
|
2,133,855
|
|
(A) Long-term debt maturities for SJI for the succeeding five years are as follows (in thousands): 2020: $467,909; 2021: $405,409; 2022: $66,084; 2023: $40,084; and 2024: $65,084. Long-term debt maturities for SJG for the succeeding five years are as follows (in thousands): 2020: $417,909; 2021: $27,909; 2022: $31,084; 2023: $40,084; and 2024: $40,084. Regarding the debt that is due within one year, the Company has intentions to either pay down or refinance this debt, see Note 1.
(B) SJG has a First Mortgage Indenture, which provides for the issuance by SJG of bonds, notes or other securities that are secured by a lien on substantially all of the operating properties and franchises of SJG.
(C) In 2019, SJG retired $10.0 million of 5.587% MTN's.
(D)SJG has $50.0 million of 3.00% MTN's, with $10.0 million due annually beginning September 2020 with the final payment due September 2024.
(E)SJG has $35.0 million of 3.03% MTN's, with $7.0 million due annually beginning November 2020 with the final payment due November 2024.
(F)SJG pays $0.9 million annually toward the principal amount of 3.63% MTN's, with the final payment to be made December 2025. As such, $0.9 million of the total outstanding amount on this debt is classified in current portion of long-term debt on the consolidated balance sheets as it is due within one year.
(G)SJG has $15.0 million of 4.84% MTN's, with $2.5 million due annually beginning March 2021 with the final payment due March 2026.
(H)SJG has $45.0 million of 4.93% MTN's, with $7.5 million due annually beginning June 2021 with the final payment due June 2026. SJG also has $45.0 million of 4.03% MTN's, with $9.0 million due annually beginning in December 2023 with the final payment due in December 2027.
(I) SJG initially entered into $42.0 million of 4.01% MTN's with several due dates, as follows: $8.0 million paid November 2019; $2.0 million due November 2025; $3.0 million due November 2026; $8.0 million due November 2027; and $7.0 million each due November 2028, 2029 and 2030.
(J) SJG has $35.0 million of 3.74% MTN's, with $3.175 million due annually beginning April 2022 with final payment due April 2032.
(K) These variable rate demand bonds bear interest at a floating rate that resets weekly. The interest rate as of December 31, 2019 was 1.05%. Liquidity support on these bonds is provided under a separate letter of credit facility that expires in August 2021. These bonds contain no financial covenants.
(L) In October 2018, SJG entered into an unsecured, $400.0 million term loan credit agreement (the “Credit Agreement”), which is syndicated among eight banks. Under the Credit Agreement, the Company had the ability to borrow up to an aggregate of $400.0 million from time to time until October 26, 2019. All loans under the Credit Agreement become due and payable on April 26, 2020. As of December 31, 2018, SJG borrowed $310.0 million under this agreement and, during 2019, borrowed the remaining $90.0 million, resulting in total borrowings of $400.0 million as of December 31, 2019, which is recorded in current portion of long-term debt on the consolidated balance sheets.
(M) SJI paid off the following: $60.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-1; $40.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-1; $30.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-2; $50.0 million principal amount outstanding on its 3.30% Senior Notes, Series 2014A-3; and $60.0 million principal amount outstanding on its Floating Rate Senior Notes, Series 2014B-2.
(N) SJI offered and sold $200.0 million aggregate principal amount of the Company's 5.625% Junior Subordinated Notes due 2079. The total net cash proceeds, inclusive of a debt discount of $5.3 million, were $194.7 million.
(O) At December 31, 2019, the floating rate on this Term Loan was 2.88%.
(P) In April 2018, SJI completed a public offering of Equity Units for gross proceeds of $287.5 million (see Note 6). As of December 31, 2019, these Equity Units were not converted into equity.
(Q) In 2019, SJI repaid $475.0 million aggregate principal amount outstanding on its Floating Rate Senior Notes, Series 2018D.
(R) In December 2018, ETG issued $530.0 million aggregate principal amount of its First Mortgage Bonds, Series 2018A, which were issued in five Tranches as shown in the table above. These bonds were issued under that First Mortgage Indenture dated as of July 2, 2018 between ETG and a Trustee, as supplemented by that First Supplement dated as of December 20, 2018, pursuant to a BPA dated as of December 20, 2018 between ETG and the purchasers named therein. The proceeds from the sale of these bonds were used to repay short-term indebtedness under a previous $530.0 million, 364-day term loan credit agreement dated as of June 26, 2018 among ETG (Borrower), SJI (Guarantor), the lenders party thereto and Bank of America, N.A., as Administrative Agent. Prior to repayment, the term loans bore interest at a variable base rate or a variable LIBOR at the election of the Company.
(S) ETG entered into a Bond Purchase Agreement and issued First Mortgage Bonds, Series 2019A-1 through Series 2019A-4, in the aggregate principal amount of $145.0 million.
(T) Total SJI consolidated Long-Term Debt in the table above does not include unamortized debt issuance costs of $25.5 million and $27.0 million as of December 31, 2019 and 2018, respectively, nor does it include $5.3 million of unamortized debt discounts as of December 31, 2019. Total SJG Long-Term Debt in the table above does not include unamortized debt issuance costs of $6.3 million and $6.8 million as of December 31, 2019 and 2018, respectively.
15. COMMITMENTS AND CONTINGENCIES:
GAS SUPPLY CONTRACTS - In the normal course of business, SJG, SJRG and ETG have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The transportation and storage service agreements with interstate pipeline suppliers were made under FERC-approved tariffs. SJG's and ETG's cumulative obligation for gas supply-related demand charges and reservation fees paid to suppliers for these services averages approximately $7.7 million and $5.0 million per month, respectively, and is recovered on a current basis through the BGSS. SJRG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services averages approximately $1.6 million per month. SJRG has also committed to purchase 772,500 dts/d of natural gas, from various suppliers, for terms ranging from four to ten years at index based prices.
ETG has an AMA with SJRG for transportation and storage capacity to meet natural gas demands. The AMA is in effect through March 31, 2022. It also requires SJRG to pay minimum annual fees of $4.25 million to ETG and includes tiered margin sharing levels between ETG and SJRG (see Note 1).
TSA - SJI has entered into a TSA with Southern Company Gas whereby the latter will provide certain administrative and operational services. The initial TSA extended through January 2020; this was subsequently extended to no later than March 31, 2020.
LITIGATION - SJI and SJG are subject to claims, actions and other legal proceedings arising in the ordinary course of business. Neither SJI nor SJG can make any assurance as to the outcome of any of these actions but, based on an analysis of these claims and consultation with outside counsel, we do not believe that any of these claims, other than described below, would be reasonably likely to have a material impact on the business or financial statements of SJI or SJG.
SJI was involved in a pricing dispute related to two long-term gas supply contracts. On May 8, 2017, a jury from the United States District Court for the District of Colorado returned a verdict in favor of the plaintiff supplier. On July 21, 2017, the court entered final judgment against SJG and SJRG. As a result of this ruling, SJG and SJRG had accrued, including interest, $22.9 million and $59.3 million, respectively, from the first quarter of 2017 through September 30, 2019. In April 2018, SJI filed an appeal of this judgment which was heard by the Tenth Circuit on January 22, 2019. On August 6, 2019, the Tenth Circuit issued its decision affirming the lower court’s decision and finding that SJG and SJRG breached the contracts and the plaintiff is entitled to damages. SJI established a reserve to reflect the differences between the invoices and paid amounts, in the amounts noted above. The plaintiff supplier filed a second related lawsuit against SJG and SJRG in the United States District Court for the District of Colorado on December 21, 2017, alleging that SJG and SJRG have continued to breach the gas supply contracts notwithstanding the judgment in the prior lawsuit. The plaintiff supplier sought recovery of the amounts disputed by SJI since the earlier judgment, and a declaration regarding the price under the disputed contracts going forward until the contracts terminate in October 2019. The decision in the first lawsuit is prejudicial to this second lawsuit and SJI was similarly obligated to pay damages related to this breach of contract claim. All reserves related to this second lawsuit were recorded as part of the accrued amounts disclosed above. As a result of these judgments, SJRG paid $59.3 million in September 2019 and SJG paid $22.9 million in October 2019 to the plaintiff supplier. These cases are now concluded. We believe that the amount to be paid by SJG reflects a gas cost that ultimately will be recovered from SJG’s customers through adjusted rates through the BGSS clause. As such, the $22.9 million associated with SJG was recorded as an increase in Regulatory Assets on the consolidated balance sheets of both SJI and SJG as of December 31, 2019. For the years ended December 31, 2019, 2018 and 2017, charges for SJRG were recorded to Cost of Sales - Nonutility on the consolidated statements of income of SJI in the amount of $0.5 million, $4.1 million and $49.6 million, respectively. SJI also recorded $1.1 million, $1.0 million and $4.0 million to Interest Charges on the consolidated statements of income for the years ended December 31, 2019, 2018 and 2017, respectively, related to SJRG.
In August 2018, the State of New Jersey filed a civil enforcement action against SJG and several other current and former owners of certain property in Atlantic City, NJ alleging damage to the State's natural resources and seeking payment for damages to those natural resources, where SJG and its predecessors previously operated a manufactured gas plant. SJG is currently evaluating the merits of the State of New Jersey's allegations. At this time, SJG cannot reasonably estimate or provide an assessment of the claim or any assurance regarding its outcome. This manufactured gas plant site is currently being remediated as discussed under "Environmental Remediation Costs" below.
Liabilities related to claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated. For matters other than the disputes noted above, SJI has accrued approximately $3.1 million and $3.2 million related to all claims in the aggregate as of December 31, 2019 and 2018, respectively, of which SJG has accrued approximately $0.9 million as of both December 31, 2019 and 2018.
COLLECTIVE BARGAINING AGREEMENTS — Unionized personnel represent approximately 45% and 70% of SJI's and SJG's workforce at December 31, 2019, respectively. SJI has collective bargaining agreements with unions that represent these employees: IBEW Local 1293; IAM Local 76; and UWUA Local 424. SJG employees represented by the IBEW operate under a collective bargaining agreement that runs through February 2022. SJG's remaining unionized employees are represented by the IAM and operate under a collective bargaining agreement that runs through August 2021. ETG employees represented by the UWUA operate under a collective bargaining agreement that runs through November 2020.
GUARANTEES - As of December 31, 2019, SJI, the parent company, has issued guarantees to third parties on behalf of its consolidated subsidiaries. These guarantees were issued to guarantee payment to third parties with whom SJI's consolidated subsidiaries have commodity supply contracts. As of December 31, 2019, these guarantees support future firm commitments of SJI's consolidated subsidiaries and $72.3 million of the Accounts Payable already recorded on SJI's consolidated balance sheet.
As of December 31, 2019, SJI had issued $11.3 million of parental guarantees on behalf of EnergyMark, an unconsolidated subsidiary. These guarantees generally expire within the next two years and were issued to enable the subsidiary to market retail natural gas.
STANDBY LETTERS OF CREDIT — As of December 31, 2019, SJI provided $9.5 million of standby letters of credit through its revolving credit facility to enable SJE to market retail electricity and for various construction and operating activities. ETG provided a $1.0 million letter of credit under its revolving credit facility to support commodity trading activity. SJG provided a $0.8 million letter of credit under its revolving credit facility to support the remediation of environmental conditions at certain locations in SJG's service territory. SJG has provided $25.1 million of additional letters of credit under a separate facility outside of the revolving credit facility to support variable-rate demand bonds issued through the NJEDA to finance the expansion of SJG’s natural gas distribution system.
CONVERTIBLE UNITS - The Company has a contract obligating the holder of the units to purchase from the Company, and for the Company to sell to the holder for a price in cash of $50, a certain number of shares of common stock. See Note 6.
ENVIRONMENTAL REMEDIATION COSTS — SJG incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants SJG stopped manufacturing gas in the 1950s. ETG is subject to environmental remediation liabilities associated with 5 former manufactured gas plant sites in New Jersey. These environmental remediation expenditures are recoverable from customers through rate mechanisms approved by the BPU (see Note 10). SJI and some of its nonutility subsidiaries also recorded costs for environmental cleanup of sites where SJF previously operated a fuel oil business and Morie maintained equipment, fueling stations and storage (see Note 3).
SJI successfully entered into settlements with all of its historic comprehensive general liability carriers regarding the environmental remediation expenditures at the SJG sites.
Since the early 1980s, SJI accrued environmental remediation costs of $642.6 million, of which $409.8 million was spent as of December 31, 2019. The accrued amount includes the addition of costs related to five ETG sites requiring environmental remediation beginning with the date of the Acquisition (see Note 20 and ETG discussion below). SJG accrued environmental remediation costs of $516.4 million, of which $385.1 million was spent as of December 31, 2019.
The following table details the amounts expended and accrued for SJI's and SJG's environmental remediation during the last two years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
2019
|
|
2018
|
Beginning of Year
|
$
|
253,650
|
|
|
$
|
172,855
|
|
Accruals
|
15,126
|
|
|
58,706
|
|
Expenditures
|
(35,891)
|
|
|
(51,176)
|
|
Opening Balance Sheet Adjustment (See Note 20)
|
—
|
|
|
73,265
|
|
End of Year
|
$
|
232,885
|
|
|
$
|
253,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
2019
|
|
2018
|
Beginning of Year
|
$
|
148,071
|
|
|
$
|
171,696
|
|
Accruals
|
17,502
|
|
|
21,695
|
|
Expenditures
|
(34,311)
|
|
|
(45,320)
|
|
End of Year
|
$
|
131,262
|
|
|
$
|
148,071
|
|
The balances are segregated between current and noncurrent on the consolidated balance sheets under the captions Current Liabilities and Deferred Credits and Other Noncurrent Liabilities.
Management estimates that undiscounted future costs to clean up SJG's sites will range from $131.3 million to $231.4 million. SJG recorded the lower end of this range as a liability because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. Recorded amounts include estimated costs based on projected investigation and remediation work plans using existing technologies. Actual costs could differ from the estimates due to the long-term nature of the projects, changing technology, government regulations and site-specific requirements. Significant risks surrounding these estimates include unforeseen market price increases for remedial services, property owner acceptance of the selected remedy, regulatory approval of the selected remedy and remedial investigative findings.
Six of SJG's sites comprise the majority of these estimates, with future costs ranging from $122.4 million to $223.3 million. The remediation efforts at SJG's six most significant sites include the following:
Site 1 - Several interim remedial actions have been completed at the site. Steps remaining to remediate the balance of the site include selection of the remedial action, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.
Site 2 - Various remedial investigation activities have been completed at this site and a final site remedy has been approved by the regulatory authority. The remedial action is underway and preparation for the next step is ongoing. Remaining steps to remediate the site include completion of the remedial action, long-term groundwater monitoring, and issuance of a Response Action Outcome.
Site 3 - Various remedial investigation activities have been completed at this site and a final site remedy has been approved by the regulatory authority. Steps remaining to remediate the site include implementation of the approved remedy, long term groundwater monitoring, and issuance of a Response Action Outcome.
Site 4 - The remedial action approved by the regulatory authority is currently being implemented. Remaining steps to remediate the site include post remediation groundwater monitoring, ongoing operation of the product recovery system, and issuance of a Response Action Outcome.
Site 5 - Remedial investigation activities have been completed at this site and a final site remedy has been proposed to the regulatory authority. Steps remaining to remediate the site include approval of the final remedy, implementation of the approved remedy, and issuance of a Response Action Outcome.
Site 6 - The remedial action to address impacted soil was completed in 2017. Steps remaining include long-term groundwater monitoring and issuance of a Response Action Outcome.
Management estimates that undiscounted future costs to clean up ETG's sites will range from $101.1 million to $186.7 million.
The remediation efforts at ETG's five sites include the following:
Site 1 - Several interim remedial actions have been completed at the site. Steps remaining to remediate the balance of the site include selection of the remedial action for the remaining areas, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.
Site 2 - Interim remedial actions have been completed at the site. Steps to remediate the balance of the site included selection of the remedial action for the remaining areas, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.
Site 3 - Soil remediation for the on-site portion of the work has been completed and unrestricted use closure documentation is expected in 2020. Steps remaining include investigation within a city-owned park, remediation of any impacts found, and issuance of the appropriate closure documentation.
Site 4 - Soil remediation at the site has been completed. Steps remaining include long-term groundwater monitoring and issuance of a Response Action Outcome.
Site 5 - Various remedial investigation activities have been completed at the site and a final site remedy has been proposed to the regulatory authority. Remediation of offsite impacts to continue into 2020.
With Morie's sale in 1996, EMI assumed responsibility for environmental liabilities currently estimated between $0.1 million and $0.3 million. The lower end of this range has been recorded under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of December 31, 2019. The information available on these sites is sufficient only to establish a range of probable liability and no point within the range is more likely than any other. Therefore, EMI has accrued the lower end of the range. Changes in the accrual are included in the statements of consolidated income under Loss from Discontinued Operations.
SJI and SJF estimate their potential exposure for the future remediation of five sites where fuel oil operations existed years ago to range from $0.4 million to $0.8 million. The lower end of this range has been recorded under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of December 31, 2019. Changes in the accrual are included in the statements of consolidated income under Loss from Discontinued Operations (SJF) or Operations Expense (SJI).
16. DERIVATIVE INSTRUMENTS:
Certain SJI subsidiaries, including SJG, are involved in buying, selling, transporting and storing natural gas, and buying and selling retail electricity, for their own accounts as well as managing these activities for third parties. These subsidiaries are
subject to market risk on expected future purchases and sales due to commodity price fluctuations. SJI and SJG use a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines. These derivative instruments include forward contracts, swap agreements, options contracts and futures contracts.
As of December 31, 2019, SJI and SJG had outstanding derivative contracts as follows:
|
|
|
|
|
|
|
|
|
|
SJI Consolidated
|
SJG
|
Derivative contracts intended to limit exposure to market risk to:
|
|
|
Expected future purchases of natural gas (in MMdts)
|
102.7
|
|
34.1
|
|
Expected future sales of natural gas (in MMdts)
|
116.5
|
|
24.4
|
|
Expected future purchases of electricity (in MMmWh)
|
0.6
|
|
—
|
|
Expected future sales of electricity (in MMmWh)
|
0.5
|
|
—
|
|
|
|
|
Basis and Index related net purchase/(sale) contracts (in MMdts)
|
85.0
|
|
0.6
|
|
These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Energy Related Assets or Derivatives - Energy Related Liabilities on the consolidated balance sheets of SJI and SJG. For SJE and SJRG contracts, the net unrealized pre-tax gains (losses) for these energy-related commodity contracts are included with realized gains (losses) in Operating Revenues – Nonutility on the consolidated statements of income for SJI. These unrealized pre-tax gains (losses) were $(11.7) million, $34.5 million and $(13.7) million for the years ended December 31, 2019, 2018 and 2017, respectively. For ETG's and SJG's contracts, the costs or benefits are recoverable through the BGSS clause, subject to BPU approval. As a result, the net unrealized pre-tax gains and losses for SJG and ETG energy-related commodity contracts are included with realized gains and losses in Regulatory Assets or Regulatory Liabilities on the consolidated balance sheets of both SJI (ETG and SJG) and SJG. As of December 31, 2019 and 2018, SJI had $(4.0) million and $4.1 million, respectively, and SJG had $2.1 million and $3.3 million, respectively, of unrealized gains (losses) included in its BGSS related to energy-related commodity contracts.
As part of its gas purchasing strategy, SJG uses financial contracts through SJRG to limit exposure to forward price risk. The costs or benefits of these short-term contracts are recoverable through SJG's BGSS clause, subject to BPU approval.
The retail electric operations of SJE use forward physical and financial contracts to mitigate commodity price risk on fixed price electric contracts.
Management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in identifying, assessing and controlling various risks. Management reviews any open positions in accordance with strict policies to limit exposure to market risk.
SJI, including SJG, has also entered into interest rate derivatives to mitigate exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives are measured at fair value and recorded in Derivatives - Other on the consolidated balance sheets. Any unrealized gains and losses on these derivatives are being recorded in earnings over the remaining life of the derivative.
For SJI and SJG interest rate derivatives, the fair value represents the amount SJI and SJG would have to pay the counterparty to terminate these contracts as of those dates.
As of December 31, 2019, SJI's active interest rate swaps were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Fixed Interest Rate
|
|
Start Date
|
|
Maturity
|
Obligor
|
$
|
20,000,000
|
|
|
3.049%
|
|
|
3/15/2017
|
|
3/15/2027
|
SJI
|
$
|
20,000,000
|
|
|
3.049%
|
|
|
3/15/2017
|
|
3/15/2027
|
SJI
|
$
|
10,000,000
|
|
|
3.049%
|
|
|
3/15/2017
|
|
3/15/2027
|
SJI
|
$
|
12,500,000
|
|
|
3.530%
|
|
|
12/1/2006
|
|
2/1/2036
|
SJG
|
$
|
12,500,000
|
|
|
3.430%
|
|
|
12/1/2006
|
|
2/1/2036
|
SJG
|
The unrealized gains and losses on interest rate derivatives that are not designated as cash flow hedges are included in Interest Charges on the consolidated statements of income. However, for selected interest rate derivatives at SJG, management believes that, subject to BPU approval, the market value upon termination can be recovered in rates and, therefore, these unrealized losses have been included in Other Regulatory Assets in the consolidated balance sheets.
The fair values of all derivative instruments, as reflected in the consolidated balance sheets as of December 31, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under GAAP
|
|
December 31, 2019
|
|
|
|
December 31, 2018
|
|
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Energy-related commodity contracts:
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related - Current
|
|
$
|
52,892
|
|
|
$
|
41,965
|
|
|
$
|
54,021
|
|
|
$
|
24,134
|
|
Derivatives - Energy Related - Non-Current
|
|
7,243
|
|
|
8,206
|
|
|
7,169
|
|
|
7,256
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
Derivatives - Other - Current
|
|
—
|
|
|
1,155
|
|
|
—
|
|
|
588
|
|
Derivatives - Other - Noncurrent
|
|
—
|
|
|
11,505
|
|
|
—
|
|
|
7,285
|
|
Total derivatives not designated as hedging instruments under GAAP
|
|
$
|
60,135
|
|
|
$
|
62,831
|
|
|
$
|
61,190
|
|
|
$
|
39,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
60,135
|
|
|
$
|
62,831
|
|
|
$
|
61,190
|
|
|
$
|
39,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under GAAP
|
|
December 31, 2019
|
|
|
|
December 31, 2018
|
|
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Energy-related commodity contracts:
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related – Current
|
|
$
|
16,904
|
|
|
$
|
14,671
|
|
|
$
|
5,464
|
|
|
$
|
2,146
|
|
Derivatives – Energy Related – Non-Current
|
|
5
|
|
|
95
|
|
|
15
|
|
|
43
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
Derivatives - Other - Current
|
|
—
|
|
|
488
|
|
|
—
|
|
|
343
|
|
Derivatives - Other - Non-Current
|
|
—
|
|
|
7,368
|
|
|
—
|
|
|
5,524
|
|
Total derivatives not designated as hedging instruments under GAAP
|
|
16,909
|
|
|
22,622
|
|
|
5,479
|
|
|
8,056
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
16,909
|
|
|
$
|
22,622
|
|
|
$
|
5,479
|
|
|
$
|
8,056
|
|
SJI and SJG enter into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. These derivatives are presented at gross fair values on the consolidated balance sheets.
As of December 31, 2019 and 2018, information related to these offsetting arrangements were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of recognized assets/liabilities
|
|
Gross amount offset in the balance sheet
|
|
Net amounts of assets/liabilities in balance sheet
|
|
Gross amounts not offset in the balance sheet
|
|
|
|
Net amount
|
|
|
|
|
|
|
|
|
Financial Instruments
|
|
Cash Collateral Posted
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related Assets
|
|
$
|
60,135
|
|
|
$
|
—
|
|
|
$
|
60,135
|
|
|
$
|
(32,185)
|
|
(A)
|
|
$
|
—
|
|
|
$
|
27,950
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(50,171)
|
|
|
$
|
—
|
|
|
$
|
(50,171)
|
|
|
$
|
32,185
|
|
(B)
|
|
$
|
12,878
|
|
|
$
|
(5,108)
|
|
Derivatives - Other
|
|
$
|
(12,660)
|
|
|
$
|
—
|
|
|
$
|
(12,660)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(12,660)
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related Assets
|
|
$
|
16,909
|
|
|
$
|
—
|
|
|
$
|
16,909
|
|
|
$
|
(11,860)
|
|
(A)
|
|
$
|
—
|
|
|
$
|
5,049
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(14,766)
|
|
|
$
|
—
|
|
|
$
|
(14,766)
|
|
|
$
|
11,860
|
|
(B)
|
|
$
|
2,706
|
|
|
$
|
(200)
|
|
Derivatives - Other
|
|
$
|
(7,856)
|
|
|
$
|
—
|
|
|
$
|
(7,856)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(7,856)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of recognized assets/liabilities
|
|
Gross amount offset in the balance sheet
|
|
Net amounts of assets/liabilities in balance sheet
|
|
Gross amounts not offset in the balance sheet
|
|
|
|
Net amount
|
|
|
|
|
|
|
|
|
Financial Instruments
|
|
Cash Collateral Posted
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related Assets
|
|
$
|
61,190
|
|
|
$
|
—
|
|
|
$
|
61,190
|
|
|
$
|
(21,045)
|
|
(A)
|
|
$
|
(7,252)
|
|
|
$
|
32,893
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(31,390)
|
|
|
$
|
—
|
|
|
$
|
(31,390)
|
|
|
$
|
21,045
|
|
(B)
|
|
$
|
—
|
|
|
$
|
(10,345)
|
|
Derivatives - Other
|
|
$
|
(7,873)
|
|
|
$
|
—
|
|
|
$
|
(7,873)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(7,873)
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives - Energy Related Assets
|
|
$
|
5,479
|
|
|
$
|
—
|
|
|
$
|
5,479
|
|
|
$
|
(347)
|
|
(A)
|
|
$
|
688
|
|
|
$
|
5,820
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(2,189)
|
|
|
$
|
—
|
|
|
$
|
(2,189)
|
|
|
$
|
347
|
|
(B)
|
|
$
|
—
|
|
|
$
|
(1,842)
|
|
Derivatives - Other
|
|
$
|
(5,867)
|
|
|
$
|
—
|
|
|
$
|
(5,867)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5,867)
|
|
(A) The balances at December 31, 2019 and 2018 were related to derivative liabilities which can be net settled against derivative assets.
(B) The balances at December 31, 2019 and 2018 were related to derivative assets which can be net settled against derivative liabilities.
The effect of derivative instruments on the consolidated statements of income for the year ended December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships under GAAP
|
|
2019
|
|
2018
|
|
2017
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
Interest Rate Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses reclassified from AOCL into income (a)
|
|
$
|
(46)
|
|
|
$
|
(46)
|
|
|
$
|
(2,524)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
Interest Rate Contracts:
|
|
|
|
|
|
|
|
Losses reclassified from AOCL into income (a)
|
|
$
|
(46)
|
|
|
$
|
(46)
|
|
|
(46)
|
|
|
(a) Included in Interest Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments under GAAP
|
|
2019
|
|
2018
|
|
2017
|
SJI (no balances for SJG; includes all other consolidated subsidiaries):
|
|
|
|
|
|
|
(Losses) gains on energy-related commodity contracts (a)
|
|
$
|
(11,748)
|
|
|
$
|
34,509
|
|
|
$
|
(13,667)
|
|
(Losses) gains on interest rate contracts (b)
|
|
(2,798)
|
|
|
1,337
|
|
|
(677)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(14,546)
|
|
|
$
|
35,846
|
|
|
$
|
(14,344)
|
|
(a) Included in Operating Revenues - Nonutility
(b) Included in Interest Charges
Certain of the Company’s derivative instruments contain provisions that require immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions in the event of a material adverse change in the credit standing of the Company. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on December 31, 2019, was $0.5 million. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2019, the Company would have been required to settle the instruments immediately or post collateral to its counterparties of approximately $0.4 million after offsetting asset positions with the same counterparties under master netting arrangements.
17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:
•Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.
For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
Available-for-Sale Securities (A)
|
$
|
40
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives – Energy Related Assets (B)
|
60,135
|
|
|
16,931
|
|
|
17,841
|
|
|
25,363
|
|
|
$
|
60,175
|
|
|
$
|
16,971
|
|
|
$
|
17,841
|
|
|
$
|
25,363
|
|
SJG:
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Assets (B)
|
$
|
16,909
|
|
|
$
|
11,860
|
|
|
$
|
—
|
|
|
$
|
5,049
|
|
|
$
|
16,909
|
|
|
$
|
11,860
|
|
|
$
|
—
|
|
|
$
|
5,049
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
50,171
|
|
|
$
|
34,446
|
|
|
$
|
7,936
|
|
|
$
|
7,789
|
|
Derivatives – Other (C)
|
12,660
|
|
|
—
|
|
|
12,660
|
|
|
—
|
|
|
$
|
62,831
|
|
|
$
|
34,446
|
|
|
$
|
20,596
|
|
|
$
|
7,789
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
14,766
|
|
|
$
|
14,565
|
|
|
$
|
187
|
|
|
$
|
14
|
|
Derivatives – Other (C)
|
7,856
|
|
|
—
|
|
|
7,856
|
|
|
—
|
|
|
$
|
22,622
|
|
|
$
|
14,565
|
|
|
$
|
8,043
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
Available-for-Sale Securities (A)
|
$
|
41
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives – Energy Related Assets (B)
|
61,190
|
|
|
9,955
|
|
|
23,429
|
|
|
27,806
|
|
|
$
|
61,231
|
|
|
$
|
9,996
|
|
|
$
|
23,429
|
|
|
$
|
27,806
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Assets (B)
|
$
|
5,479
|
|
|
$
|
348
|
|
|
$
|
126
|
|
|
$
|
5,005
|
|
|
$
|
5,479
|
|
|
$
|
348
|
|
|
$
|
126
|
|
|
$
|
5,005
|
|
|
|
|
|
|
|
|
|
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
31,390
|
|
|
$
|
7,291
|
|
|
$
|
12,354
|
|
|
$
|
11,745
|
|
Derivatives – Other (C)
|
7,873
|
|
|
—
|
|
|
7,873
|
|
|
—
|
|
|
$
|
39,263
|
|
|
$
|
7,291
|
|
|
$
|
20,227
|
|
|
$
|
11,745
|
|
|
|
|
|
|
|
|
|
SJG:
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
2,189
|
|
|
$
|
1,035
|
|
|
$
|
1,077
|
|
|
$
|
77
|
|
Derivatives – Other (C)
|
5,867
|
|
|
—
|
|
|
5,867
|
|
|
—
|
|
|
$
|
8,056
|
|
|
$
|
1,035
|
|
|
$
|
6,944
|
|
|
$
|
77
|
|
(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy.
(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy - established by FASB ASC Topic 820 - “Fair Value Measurements and Disclosures.” Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. Management reviews and corroborates the price quotations with at least one additional source to ensure the prices are observable market information, which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. Derivative instruments that are used to limit our exposure to changes in interest rates on variable-rate, long-term debt are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment, as a result, these instruments are categorized in Level 2 in the fair value hierarchy. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 in the fair value hierarchy as the model inputs generally are not observable. Counterparty credit risk and the credit risk of SJI are incorporated and considered in the valuation of all derivative instruments as appropriate. The effect of counterparty credit risk and the credit risk of SJI on the derivative valuations is not significant.
Significant Unobservable Inputs - Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in these values from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.
Level 3 valuation methods for natural gas derivative contracts include utilizing another location in close proximity adjusted for certain pipeline charges to derive a basis value. The significant unobservable inputs used in the fair value measurement of certain natural gas contracts consist of forward prices developed based on industry-standard methodologies. Significant increases (decreases) in these forward prices for purchases of natural gas would result in a directionally similar impact to the fair value measurement and for sales of natural gas would result in a directionally opposite impact to the fair value measurement. Level 3 valuation methods for electric represent the value of the contract marked to the forward wholesale curve, as provided by daily exchange quotes for delivered electricity. The significant unobservable inputs used in the fair value measurement of electric contracts consist of fixed contracted electric load profiles; therefore no change in unobservable inputs would occur. Unobservable inputs are updated daily using industry-standard techniques. Management reviews and corroborates the price quotations to ensure the prices are observable which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration.
(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.
The following table provides quantitative information regarding significant unobservable inputs in Level 3 fair value measurements (in thousands, except for ranges):
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2019
|
|
Valuation Technique
|
Significant Unobservable Input
|
Range [Weighted Average]
|
|
|
Assets
|
Liabilities
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
21,645
|
|
$
|
4,333
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$1.57 - $7.28 [$2.38]
|
(A)
|
Forward Contract - Electric
|
$
|
3,718
|
|
$
|
3,456
|
|
Discounted Cash Flow
|
Fixed electric load profile (on-peak)
|
0.00% - 100.00% [55.46%]
|
(B)
|
|
|
|
|
Fixed electric load profile (off-peak)
|
0.00% - 100.00% [44.54%]
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2018
|
|
Valuation Technique
|
Significant Unobservable Input
|
Range [Weighted Average]
|
|
|
Assets
|
Liabilities
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
20,706
|
|
$
|
8,976
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$1.56 - $9.00 [$3.12]
|
(A)
|
Forward Contract - Electric
|
$
|
7,100
|
|
$
|
2,769
|
|
Discounted Cash Flow
|
Fixed electric load profile (on-peak)
|
0.00% - 100.00% [54.55%]
|
(B)
|
|
|
|
|
Fixed electric load profile (off-peak)
|
0.00% - 100.00% [45.45%]
|
(B)
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2019
|
|
Valuation Technique
|
Significant Unobservable Input
|
Range [Weighted Average]
|
|
|
Assets
|
Liabilities
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
5,049
|
|
$
|
14
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$1.85 - $3.61 [$3.02]
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2018
|
|
Valuation Technique
|
Significant Unobservable Input
|
Range [Weighted Average]
|
|
|
Assets
|
Liabilities
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
5,005
|
|
$
|
77
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$3.13 - $6.00 [$4.53]
|
(A)
|
(A) Represents the range, along with the weighted average, of forward prices for the sale and purchase of natural gas.
(B) Represents the range, along with the weighted average, of the percentage of contracted usage that is loaded during on-peak hours versus off-peak.
The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities at December 31, 2019 and 2018, using significant unobservable inputs (Level 3), are as follows (in thousands):
SJI (includes SJG and all other consolidated subsidiaries):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
Balance at January 1, 2019
|
|
$
|
16,061
|
|
Other changes in fair value from continuing and new contracts, net (A)
|
|
19,688
|
|
|
|
|
Settlements
|
|
(18,175)
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
17,574
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
Balance at January 1, 2018
|
|
$
|
3,110
|
|
Other changes in fair value from continuing and new contracts, net (A)
|
|
14,418
|
|
|
|
|
Settlements
|
|
(1,467)
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
16,061
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
Balance at January 1, 2019
|
|
$
|
4,928
|
|
Other changes in fair value from continuing and new contracts, net (A)
|
|
5,035
|
|
|
|
|
Settlements
|
|
(4,928)
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
5,035
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
Balance at January 1, 2018
|
|
$
|
2,052
|
|
Other changes in fair value from continuing and new contracts, net (A)
|
|
4,928
|
|
|
|
|
Settlements
|
|
(2,052)
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
4,928
|
|
(A) Represents total gains (losses) included in earnings for SJI and SJG for the the years ended December 31, 2019 and 2018 that are attributable to the change in unrealized gains (losses) relating to those assets and liabilities included in Level 3 still held as of December 31, 2019 and 2018, respectively. These gains (losses) are included in Operating Revenues-Nonutility on the consolidated statements of income.
18. ACCUMULATED OTHER COMPREHENSIVE LOSS (AOCL):
The following table summarizes the changes in SJI's AOCL for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Liability Adjustment (A)
|
|
Unrealized Gain (Loss) on Derivatives-Other (B)
|
|
Unrealized Gain (Loss) on Available-for-Sale Securities
|
|
Other Comprehensive Income (Loss) of Affiliated Companies
|
|
Total
|
Balance at January 1, 2017
|
$
|
(25,342)
|
|
|
$
|
(1,932)
|
|
|
$
|
(10)
|
|
|
$
|
(97)
|
|
|
$
|
(27,381)
|
|
Other comprehensive loss before reclassifications
|
(10,920)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,920)
|
|
Amounts reclassified from AOCL
|
—
|
|
|
1,536
|
|
|
—
|
|
|
—
|
|
|
1,536
|
|
Net current period other comprehensive (loss) income
|
(10,920)
|
|
|
1,536
|
|
|
—
|
|
|
—
|
|
|
(9,384)
|
|
Balance at December 31, 2017
|
(36,262)
|
|
|
(396)
|
|
|
(10)
|
|
|
(97)
|
|
|
(36,765)
|
|
Other comprehensive income before reclassifications
|
10,636
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,636
|
|
Amounts reclassified from AOCL
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
Net current period other comprehensive income
|
10,636
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
10,670
|
|
Balance at December 31, 2018
|
(25,626)
|
|
|
(362)
|
|
|
(10)
|
|
|
(97)
|
|
|
(26,095)
|
|
Other comprehensive loss before reclassifications
|
(6,498)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,498)
|
|
Amounts reclassified from AOCL
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
Net current period other comprehensive (loss) income
|
(6,498)
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
(6,463)
|
|
Balance at December 31, 2019
|
$
|
(32,124)
|
|
|
$
|
(327)
|
|
|
$
|
(10)
|
|
|
$
|
(97)
|
|
|
$
|
(32,558)
|
|
(A) These amounts are net of tax of $2,539, $(3,731) and $4,106 for the years ended December 31, 2019, 2018 and 2017, respectively.
(B) The affected line item for these reclassifications from AOCL into the statements of consolidated income is Interest Charges. These amounts are net of tax of $(11), $(12) and $(988) for the years ended December 31, 2019, 2018 and 2017, respectively, for which the affected line item in the statements of consolidated income is Income Taxes.
The following table summarizes the changes in SJG's AOCL for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Liability Adjustment (A)
|
|
Unrealized Gain (Loss) on Derivatives-Other (B)
|
|
|
|
Total
|
Balance at January 1, 2017
|
$
|
(14,417)
|
|
|
$
|
(517)
|
|
|
|
|
$
|
(14,934)
|
|
Other comprehensive loss before reclassifications
|
(11,090)
|
|
|
—
|
|
|
|
|
(11,090)
|
|
Amounts reclassified from AOCL
|
—
|
|
|
27
|
|
|
|
|
27
|
|
Net current period other comprehensive (loss) income
|
(11,090)
|
|
|
27
|
|
|
|
|
(11,063)
|
|
Balance at December 31, 2017
|
(25,507)
|
|
|
(490)
|
|
|
|
|
(25,997)
|
|
Other comprehensive income before reclassifications
|
3,606
|
|
|
—
|
|
|
|
|
3,606
|
|
Amounts reclassified from AOCL
|
—
|
|
|
34
|
|
|
|
|
34
|
|
Net current period other comprehensive income
|
3,606
|
|
|
34
|
|
|
|
|
3,640
|
|
Balance at December 31, 2018
|
(21,901)
|
|
|
(456)
|
|
|
|
|
(22,357)
|
|
Other comprehensive loss before reclassifications
|
(5,553)
|
|
|
—
|
|
|
|
|
(5,553)
|
|
Amounts reclassified from AOCL
|
—
|
|
|
35
|
|
|
|
|
35
|
|
Net current period other comprehensive loss
|
(5,553)
|
|
|
35
|
|
|
|
|
(5,518)
|
|
Balance at December 31, 2019
|
$
|
(27,454)
|
|
|
$
|
(421)
|
|
|
|
|
$
|
(27,875)
|
|
(A) These amounts are net of tax of $2,241, $(1,354) and $4,164 for the years ended December 31, 2019, 2018 and 2017, respectively.
(B) The affected line item for these reclassifications from AOCL into the statements of income is Interest Charges. These amounts are net of tax of $(11), $(12) and $(19) for the years ended December 31, 2019, 2018 and 2017, respectively, for which the affected line item in the statements of income is Income Taxes.
19. REVENUES:
At contract inception, SJI and SJG assess the goods and services promised in all of its contracts with customers, and identifies a performance obligation for each promise to transfer to a customer a distinct good or service.
As applicable for each revenue stream and customer contract type, SJI and SJG follow two approaches:
•SJI and SJG have elected the Practical Expedient in ASC 606 for recognizing revenue on contracts with customers on a portfolio of performance obligations with similar characteristics, as we reasonably expect the effects of applying the guidance to the portfolio would not differ materially from applying it to individual contracts.
•SJI and SJG apply the accounting guidance for recognizing revenue on contracts with customers on a series of distinct goods and services as one performance obligation, as long as the distinct goods and services are part of a series that are substantially the same and satisfied over time, and the same method would be used to measure progress towards satisfaction of the performance obligation. All performance obligations noted below under "Revenue Recognized Over Time" apply this guidance.
Below is a listing of all performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms, and the nature of the goods and services being transferred:
|
|
|
|
|
|
|
|
|
Revenue Recognized Over Time:
|
|
|
Reportable Segment
|
Performance Obligation
|
Description
|
SJG Utility Operations; ETG Gas Utility Operations; ELK Gas Utility Operations;
Wholesale Energy Operations;
Retail Gas and Other Operations
|
Natural Gas
|
SJG, ETG and ELK sell natural gas to residential, commercial and industrial customers, and price is based on regulated tariff rates which are established by the BPU or the MPSC, as applicable. There is an implied contract with a customer for the purchase, delivery, and sale of gas, and the customer is billed monthly, with payment due within 30 days. SJRG sells natural gas to commercial customers at either a fixed quantity or at variable quantities based on a customer's needs. Payment is due on the 25th of each month for the previous month's deliveries. SJE previously sold natural gas to commercial, industrial and residential customers at fixed prices throughout the life of the contract, with the customer billed monthly and payment due within 30 days (SJE sold its Retail Gas Operations in November 2018; see Note 1). For all listed segments, revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) or through the passage of time ratably as the customer uses natural gas, which represents satisfaction of the performance obligation.
|
SJG Utility Operations; Wholesale Energy Operations
|
Pipeline transportation capacity
|
SJG and SJRG sell pipeline transportation capacity on a wholesale basis to various customers on the interstate pipeline system and transport natural gas purchased directly from producers or suppliers to their customers. These contracts to sell this capacity are at a price, quantity and time period agreed to by both parties determined on a contract by contract basis. Payment is due on the 25th of each month for the previous month's deliveries. Revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) or through the passage of time ratably coinciding with the delivery of gas and the customer obtaining control, which represents satisfaction of the performance obligation.
|
Wholesale Energy Operations
|
Fuel Management Services
|
SJRG currently has several fuel supply management contracts where SJRG has acquired pipeline transportation capacity that allows SJRG to match end users, many of which are merchant generators, with producers looking to find a long-term solution for their supply. Natural gas is sold to the merchant generator daily based on its needs, with payment made either weekly or biweekly depending on the contract. Revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) coinciding with the delivery of gas and the customer obtaining control, which represents satisfaction of the performance obligation.
|
Retail Electric Operations
|
Electricity
|
SJE sells electricity to commercial, industrial and residential customers at fixed prices throughout the life of the contract, with the customer billed monthly and payment due within 30 days. Revenue is currently being recognized over time based upon volumes delivered (i.e., unit of output) or through the passage of time ratably coinciding with the delivery of electricity and the customer obtaining control, which represents satisfaction of the performance obligation.
|
On-Site Energy Production
|
Solar
|
Prior to the agreement to sell solar assets discussed in Note 1, Marina had several wholly-owned solar projects; as of December 31, 2019, Marina owns three projects. These projects earn revenue based on electricity generated. The customer pays monthly as electricity is being generated, with payment due within 30 days. The performance obligation is satisfied as kwh's of energy are generated (i.e., unit of output), which is when revenue is recognized.
|
On-Site Energy Production
|
Marina Thermal Facility
|
Marina has a contract with a casino and resort in Atlantic City, NJ to provide cooling, heating and emergency power. There are multiple performance obligations with this contract, including electric, chilled water and hot water, and each of these are considered distinct and separately identifiable, and they are all priced separately. These performance obligations are satisfied over time ratably as they are used by the customer, who is billed monthly. Payment is due within 30 days. As discussed in Note 1, an agreement was reached to sell this facility to a third party buyer, which closed in February 2020.
|
|
|
|
|
|
|
|
|
|
Revenue Recognized at a Point in Time:
|
|
|
Reportable Segment
|
Performance Obligation
|
Description
|
On-Site Energy Production
|
SREC's
|
The customer is billed based on a contracted amount of SREC's to be sold, with the price based on the market price of the SRECs at the time of generation. This does not represent variable consideration as the price is known and established at the time of generation and delivery to the customer. The performance obligation is satisfied at the point in time the SREC is delivered to the customer, which is when revenue is recognized. Payment terms are approximately 10 days subsequent to delivery.
|
For all revenue streams listed above, revenue is recognized using the Practical Expedient in ASC 606, which allows an entity to recognize revenue in the amount that is invoiced, as long as that amount corresponds to the value to the customer ("Invoiced Practical Expedient"). SJI's and SJG's contracts with customers discussed above are at prices that are known to the customer at the time of delivery, either through a fixed contractual price or market prices that are established and tied to each delivery. These amounts match the value to the customer as they are purchasing and obtaining the good or service on the same day at the agreed-upon price. This eliminates any variable consideration in transaction price, and as a result revenue is recognized at this price at the time of delivery.
SJI and SJG have determined that the above methods provide a faithful depiction of the transfer of goods or services to the customer. For all above performance obligations, SJI's and SJG's efforts are expended throughout the contract based on seasonality and customer needs. Further, for various contracts among each performance obligation, SJI and SJG may have a stand ready obligation to provide goods or services on an as needed basis to the customer.
Because the Invoiced Practical Expedient is used for recognizing revenue, SJI and SJG further adopted the Practical Expedient in ASC 606 that allows both company's to not disclose additional information regarding remaining performance obligations.
SJI revenues from contracts with customers totaled $1.55 billion and $1.51 billion for the years ended December 31, 2019 and 2018, respectively. SJG revenues from contracts with customers totaled $485.0 million and $475.5 million for the years ended December 31, 2019 and 2018, respectively. The SJG balance is a part of the SJG utility operations segment, and is before intercompany eliminations with other SJI entities. Revenues on the consolidated statements of income that are not with contracts with customers consist of (a) revenues from alternative revenue programs at the SJG, ETG and ELK utility operating segments (including CIP, AIRP, SHARP and WNC), and (b) both utility and nonutility revenue from derivative contracts at the SJG and ETG gas utility, wholesale energy, retail gas and retail electric operating segments.
SJI and SJG disaggregate revenue from contracts with customers into customer type and product line. SJI and SJG have determined that disaggregating revenue into these categories achieves the disclosure objective in ASC 606 to depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. Further, disaggregating revenue into these categories is consistent with information regularly reviewed by the CODM in evaluating the financial performance of SJI's operating segments. SJG only operates in the SJG Utility Operations segment. See Note 6 for further information regarding SJI's operating segments.
Disaggregated revenues from contracts with customers, by both customer type and product line, are disclosed below, by operating segment, for the year ended December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
ETG Utility Operations
|
ELK Utility Operations
|
Wholesale Energy Operations
|
Retail Gas Operations
|
Retail Electric Operations
|
On-site Energy Production
|
Appliance Service Operations
|
Corporate Services and Intersegment
|
Total
|
Customer Type:
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
356,646
|
|
$
|
217,195
|
|
$
|
3,494
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14,164
|
|
$
|
—
|
|
$
|
2,042
|
|
$
|
—
|
|
$
|
593,541
|
|
Commercial & Industrial
|
$
|
116,959
|
|
$
|
103,590
|
|
$
|
4,197
|
|
$
|
633,720
|
|
$
|
—
|
|
$
|
42,735
|
|
$
|
48,748
|
|
$
|
—
|
|
$
|
(12,758)
|
|
$
|
937,191
|
|
OSS & Capacity Release
|
$
|
8,951
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
8,951
|
|
Other
|
$
|
2,456
|
|
$
|
10,242
|
|
$
|
166
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
12,864
|
|
|
$
|
485,012
|
|
$
|
331,027
|
|
$
|
7,857
|
|
$
|
633,720
|
|
$
|
—
|
|
$
|
56,899
|
|
$
|
48,748
|
|
$
|
2,042
|
|
$
|
(12,758)
|
|
$
|
1,552,547
|
|
Product Line:
|
|
|
|
|
|
|
|
|
|
|
Gas
|
$
|
485,012
|
|
$
|
331,027
|
|
$
|
7,857
|
|
$
|
633,720
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(5,433)
|
|
$
|
1,452,183
|
|
Electric
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
56,899
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(7,935)
|
|
$
|
48,964
|
|
Solar
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
15,111
|
|
$
|
—
|
|
$
|
—
|
|
$
|
15,111
|
|
CHP
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
27,993
|
|
$
|
—
|
|
$
|
—
|
|
$
|
27,993
|
|
Landfills
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
5,644
|
|
$
|
—
|
|
$
|
—
|
|
$
|
5,644
|
|
Other
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2,042
|
|
$
|
610
|
|
$
|
2,652
|
|
|
$
|
485,012
|
|
$
|
331,027
|
|
$
|
7,857
|
|
$
|
633,720
|
|
$
|
—
|
|
$
|
56,899
|
|
$
|
48,748
|
|
$
|
2,042
|
|
$
|
(12,758)
|
|
$
|
1,552,547
|
|
Disaggregated revenues from contracts with customers, by both customer type and product line, are disclosed below, by operating segment, for the year ended December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
SJG Utility Operations
|
ETG Utility Operations
|
ELK Utility Operations
|
Wholesale Energy Operations
|
Retail Gas Operations
|
Retail Electric Operations
|
On-site Energy Production
|
Appliance Service Operations
|
Corporate Services and Intersegment
|
Total
|
Customer Type:
|
|
|
|
|
|
|
|
|
|
|
Residential
|
$
|
329,207
|
|
$
|
82,763
|
|
$
|
1,482
|
|
$
|
—
|
|
$
|
—
|
|
$
|
29,762
|
|
$
|
—
|
|
$
|
1,957
|
|
$
|
—
|
|
$
|
445,171
|
|
Commercial & Industrial
|
132,055
|
|
42,935
|
|
1,815
|
|
652,833
|
|
75,651
|
|
94,483
|
|
72,374
|
|
—
|
|
(24,392)
|
|
1,047,754
|
|
OSS & Capacity Release
|
11,536
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
11,536
|
|
Other
|
2,699
|
|
2,949
|
|
65
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,713
|
|
|
$
|
475,497
|
|
$
|
128,647
|
|
$
|
3,362
|
|
$
|
652,833
|
|
$
|
75,651
|
|
$
|
124,245
|
|
$
|
72,374
|
|
$
|
1,957
|
|
$
|
(24,392)
|
|
$
|
1,510,174
|
|
Product Line:
|
|
|
|
|
|
|
|
|
|
|
Gas
|
$
|
475,497
|
|
$
|
128,647
|
|
$
|
3,362
|
|
$
|
652,833
|
|
$
|
75,651
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(10,181)
|
|
$
|
1,325,809
|
|
Electric
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
124,245
|
|
—
|
|
—
|
|
(7,904)
|
|
116,341
|
|
Solar
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
35,444
|
|
—
|
|
(6,307)
|
|
29,137
|
|
CHP
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
30,473
|
|
—
|
|
—
|
|
30,473
|
|
Landfills
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,457
|
|
—
|
|
—
|
|
6,457
|
|
Other
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,957
|
|
—
|
|
1,957
|
|
|
$
|
475,497
|
|
$
|
128,647
|
|
$
|
3,362
|
|
$
|
652,833
|
|
$
|
75,651
|
|
$
|
124,245
|
|
$
|
72,374
|
|
$
|
1,957
|
|
$
|
(24,392)
|
|
$
|
1,510,174
|
|
The following table provides information about SJI's and SJG's receivables and unbilled revenue from contracts with customers (in thousands):
|
|
|
|
|
|
|
|
|
|
Accounts Receivable (1)
|
Unbilled Revenue (2)
|
SJI (including SJG and all other consolidated subsidiaries):
|
|
|
Beginning balance as of 1/1/2019
|
$
|
337,502
|
|
$
|
79,538
|
|
Ending balance as of 12/31/2019
|
253,661
|
|
84,821
|
|
Increase (Decrease)
|
$
|
(83,841)
|
|
$
|
5,283
|
|
|
|
|
Beginning balance as of 1/1/2018
|
$
|
202,379
|
|
$
|
73,377
|
|
Ending balance as of 12/31/2018
|
337,502
|
|
79,538
|
|
Increase (Decrease)
|
$
|
135,123
|
|
$
|
6,161
|
|
|
|
|
SJG:
|
|
|
Beginning balance as of 1/1/2019
|
$
|
101,572
|
|
$
|
43,271
|
|
Ending balance as of 12/31/2019
|
84,940
|
|
45,016
|
|
Increase (Decrease)
|
$
|
(16,632)
|
|
$
|
1,745
|
|
|
|
|
Beginning balance as of 1/1/2018
|
$
|
78,571
|
|
$
|
54,980
|
|
Ending balance as of 12/31/2018
|
101,572
|
|
43,271
|
|
Increase (Decrease)
|
$
|
23,001
|
|
$
|
(11,709)
|
|
(1) Included in Accounts Receivable in the consolidated balance sheets. A receivable is SJI's and SJG's right to consideration that is unconditional, as only the passage of time is required before payment is expected from the customer. All of SJI's and SJG's Accounts Receivable arise from contracts with customers. The decrease from the prior year is driven by warmer weather in December 2019 causing lower sales, along with, for SJI, the accounts receivable for MTF/ACB and ELK being reclassified to held for sale (see Note 1).
(2) Included in Unbilled Revenues in the consolidated balance sheets. All unbilled revenue for SJI and SJG arises from contracts with customers. Unbilled revenue relates to SJI's and SJG's right to receive payment for commodity delivered but not yet billed. This represents contract assets that arise from contracts with customers, which is defined in ASC 606 as the right to payment in exchange for goods already transferred to a customer, excluding any amounts presented as a receivable. The unbilled revenue is transferred to accounts receivable when billing occurs and the rights to collection become unconditional. The change in unbilled revenues is primarily due to changes in usage between periods.
20. BUSINESS COMBINATIONS
ETG and ELK Acquisition
On July 1, 2018, the Company completed the Acquisition of ETG and ELK. The Company completed the Acquisition for total consideration of $1.72 billion in cash, inclusive of $24.7 million of certain net working capital adjustments. Of the total, $1.71 billion relates to the acquisition of ETG, while $10.9 million relates to the acquisition of the ELK. The Acquisition supports the Company’s strategy of earnings growth derived from high-quality, regulated utilities. Further, the Acquisition expands the Company’s customer base in the natural gas industry, which drives efficiencies by providing a greater operating scale.
Purchase price allocations
The Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP, which includes GAAP for regulated operations. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. ETG's and ELK's regulated natural gas distribution operations are subject to rate-setting authorities of the BPU and the MPSC, respectively, which includes provisions in place that provide revenues to recover costs of service, including a carrying charge on most net assets and liabilities. Given the regulatory environment under which ETG and ELK operate, the historical book value of the assets acquired and liabilities assumed approximate fair value.
The purchase price for the Acquisition has been allocated to the assets acquired and liabilities assumed as of the acquisition date and is as follows:
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(in thousands)
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ETG and ELK
|
Property, Plant and Equipment
|
$
|
1,202,435
|
|
Accounts Receivable
|
45,875
|
|
Provision for Uncollectibles
|
(6,579)
|
|
Natural Gas in Storage
|
12,204
|
|
Materials and Supplies
|
345
|
|
Other Prepayments and Current Assets
|
200
|
|
Deferred Income Taxes
|
39,470
|
|
Regulatory Assets
|
136,212
|
|
Goodwill
|
700,286
|
|
Total assets acquired
|
2,130,448
|
|
Accounts Payable
|
13,089
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|
Other Current Liabilities
|
9,185
|
|
Environmental Remediation Costs - Current
|
7,100
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|
Pension and Other Postretirement Benefits
|
3,213
|
|
Environmental Remediation Costs - Non Current
|
66,165
|
|
Regulatory Liabilities
|
192,811
|
|
Asset Retirement Obligation
|
113,093
|
|
Other
|
1,107
|
|
Total liabilities assumed
|
405,763
|
|
Total net assets acquired
|
$
|
1,724,685
|
|
Goodwill of $700.3 million arising from the Acquisition includes the potential synergies between ETG, ELK and the Company. The goodwill, of which $599.7 million is expected to be deductible for income tax purposes, was principally assigned to the ETG Utility Operations segment. The goodwill of ELK has since been reclassified to Assets Held for Sale on the consolidated balance sheets as a result of the agreement to sell ELK (see Notes 1 and 21).
Conditions of approval
The Acquisition was subject to regulatory approval from the BPU and the MPSC. Approvals were obtained from both commissions, subject to various conditions. As a requirement for approval of the acquisition of ETG, the BPU mandated that the Company pay $15.0 million to existing ETG customers in the form of a one-time credit. As a requirement for approval of the acquisition of ELK, the MPSC mandated that the Company pay $0.3 million to existing ELK customers in the form of a one-time payout. These payments were made to ETG and ELK customers in 2018. Other key conditions of approval related to the Acquisition include but are not limited to ETG filing a base rate case no later than June 2020, which ETG accomplished with its April 2019 base rate case filing (see Note 10).
Consistent with Acquisition approval, SJI was required to develop a plan, in concert with the BPU, to address the remaining aging infrastructure at ETG. In June 2019, the BPU issued an Order approving a $300.0 million IIP effective July 1, 2019. The Order authorized the recovery of costs associated with ETG's investments of approximately $300.0 million between 2019-2024 to replace its cast-iron and bare steel vintage main and related services. The Order provides for annual recovery of ETG's investments through a separate rate mechanism.
Financial information of the acquirees
The amount of ETG and ELK revenues included in the Company's consolidated statements of income for the years ended December 31, 2019 and 2018 was $333.1 million and $128.9 million, respectively. The amount of ETG and ELK earnings included in the Company's consolidated statements of income for the years ended December 31, 2019 and 2018 was $34.8 million and a net loss of $5.2 million, respectively. The net loss in 2018 was due to the seasonal nature of the business for the period owned and $15.3 million in payments to customers discussed under "Conditions to approval" above.
During the year ended December 31, 2018, the Company recorded $49.4 million of acquisition-related expenses directly related to the Acquisition, inclusive of the $15.3 million in payments to customers. ETG and ELK's net loss of $5.2 million included these customer payments, but the remaining portion of the acquisition-related expenses did not impact ETG and ELK's operating loss during 2018.
Supplemental disclosure of pro forma information
The following supplemental unaudited pro forma information presents the combined results of SJI, ETG, and ELK as if the Acquisition occurred on January 1, 2017. This supplemental unaudited pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the Acquisition occurred on January 1, 2017, nor is it indicative of any future results.
The pro forma results include adjustments for the financing impact of the Acquisition, along with the tax-related impacts. Other material non-recurring adjustments are reflected in the pro forma and described below:
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|
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|
|
|
|
|
|
|
|
|
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(In thousands, except per share data)
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|
Year Ended December 31,
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|
|
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|
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2019
|
|
2018
|
|
2017
|
Revenues
|
|
$
|
1,628,626
|
|
|
$
|
1,829,823
|
|
|
$
|
1,555,124
|
|
Net (loss) income
|
|
$
|
76,917
|
|
|
$
|
74,770
|
|
|
$
|
(9,824)
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|
Earnings (loss) per share
|
|
$
|
0.84
|
|
|
$
|
0.89
|
|
|
$
|
(0.11)
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|
The supplemental unaudited pro forma net income for the year ended December 31, 2018 was adjusted to exclude $34.1 million of acquisition-related costs, which includes one-time regulatory approval costs, but excludes financing adjustments and recurring charges.
The supplemental unaudited pro forma net income for the year ended December 31, 2017 was adjusted to include $34.1 million of acquisition-related costs, which excludes financing adjustments and recurring charges.
AEP Acquisition
On August 31, 2019, SJI, through its wholly-owned subsidiary SJEI, completed its acquisition of AEP for $4.0 million in total consideration, inclusive of certain working capital and other closing adjustments.
The acquisition of AEP was accounted for as a business combination using the acquisition method of accounting in accordance with GAAP. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net assets based on their estimated fair values. AEP does not have any regulated operations.
The Company has not finalized its valuation of certain assets and liabilities in connection with the acquisition of AEP. As such, the estimated measurements recorded to date are subject to change. Any changes will be recorded as adjustments to the fair value of those assets and liabilities and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the consolidated statements of operations and cash flows. The final determination of these fair values will be completed as soon as possible but no later than one year from the acquisition date.
The purchase price for the AEP acquisition has been allocated, on a preliminary basis, to the assets acquired and liabilities assumed as of the acquisition date and is as follows:
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(in thousands)
|
AEP
|
Cash
|
$
|
43
|
|
Accounts Receivable
|
116
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|
Other Prepayments and Current Assets
|
53
|
|
Goodwill
|
1,843
|
|
Other Noncurrent Assets (A)
|
2,400
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|
Total assets acquired
|
4,455
|
|
Accounts Payable
|
11
|
|
Other Current Liabilities
|
449
|
|
Total liabilities assumed
|
460
|
|
Total net assets acquired
|
$
|
3,995
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|
(A) Balance is comprised of identifiable intangible assets, see Note 21.
All assets and financial results of AEP are included in the Corporate & Services segment. The amount of AEP revenues and net income included in the Company's consolidated statement of income for the year ended December 31, 2019 is approximately $0.6 million and $0.1 million, respectively.
We did not include supplemental pro forma disclosures for the AEP acquisition due to the overall immateriality of the transaction.
21. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS:
GOODWILL - Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration paid or transferred over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount.
The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year beginning with a qualitative assessment at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.
If sufficient qualitative factors exist, goodwill impairment is determined using a two-step process. Step one identifies potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. The Company estimates the fair value of a reporting unit using a discounted cash flow analysis. Management also considers other methods, which includes a market multiples analysis. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include, but are not limited to, forecasts of future operating results, discount and growth rates, capital expenditures, tax rates, and projected terminal values. Changes in estimates or the application of alternative assumptions could produce significantly different results. If the fair value exceeds book value, goodwill of the reporting unit is not considered impaired. If the book value exceeds fair value, step two is undertaken, which compares the implied fair value of the reporting unit's goodwill to the book value of the reporting unit goodwill. If the book value of goodwill exceeds the implied fair value, an impairment charge is recognized for the excess.
Total goodwill of $702.1 million and $734.6 million was recorded on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. As of December 31, 2019, $700.2 million was included in the ETG Utility Operations segment and $1.9 million was included in the Corporate & Services segment. In addition, goodwill values reclassified to Assets Held for Sale included $0.1 million in the ELK Utility Operations segment (see Note 1).
As of December 31, 2018, $730.9 million was included in the ETG Utility Operations segment, $3.6 million was included in the On-Site Energy Production segment, and $0.1 million was included in the ELK Utility Operations segment.
SJG does not have any goodwill.
In 2019, as a result of the agreement to sell MTF & ACB (see Note 1), the Company recorded a $3.6 million impairment charge on goodwill due to the purchase price being less than the total carrying value. This impairment charge was taken at the On-Site Energy Production segment and recorded to Impairment Charges on the consolidated statements of income.
The Company performed the remainder of its 2019 and 2018 annual goodwill impairment assessments and concluded that the fair value of all other reporting units containing goodwill exceeded their respective carrying values. The Company concluded based on the results of the annual testing performed that there were no additional goodwill impairments identified for the years ended December 31, 2019 and 2018.
In connection with the 2017 annual goodwill impairment assessment, the Company performed a qualitative assessment over its business units and noted that as a result of the continuing cash flow losses incurred at the LFGTE's business unit, the two-step impairment test was necessary during 2017. Based on the results of the goodwill impairment test, the Company determined that the carrying value of the LFGTE's reporting unit was higher than the fair value, and accordingly, the Company recognized a pre-tax impairment charge of $1.3 million during the year ended December 31, 2017, recorded in Impairment Charges on the consolidated statements of income and included in the Company's On-Site Energy Production segment.
The following table summarizes the changes in goodwill for the years ended December 31, 2019 and 2018, respectively (in thousands):
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2019
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2018
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Beginning Balance, January 1
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$
|
734,607
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$
|
3,578
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Goodwill from AEP Acquisition
|
1,843
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|
—
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Goodwill from ETG and ELK Acquisition
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—
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756,247
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ETG and ELK Acquisition-related Working Capital Settlement
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(15,600)
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|
—
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ETG and ELK Fair Value Adjustments During Measurement Period
|
(15,143)
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(25,218)
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Impairment Charge
|
(3,637)
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|
—
|
|
Ending Balance, December 31
|
$
|
702,070
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|
$
|
734,607
|
|
IDENTIFIABLE INTANGIBLE ASSETS - The primary identifiable intangible assets of the Company are customer relationships, including those obtained in the acquisition of AEP (see Note 20), along with the AMA (see Note 1). The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Considerations may include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from 2 to 20 years.
In 2019, as a result of the agreement to sell MTF & ACB (see Note 1), the Company recorded a $4.8 million impairment charge on identifiable intangible assets due to the purchase price being less than the total carrying value. This impairment charge was taken at the On-Site Energy Production segment and recorded to Impairment Charges on the consolidated statements of income. No impairment charges were taken on identifiable intangible assets in 2018. In 2017, SJI recorded a $2.2 million impairment charge specific to the LFGTE intangible assets related to customer relationships, which was primarily driven by revised assumptions for decreased electric production and increased operating expenses, and was recorded in Impairment Charges on the consolidated statements of income, and in the Company's On-Site Energy Production segment.
SJI's identifiable intangible assets were as follows (in thousands):
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As of December 31, 2019
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Gross Cost
|
Accumulated Amortization
|
Identifiable Intangible Assets, Net
|
Identifiable intangible assets subject to amortization:
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|
Customer Relationships
|
$
|
2,400
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|
$
|
(53)
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|
$
|
2,347
|
|
AMA (See Note 1)
|
19,200
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|
(7,680)
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|
11,520
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Total
|
$
|
21,600
|
|
$
|
(7,733)
|
|
$
|
13,867
|
|
|
|
|
|
|
|
|
|
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|
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|
|
As of December 31, 2018
|
|
|
|
Gross Cost
|
Accumulated Amortization
|
Identifiable Intangible Assets, Net
|
Identifiable intangible assets subject to amortization:
|
|
|
|
Customer Relationships
|
$
|
14,400
|
|
$
|
(2,880)
|
|
$
|
11,520
|
|
AMA (See Note 1)
|
19,200
|
|
(2,560)
|
|
16,640
|
|
Total
|
$
|
33,600
|
|
$
|
(5,440)
|
|
$
|
28,160
|
|
The net identifiable intangible asset balances shown in the table above are included in Other Noncurrent Assets on the consolidated balance sheets as of December 31, 2019 and 2018, respectively. The decrease in the net identifiable intangible asset balance from the prior year is due to the impairment charges discussed above, customer relationships being reclassified to Assets Held for Sale as part of the agreement to sell MTF/ACB (see Note 1), and amortization recorded in 2019, partially offset by customer relationships recorded in connection with the AEP acquisition during the third quarter of 2019 (see Note 20).
Total SJI amortization expense related to identifiable intangible assets was $6.1 million, $3.5 million, and $1.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.
As of December 31, 2019, SJI's estimated amortization expense related to identifiable intangible assets for each of the five succeeding fiscal years is as follows (in thousands):
|
|
|
|
|
|
Year ended December 31,
|
SJI
|
2020
|
$
|
5,280
|
|
2021
|
5,280
|
|
2022
|
1,440
|
|
2023
|
160
|
|
2024
|
160
|
|
The decreases in estimated amortization expense in the table above are due to the AMA ceasing in March 2022 (see Note 1).
SJG does not have any identifiable intangible assets.
22. SUBSEQUENT EVENTS:
In January 2020, ETG received $6.8 million of an insurance settlement with a third party (see Note 11).
On February 18, 2020, the Company closed on the agreement to sell MTF & ACB (see Note 1) for a final sales price of $97.0 million (see Note 1).
On February 18, 2020, PennEast filed a Petition for a Writ of Certiorari with the Supreme Court of the United States to review the September 10, 2019 Third Circuit decision (see Note 3).
On February 20, 2020, FERC granted PennEast’s request for a two-year extension to complete the construction of the pipeline (see Note 3).