NEW JERSEY RESOURCES CORP (Form: 10-Q, Received: 05/03/2019 16:42:08)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001‑08359



NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)

New Jersey		22‑2376465
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1415 Wyckoff Road, Wall, New Jersey 07719		732‑938‑1480
(Address of principal executive offices)		(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Common Stock ‑ $2.50 Par Value	NJR	New York Stock Exchange
(Title of each class)	(Trading symbol)	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes: x No: o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes: x No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.



Large accelerated filer: x		Accelerated filer: o
Non-accelerated filer: o		Smaller reporting company : o
		Emerging growth company : o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes: o No: x

The number of shares outstanding of $2.50 par value Common Stock as of May 1, 2019 was 89,223,463 .

New Jersey Resources Corporation

TABLE OF CONTENTS



			Page
Glossary of Key Terms			1
Information Concerning Forward-Looking Statements			3
PART I. FINANCIAL INFORMATION
	ITEM 1.	Unaudited Condensed Consolidated Financial Statements	4
		Notes to Unaudited Condensed Consolidated Financial Statements	9
		Note 1. Nature of the Business	9
		Note 2. Summary of Significant Accounting Policies	9
		Note 3. Revenue	15
		Note 4. Regulation	18
		Note 5. Derivative Instruments	20
		Note 6. Fair Value	25
		Note 7. Investments in Equity Investees	27
		Note 8. Earnings Per Share	27
		Note 9. Debt	27
		Note 10. Employee Benefit Plans	29
		Note 11. Income Taxes	29
		Note 12. Commitments and Contingent Liabilities	31
		Note 13. Business Segment and Other Operations Data	33
		Note 14. Related Party Transactions	36
		Note 15. Acquisitions and Dispositions	36
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	63
	ITEM 4.	Controls and Procedures	65
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings	66
	ITEM 1A.	Risk Factors	66
	ITEM 2.	Unregistered Sale of Equity Securities and Use of Proceeds	66
	ITEM 6.	Exhibits	67
		Signatures	68

New Jersey Resources Corporation

GLOSSARY OF KEY TERMS



Adelphia	Adelphia Gateway, LLC
AFUDC	Allowance for Funds Used During Construction
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Bcf	Billion Cubic Feet
BGSS	Basic Gas Supply Service
BPU	New Jersey Board of Public Utilities
CIP	Conservation Incentive Program
CME	Chicago Mercantile Exchange
CR&R	Commercial Realty & Resources Corp.
Dominion	Dominion Energy, Inc.
DM	Dominion Energy Midstream Partners, L.P., a master limited partnership
DM Common Units	Common units representing limited partnership interests in DM
DRP	NJR Direct Stock Purchase and Dividend Reinvestment Plan
Dths	Dekatherms
EE	Energy Efficiency
FASB	Financial Accounting Standards Board
FCM	Futures Commission Merchant
FERC	Federal Energy Regulatory Commission
Financial margin	A non-GAAP financial measure, which represents revenues earned from the sale of natural gas less costs of natural gas sold including any transportation and storage costs, and excludes any accounting impact from the change in the fair value of certain derivative instruments
Fitch	Fitch Ratings Company
FMB	First Mortgage Bond
GAAP	Generally Accepted Accounting Principles of the United States
Home Services and Other	Home Services and Other Operations
ICE	Intercontinental Exchange
IEC	Interstate Energy Company, LLC
IIP	Infrastructure Investment Program
IRS	Internal Revenue Service
ISDA	The International Swaps and Derivatives Association
ITC	Federal Investment Tax Credit
MGP	Manufactured Gas Plant
Moody's	Moody's Investors Service, Inc.
Mortgage Indenture	The Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement between NJNG and U.S. Bank National Association dated as of September 1, 2014
MW	Megawatts
MWh	Megawatt Hour
NAESB	The North American Energy Standards Board
NFE	Net Financial Earnings
NJ RISE	New Jersey Reinvestment in System Enhancement
NJCEP	New Jersey's Clean Energy Program
NJDEP	New Jersey Department of Environmental Protection
NJNG	New Jersey Natural Gas Company
NJNG Credit Facility	NJNG's $250 million unsecured committed credit facility expiring in December 2023
NJR Credit Facility	NJR's $425 million unsecured committed credit facility expiring in December 2023

New Jersey Resources Corporation



GLOSSARY OF KEY TERMS (cont.)

NJR or The Company	New Jersey Resources Corporation
NJRHS	NJR Home Services Company
Non-GAAP	Not in accordance with Generally Accepted Accounting Principles of the United States
NPNS	Normal Purchase/Normal Sale
NYMEX	New York Mercantile Exchange
O&M	Operation and Maintenance
OPEB	Other Postemployment Benefit Plans
PennEast	PennEast Pipeline Company, LLC
PPA	Power Purchase Agreement
PTC	Federal Production Tax Credit
RAC	Remediation Adjustment Clause
REC	Renewable Energy Certificate
S&P	Standard & Poor's Financial Services, LLC
SAFE	Safety Acceleration and Facility Enhancement
SAVEGREEN	The SAVEGREEN Project®
SBC	Societal Benefits Charge
SEC	U.S. Securities and Exchange Commission
SREC	Solar Renewable Energy Certificate
SRL	Southern Reliability Link
Steckman Ridge	Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
Talen	Talen Energy Marketing, LLC
Tetco	Texas Eastern Transmission
The Exchange Act	The Securities Exchange Act of 1934, as amended
The Tax Act	An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, previously known as The Tax Cuts and Jobs Act of 2017
Trustee	U.S. Bank National Association
U.S.	The United States of America
USF	Universal Service Fund

New Jersey Resources Corporation

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements contained in this report, including, without limitation, statements as to management expectations, assumptions and beliefs presented in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations,” Part I, Item 3. “Quantitative and Qualitative Disclosures About Market Risk,” Part II, Item I. “Legal Proceedings” and in the notes to the financial statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “anticipate,” “estimate,” “may,” “could,” “might,” “intend,” “expect,” “believe,” “will” “plan,” or “should,” or comparable terminology and are made based upon management's current expectations, assumptions and beliefs as of this date concerning future developments and their potential effect on us. There can be no assurance that future developments will be in accordance with management's expectations, assumptions or beliefs, or that the effect of future developments on us will be those anticipated by management.

We caution readers that the expectations, assumptions and beliefs that form the basis for forward-looking statements regarding customer growth, customer usage, qualifications for ITCs and SRECs, future rate case proceedings, completion of infrastructure projects, financial condition, results of operations, cash flows, capital requirements, future capital expenditures, market risk, effective tax rate and other matters for fiscal 2019 and thereafter include many factors that are beyond our ability to control or estimate precisely, such as estimates of future market conditions, the behavior of other market participants and changes in the debt and equity capital markets. The factors that could cause actual results to differ materially from our expectations, assumptions and beliefs include, but are not limited to, those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 , as well as the following:


•	risks associated with our investments in clean energy projects, including the availability of regulatory incentives and federal tax credits, the availability of viable projects, our eligibility for ITCs, the future market for SRECs and electricity prices, and operational risks related to projects in service;


•	our ability to obtain governmental and regulatory approvals, land-use rights, electric grid connection (in the case of clean energy projects) and/or financing for the construction, development and operation of our unregulated energy investments, pipeline transportation systems and NJNG and Midstream infrastructure projects, including NJ RISE, SRL, PennEast and Adelphia, in a timely manner;


•	risks associated with acquisitions and the related integration of acquired assets with our current operations, including our planned Adelphia acquisition;


•	volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG ’ s BGSS incentive programs, our Energy Services segment operations and our risk management efforts;


•	our ability to comply with current and future regulatory requirements;


•	the level and rate at which NJNG ’ s costs and expenses are incurred and the extent to which they are approved for recovery from customers through the regulatory process, including through future base rate case filings;


•	the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;


•	the performance of our subsidiaries;


•	operating risks incidental to handling, storing, transporting and providing customers with natural gas;


•	access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;


•	the regulatory and pricing policies of federal and state regulatory agencies;


•	timing of qualifying for ITCs due to delays or failures to complete planned solar projects and the resulting effect on our effective tax rate and earnings;


•	the results of legal or administrative proceedings with respect to claims, rates, environmental issues, gas cost prudence reviews and other matters;


•	changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to our Company;


•	risks related to cyberattacks or failure of information technology systems;


•	the impact of volatility in the equity and credit markets on our access to capital;


•	the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of potential downturns in the financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection and the Affordable Care Act;


•	commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale energy trading market;


•	accounting effects and other risks associated with hedging activities and use of derivatives contracts;


•	our ability to optimize our physical assets;


•	weather and economic conditions;


•	changes to tax laws and regulations;


•	any potential need to record a valuation allowance for our deferred tax assets;


•	our ability to comply with debt covenants;


•	demographic changes in our service territory and their effect on our customer growth;


•	the impact of natural disasters, terrorist activities and other extreme events on our operations and customers;


•	the costs of compliance with present and future environmental laws, including potential climate change-related legislation;


•	environmental-related and other uncertainties related to litigation or administrative proceedings;


•	risks related to our employee workforce; and


•	risks associated with the management of our joint ventures and partnership.

While we periodically reassess material trends and uncertainties affecting our results of operations and financial condition in connection with the preparation of management's discussion and analysis of results of operations and financial condition contained in our Quarterly and Annual Reports on Form 10-Q and Form 10-K, respectively, we do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



	Three Months Ended					Six Months Ended
	March 31,					March 31,
(Thousands, except per share data)	2019			2018		2019			2018
OPERATING REVENUES
Utility	$	301,420		$	317,064	$	501,385		$	526,851
Nonutility	564,835			701,979		1,176,637			1,197,497
Total operating revenues	866,255			1,019,043		1,678,022			1,724,348
OPERATING EXPENSES
Gas purchases:
Utility	138,117			96,586		225,766			174,188
Nonutility	545,268			621,223		1,080,651			1,066,307
Related parties	2,144			2,087		4,329			4,236
Operation and maintenance	62,959			56,797		123,061			110,957
Regulatory rider expenses	15,391			19,604		28,023			31,373
Depreciation and amortization	22,311			22,460		44,143			44,314
Energy and other taxes	3,064			21,542		6,305			38,033
Total operating expenses	789,254			840,299		1,512,278			1,469,408
OPERATING INCOME	77,001			178,744		165,744			254,940
Other income, net	2,758			1,028		3,627			7,004
Interest expense, net of capitalized interest	12,509			11,798		25,995			23,703
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES	67,250			167,974		143,376			238,241
Income tax (benefit) provision	(2,952		)	30,901		(9,913		)	(19,267		)
Equity in earnings of affiliates	3,371			3,193		6,532			6,457
NET INCOME	$	73,573		$	140,266	$	159,821		$	263,965

EARNINGS PER COMMON SHARE
Basic	$0.83			$1.60		$1.80			$3.02
Diluted	$0.82			$1.59		$1.79			$3.01
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	88,836			87,595		88,692			87,295
Diluted	89,228			87,989		89,093			87,690

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



	Three Months Ended					Six Months Ended
	March 31,					March 31,
(Thousands)	2019		2018			2019		2018
Net income	$	73,573	$	140,266		$	159,821	$	263,965
Other comprehensive income (loss), net of tax
Unrealized loss on investments in equity securities, net of tax of $0, $7,366, $0 and $8,217, respectively	—		(20,401		)	—		(22,691		)
Reclassifications of losses to net income on investments in equity securities, net of tax of $0, $(3,036), $0 and $(858), respectively	—		14,801			—		11,647
Adjustment to postemployment benefit obligation, net of tax of $(119), $(104), $(215) and $(240), respectively	305		272			539		512
Other comprehensive income (loss)	$	305	$	(5,328	)	$	539	$	(10,532	)
Comprehensive income	$	73,878	$	134,938		$	160,360	$	253,433

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Six Months Ended
	March 31,
(Thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	159,821		$	263,965
Adjustments to reconcile net income to cash flows from operating activities
Unrealized (gain) loss on derivative instruments	(707		)	23,246
Realized and unrealized gains on investments in equity securities	(1,567		)	(5,332		)
Gain on sale of businesses	(645		)	(3,722		)
Depreciation and amortization	44,143			44,314
Amortization of acquired wholesale energy contracts	7,346			17,911
Allowance for equity used during construction	(3,602		)	(2,051		)
Allowance for doubtful accounts	1,149			994
Deferred income taxes	16,337			28,169
Deferred income tax benefit due to the Tax Act	—			(58,532		)
Manufactured gas plant remediation costs	(4,353		)	(7,219		)
Equity in earnings, net of distributions received from equity investees	(1,836		)	(272		)
Cost of removal - asset retirement obligations	(130		)	(334		)
Contributions to postemployment benefit plans	(1,909		)	(1,648		)
Tax benefit from stock-based compensation	1,284			2,841
Changes in:
Components of working capital	(71,746		)	(27,122		)
Other noncurrent assets	13,483			38,462
Other noncurrent liabilities	14,719			(1,199		)
Cash flows from operating activities	171,787			312,471
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for:
Utility plant	(121,962		)	(69,695		)
Solar equipment	(52,520		)	(58,992		)
Midstream and other	(5,786		)	(3,159		)
Cost of removal	(17,134		)	(33,092		)
Distribution from equity investees in excess of equity in earnings	1,154			1,315
Investments in equity investees	(1,457		)	(11,177		)
Cash paid related to acquisition	—			(10,000		)
Proceeds from sale of businesses, net of closing costs	205,745			9,399
Proceeds from sale of investments in equity securities, net	34,484			6,616
Cash flows from (used in) investing activities	42,524			(168,785		)
CASH FLOWS USED IN FINANCING ACTIVITIES
Payments of long-term debt	(12,005		)	(5,346		)
Payments of short-term debt, net	(106,050		)	(115,100		)
Proceeds from sale-leaseback transaction	9,895			7,820
Payments of common stock dividends	(51,750		)	(47,459		)
Proceeds from waiver discount issuance of common stock	24,539			22,690
Proceeds from issuance of common stock	9,522			9,876
Tax withholding payments related to net settled stock compensation	(6,607		)	(13,420		)
Cash flows used in financing activities	(132,456		)	(140,939		)
Change in cash, cash equivalents and restricted cash	81,855			2,747
Cash, cash equivalents and restricted cash at beginning of period	1,710			2,469
Cash, cash equivalents and restricted cash at end of period	$	83,565		$	5,216
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables	$	(105,900	)	$	(151,220	)
Inventories	125,810			128,895
Recovery of gas costs	(14,989		)	20,260
Gas purchases payable	(21,544		)	18,928
Prepaid and accrued taxes	(4,555		)	15,879
Accounts payable and other	(35,953		)	(17,541		)
Restricted broker margin accounts	(2,217		)	(29,164		)
Customers' credit balances and deposits	(9,163		)	(8,696		)
Other current assets	(3,235		)	(4,463		)
Total	$	(71,746	)	$	(27,122	)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for:
Interest (net of amounts capitalized)	$	27,454		$	23,765
Income taxes	$	1,003		$	2,985
Accrued capital expenditures	$	29,685		$	14,485
Inception gain on natural gas swap contract recognized as non-cash proceeds from sale of business	$	—		$	14,579

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS



(Thousands)	March 31, 2019			September 30, 2018
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost	$	2,440,125		$	2,368,914
Construction work in progress	243,462			192,481
Nonutility plant and equipment, at cost	756,473			697,406
Construction work in progress	43,629			45,690
Total property, plant and equipment	3,483,689			3,304,491
Accumulated depreciation and amortization, utility plant	(555,541		)	(530,753		)
Accumulated depreciation and amortization, nonutility plant and equipment	(138,822		)	(122,689		)
Property, plant and equipment, net	2,789,326			2,651,049
CURRENT ASSETS
Cash and cash equivalents	83,160			1,458
Customer accounts receivable
Billed	273,924			205,490
Unbilled revenues	42,850			7,199
Allowance for doubtful accounts	(6,216		)	(5,704		)
Regulatory assets	17,906			18,297
Gas in storage, at average cost	58,436			184,633
Materials and supplies, at average cost	14,297			13,910
Prepaid and accrued taxes	971			23,047
Derivatives, at fair value	22,712			27,396
Restricted broker margin accounts	60,534			53,719
Assets held for sale	—			206,905
Other	36,611			33,730
Total current assets	605,185			770,080
NONCURRENT ASSETS
Investments in equity method investees	195,203			190,866
Regulatory assets	376,420			368,592
Derivatives, at fair value	13,277			10,560
Investments in equity securities	—			32,917
Intangible assets, net	15,798			23,375
Other noncurrent assets	94,764			96,225
Total noncurrent assets	695,462			722,535
Total assets	$	4,089,973		$	4,143,664

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CAPITALIZATION AND LIABILITIES



(Thousands, except share data)	March 31, 2019			September 30, 2018
CAPITALIZATION
Common stock, $2.50 par value; authorized 150,000,000 shares; outstanding March 31, 2019 — 89,163,881; September 30, 2018 — 88,292,956	$	226,613		$	226,196
Premium on common stock	283,429			274,748
Accumulated other comprehensive loss, net of tax	(15,517		)	(12,610		)
Treasury stock at cost and other; shares March 31, 2019 — 1,480,919; September 30, 2018 — 2,185,013	(46,062		)	(76,473		)
Retained earnings	1,120,699			1,007,117
Common stock equity	1,569,162			1,418,978
Long-term debt	1,179,716			1,180,619
Total capitalization	2,748,878			2,599,597
CURRENT LIABILITIES
Current maturities of long-term debt	124,629			123,545
Short-term debt	45,900			151,950
Gas purchases payable	189,755			211,303
Gas purchases payable to related parties	1,154			1,150
Accounts payable and other	91,754			135,240
Dividends payable	25,981			25,824
Accrued taxes	28,956			1,568
Regulatory liabilities	3,717			8,185
New Jersey Clean Energy Program	5,772			14,052
Derivatives, at fair value	48,019			46,652
Liabilities held for sale	—			4,182
Customers' credit balances and deposits	18,162			27,325
Total current liabilities	583,799			750,976
NONCURRENT LIABILITIES
Deferred income taxes	208,450			242,436
Deferred investment tax credits	3,815			3,976
Deferred gain	1,947			9,104
Derivatives, at fair value	24,927			22,982
Manufactured gas plant remediation	128,897			130,800
Postemployment employee benefit liability	143,345			137,007
Regulatory liabilities	208,869			209,139
Asset retirement obligation	29,650			28,688
Other	7,396			8,959
Total noncurrent liabilities	757,296			793,091
Commitments and contingent liabilities (Note 12)
Total capitalization and liabilities	$	4,089,973		$	4,143,664

See Notes to Unaudited Condensed Consolidated Financial Statements

New Jersey Resources Corporation

Part I

ITEM 1. FINANCIAL STATEMENTS (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY (Unaudited)



(Thousands)	Number of Shares		Common Stock		Premium on Common Stock		Accumulated Other Comprehensive (Loss) Income				Treasury Stock And Other			Retained Earnings			Total
Balance at September 30, 2018	88,293		$	226,196	$	274,748		$	(12,610	)	$	(76,473	)	$	1,007,117		$	1,418,978
Net income														86,248			86,248
Other comprehensive income								234									234
Common stock issued:
Incentive compensation plan	137		343		1,791												2,134
Dividend reinvestment plan ⁽¹⁾	82				454						3,238						3,692
Waiver discount	168		—		1,293						6,671						7,964
Cash dividend declared ($.2925 per share)														(25,938		)	(25,938		)
Treasury stock and other	—				—						1,504						1,504
Adoption of ASU 2016-01 ⁽²⁾								(3,446		)				3,446			—
Adoption of ASU 2017-05 ⁽²⁾														4,970			4,970
Adoption of ASU 2014-09/ASC 606 ⁽²⁾														(2,736		)	(2,736		)
Balance at December 31, 2018	88,680		$	226,539	$	278,286		$	(15,822	)	$	(65,060	)	$	1,073,107		$	1,497,050
Net income														73,573			73,573
Other comprehensive income								305									305
Common stock issued:
Incentive compensation plan	30		74		1,150												1,224
Dividend reinvestment plan ⁽¹⁾	123				870						4,892						5,762
Waiver discount	339		—		3,123						13,452						16,575
Cash dividend declared ($.2925 per share)														(25,981		)	(25,981		)
Treasury stock and other	(8	)			—						654						654
Balance at March 31, 2019	89,164		$	226,613	$	283,429		$	(15,517	)	$	(46,062	)	$	1,120,699		$	1,569,162



(Thousands)	Number of Shares		Common Stock		Premium on Common Stock			Accumulated Other Comprehensive (Loss) Income				Treasury Stock And Other			Retained Earnings			Total
Balance at September 30, 2017	86,556		$	222,258	$	219,696			$	(3,256	)	$	(70,039	)	$	867,984		$	1,236,643
Net income															123,699			123,699
Other comprehensive loss									(5,204		)							(5,204		)
Common stock issued:
Incentive plan	525		1,453		13,951													15,404
Dividend reinvestment plan ⁽¹⁾	90				245							3,554						3,799
Waiver discount	554		1,384		21,306													22,690
Cash dividend declared ($.2725 per share)															(23,831		)	(23,831		)
Treasury stock and other	(250	)			(56		)					(25,374		)				(25,430		)
Balance at December 31, 2017	87,475		$	225,095	$	255,142			$	(8,460	)	$	(91,859	)	$	967,852		$	1,347,770
Net income															140,266			140,266
Other comprehensive loss									(5,328		)							(5,328		)
Common stock issued:
Incentive plan	30		78		1,047													1,125
Dividend reinvestment plan ⁽¹⁾	152				(73		)					6,029						5,956
Cash dividend declared ($.2725 per share)															(23,886		)	(23,886		)
Treasury stock and other	(1	)			42							1,429						1,471
Balance at March 31, 2018	87,656		$	225,173	$	256,158			$	(13,788	)	$	(84,401	)	$	1,084,232		$	1,467,374


(1)	Shares sold through the DRP are issued from treasury stock at average cost, which may differ from the actual market price paid.


(2)	See Note 2. Summary of Significant Accounting Policies - Recently Adopted Updates to the Accounting Standards Codification section for more details.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS

New Jersey Resources Corporation provides regulated gas distribution services and operates certain unregulated businesses primarily through the following:

New Jersey Natural Gas Company provides natural gas utility service to approximately 546,100 retail customers in central and northern New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment.

NJR Clean Energy Ventures Corporation, the Company's clean energy subsidiary, comprises the Clean Energy Ventures segment and consists of the Company's capital investments in commercial and residential solar projects located throughout New Jersey. Clean Energy Ventures finalized the sale of its remaining wind assets on February 7, 2019 , see Note 15. Acquisitions and Dispositions for more details.

NJR Energy Services Company comprises the Energy Services segment. Energy Services maintains and transacts around a portfolio of natural gas storage and transportation capacity contracts and provides physical wholesale energy, retail energy and energy management services in the U.S. and Canada.

NJR Midstream Holdings Corporation, which comprises the Midstream segment, invests in energy-related ventures through its subsidiaries, NJR Steckman Ridge Storage Company, which holds the Company's 50 percent combined ownership interest in Steckman Ridge, located in Pennsylvania; NJNR Pipeline, which held our investment in Dominion; and NJR Pipeline Company, which includes Adelphia Gateway, LLC and the Company's 20 percent ownership interest in PennEast . See Note 7. Investments in Equity Investees for more information.

NJR Retail Holdings Corporation has two principal subsidiaries, NJR Home Services Company, which provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey, and Commercial Realty & Resources Corporation, which owns commercial real estate. NJR Home Services Company and Commercial Realty & Resources Corporation are included in Home Services and Other operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by NJR in accordance with the rules and regulations of the SEC and GAAP. The September 30, 2018 Balance Sheet data is derived from the audited financial statements of the Company. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in NJR's 2018 Annual Report on Form 10-K.

The Unaudited Condensed Consolidated Financial Statements include the accounts of NJR and its subsidiaries. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary for a fair presentation of the results of the interim periods presented. These adjustments are of a normal and recurring nature. Because of the seasonal nature of NJR's utility and wholesale energy services operations, in addition to other factors, the financial results for the interim periods presented are not indicative of the results that are to be expected for the fiscal year ending September 30, 2019 . Intercompany transactions and accounts have been eliminated.

Sales Tax Accounting

As a result of the adoption of ASC 606, Revenue from Contracts with Customers , as of October 1, 2018, the Company excludes from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax on a net basis in operating revenues on the Unaudited Condensed Consolidated Statements of Operations. Previously, sales tax was presented in both operating revenues and operating expenses on the Unaudited Condensed Consolidated Statements of Operations.

Gas in Storage

The following table summarizes gas in storage, at average cost by segment as of:



	March 31, 2019				September 30, 2018
($ in thousands)	Gas in Storage			Bcf	Gas in Storage			Bcf
Energy Services		$	34,819	12.1		$	90,166	34.1
Natural Gas Distribution		23,617		4.4		94,467		24.9
Total		$	58,436	16.5		$	184,633	59.0

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments in Equity Securities

Investments in equity securities are carried at fair value on the Unaudited Condensed Consolidated Balance Sheets. For the fiscal year ended September 30, 2018, total unrealized gains and losses associated with equity securities were included as a part of accumulated other comprehensive income, a component of common stock equity, and reclassifications of realized gains or losses out of other comprehensive income into earnings were recorded in other income, net on the Unaudited Condensed Consolidated Statements of Operations, based on average cost. On October 1, 2018, the Company adopted ASU No. 2016-01, an amendment to ASC 825, Financial Instruments . As a result, both realized unrealized gains and losses are recorded in other income, net on the Unaudited Condensed Consolidated Statements of Operations, based on average cost.

As of September 30, 2018 , the Company's investments in equity securities were comprised of an investment in DM Common Units, which had a fair value of $32.9 million . On January 28, 2019 , Dominion and DM finalized an agreement and plan of merger and outstanding DM Common Units held immediately before the closing of the merger were converted into 0.2492 shares of Dominion common stock. This resulted in the conversion of the Company's 1.84 million DM Common Units into approximately 458,000 Dominion shares. On March 6, 2019 , the Company sold its investment in Dominion and received proceeds of approximately $34.5 million related to the sale. During the three and six months ended March 31, 2019 , total realized and unrealized gains of $1.3 million and $1.6 million , were recognized in other income, net on the Unaudited Condensed Consolidated Statements of Operations.

Loans Receivable

NJNG currently provides loans, with terms ranging from three to 10 years, to customers that elect to purchase and install certain energy-efficient equipment in accordance with its BPU-approved SAVEGREEN program. The loans are recognized at net present value on the Unaudited Condensed Consolidated Balance Sheets. The Company recorded $11.4 million and $10.4 million in other current assets and $38.5 million and $39.5 million in other noncurrent assets as of March 31, 2019 and September 30, 2018 , respectively, on the Unaudited Condensed Consolidated Balance Sheets, related to the loans. If NJNG determines a loan is impaired, the basis of the loan would be subject to regulatory review for recovery. As of March 31, 2019 and September 30, 2018 , the Company has not recorded an allowance for doubtful accounts for SAVEGREEN loans.

Assets Held for Sale

The wind assets classified as held for sale are measured at the lower of their carrying value or fair value less cost to sell. The major classes of assets and liabilities included within the disposal group as held for sale are as follows:



(Thousands)	September 30, 2018			Assets reclassified as held for sale		Assets Sold			Other adjustments ⁽¹⁾			March 31, 2019
Assets held for sale:
Nonutility plant and equipment - wind equipment, at cost	$	224,356		$	—	$	(224,356	)	$	—		$	—
Nonutility plant and equipment - accumulated depreciation, wind equipment	(18,501		)	—		18,501			—			—
Prepaid and other current assets	789			1,747		(1,541		)	(995		)	—
Other noncurrent assets	261			—		(261		)	—			—
	$	206,905		$	1,747	$	(207,657	)	$	(995	)	$	—
Liabilities held for sale:
Accounts payable and other	$	186		$	—	$	(186	)	$	—		$	—
Asset retirement obligation	3,996			—		(3,996		)	—			—
	$	4,182		$	—	$	(4,182	)	$	—		$	—


(1)	Activity relates to amortization of prepaid and other current assets.

On February 7, 2019 , Clean Energy Ventures finalized the sale of its remaining wind assets, see Note 15. Acquisitions and Dispositions for more details.

Software Costs

The Company capitalizes certain costs, such as software design and configuration, coding, testing and installation, that are incurred to purchase or create and implement computer software for internal use. Capitalized costs include external costs of materials and services utilized in developing or obtaining internal-use software and payroll and payroll-related costs for employees who are directly associated with and devote time to the internal-use software project. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Amortization is recorded on the straight-line basis over the estimated useful lives.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in the components of accumulated other comprehensive income (loss), net of related tax effects during the three months ended March 31, 2019 and 2018 :



(Thousands)	Investments in Equity Securities			Postemployment Benefit Obligation				Total
Balance at December 31, 2018	$	—		$	(15,822	)		$	(15,822	)
Other comprehensive loss (income), net of tax
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0, $(119), $(119)	—			305			⁽¹⁾	305
Balance at March 31, 2019	$	—		$	(15,517	)		$	(15,517	)
Balance at December 31, 2017	$	5,600		$	(14,060	)		$	(8,460	)
Other comprehensive (loss) income, net of tax
Other comprehensive loss,before reclassifications, net of tax of $7,366, $0, $7,366	(20,401		)	—				(20,401		)
Amounts reclassified from accumulated other comprehensive income, net of tax of $(3,036), $(104), $(3,140)	14,801			272			⁽¹⁾	15,073
Net current-period other comprehensive (loss) income, net of tax of $4,330, $(104), $4,226	(5,600		)	272				(5,328		)
Balance as of March 31, 2018	$	—		$	(13,788	)		$	(13,788	)

The following table presents the changes in the components of accumulated other comprehensive income (loss), net of related tax effects during the six months ended March 31, 2019 and 2018 :



(Thousands)	Investments in Equity Securities				Postemployment Benefit Obligation				Total
Balance at September 30, 2018	$	3,446			$	(16,056	)		$	(12,610	)
Other comprehensive income (loss), net of tax
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $0, $(215), $(215)	—				539			⁽¹⁾	539
Reclassification to retained earnings	(3,446		)	₍₂₎	—				(3,446		)
Balance at March 31, 2019	$	—			$	(15,517	)		$	(15,517	)
Balance as of September 30, 2017	$	11,044			$	(14,300	)		$	(3,256	)
Other comprehensive (loss) income, net of tax
Other comprehensive loss, before reclassifications, net of tax of $8,217, $0, $8,217	(22,691		)		—				(22,691		)
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax of $(858), $(240), $(1,098)	11,647				512			⁽¹⁾	12,159
Net current-period other comprehensive (loss) income, net of tax of $7,359, $(240), $7,119	(11,044		)		512				(10,532		)
Balance as of March 31, 2018	$	—			$	(13,788	)		$	(13,788	)


(1)	Included in the computation of net periodic pension cost, a component of operations and maintenance expense on the Unaudited Condensed Consolidated Statements of Operations.


(2)	Due to the adoption of ASU No. 2016-01, an amendment to ASC 825, Financial Instruments . See Note 2. Summary of Significant Accounting Policies - Recently Adopted Updates to the Accounting Standards Codification section for more details.

Reclassification

Certain prior period amounts related to restricted cash on the Unaudited Condensed Consolidated Statements of Cash Flows and compensation costs on the Unaudited Condensed Consolidated Statements of Operations have been reclassified to conform to the current period presentation due to the ASU adoptions listed below.

Recently Adopted Updates to the Accounting Standards Codification

Revenue

In May 2014, the FASB issued ASU No. 2014-09, and added ASC 606, Revenue from Contracts with Customers , to the ASC. ASC 606 supersedes ASC 605, Revenue Recognition , as well as most industry-specific guidance, and prescribes a single, comprehensive revenue recognition model designed to improve financial reporting comparability across entities, industries, jurisdictions and capital markets. The Company adopted the new guidance in the first quarter of fiscal 2019 and applied the new provisions on a modified retrospective basis.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company recorded a cumulative-effect adjustment of $3.8 million , $2.7 million net of deferred income taxes, to retained earnings at Home Services and Other. As of October 1, 2018, NJRHS recognizes contract revenue on a straight line basis over the term of the contract. Previously, contract revenue was recognized over the term of the service contract based on expected demand for services. Revenue for Home Services and Other after adopting ASC 606 was $12.3 million and $24.8 million , as opposed to $8.7 million and $18.8 million under ASC 605 for the three and six months ended March 31, 2019 , respectively. The Company elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax on a net basis in operating revenues on the Unaudited Condensed Consolidated Statements of Operations. Prior to adoption, operating revenue and energy taxes and other would have been $19.9 million and $34.4 million higher for the three and six months ended March 31, 2019 , respectively, due to the Company's sales tax presentation. There was no additional impact on the Company’s financial position, results of operations or cash flows.

The Company concluded that its tariff-based sales of natural gas are within the scope of the new guidance and the adoption did not result in any modification to the pattern of revenue recognition from such sales. Revenues from derivative instruments, such as those related to the Company’s SREC sales and natural gas purchases and sales will continue to be accounted for under ASC 815 and thus are outside the scope of ASC 606. Additionally, NJNG revenues generated by the CIP have been determined to be alternative revenue programs under ASC 980 and are also outside the scope of ASC 606, as they are deemed to be a contract with the BPU. The Company also evaluated its renewable asset PPA arrangements and determined that no modification to the pattern of revenue recognition of the related electricity, capacity and REC sales was necessary. Revenues from RECs sold as part of a bundled arrangement continue to be recognized in the same period as the related generation.

Based on the completion of the Company’s evaluation and assessment of its revenue streams, the Company concluded that the new guidance did not have a material impact on its financial position, results of operations or cash flows. ASC 606 requires expanded disclosures, including the disclosure of performance obligations, disaggregated revenues and contract balances, which is included in Note 3. Revenue .

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, an amendment to ASC 230, Statement of Cash Flows , which addresses eight specific cash flow issues for which there has been diversity in practice. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a retrospective basis, which did not impact its statement of cash flows.

In November 2016, the FASB issued ASU No. 2016-18, an amendment to ASC 230, Statement of Cash Flows , which requires that any amounts that are deemed to be restricted cash or restricted cash-equivalents be included in cash and cash-equivalent balances on the cash flow statement and, therefore, transfers between cash and restricted cash accounts will no longer be recognized within the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a retrospective basis, which did not materially impact its statement of cash flows.

Accordingly, the following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Unaudited Condensed Consolidated Balance Sheets to the total amounts in the Unaudited Condensed Consolidated Statements of Cash Flows as follows:



(Thousands)	March 31, 2019		September 30, 2018		March 31, 2018		September 30, 2017
Balance Sheet
Cash and cash equivalents	$	83,160	$	1,458	$	4,928	$	2,226
Restricted cash in other noncurrent assets	405		252		288		243
Statements of Cash Flow
Cash, cash equivalents and restricted cash in the statement of cash flows	$	83,565	$	1,710	$	5,216	$	2,469

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, an amendment to ASC 825, Financial Instruments , to address certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard affects investments in equity securities that do not result in consolidation and are not accounted for under the equity method and the presentation of certain fair value changes for financial liabilities measured at fair value. It also simplifies the impairment assessment of equity investments without a readily determinable fair value by requiring a qualitative assessment. The Company adopted this guidance in the first quarter of fiscal 2019 and applied the new provisions on a modified retrospective basis which resulted in the reclassification of $4.7 million , $3.4 million net of deferred income tax expense, to the opening balance of retained earnings from

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

accumulated other comprehensive income related to investments in equity securities. Subsequent changes to the fair value of the Company’s investments in equity securities are recorded in other income, net in the Unaudited Condensed Consolidated Statement of Operations.

Business Combinations

In January 2017, the FASB issued ASU No. 2017-01, an amendment to ASC 805, Business Combinations , clarifying the definition of a business in the ASC, which is intended to reduce the complexity surrounding the assessment of a transaction as an asset acquisition or business combination. The amendment provides an initial fair value screen to reduce the number of transactions that would fit the definition of a business, and when the screen threshold is not met, provides an updated model that further clarifies the characteristics of a business. The Company adopted this guidance in the first quarter of fiscal 2019 and the new provisions will be applied on a prospective basis. The amendment could potentially have material impacts on future transactions that the Company may enter into by altering the Company’s conclusion on the accounting framework that is applied to acquisitions.

Gains and Losses from the Derecognition of Nonfinancial Assets

In February 2017, the FASB issued ASU No. 2017-05, an amendment to ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets , which clarifies the scope and accounting related to the derecognition of nonfinancial assets, including partial sales and contributions of nonfinancial assets to a joint venture or other non-controlled investee. The Company adopted this guidance in the first quarter of 2019, concurrently with ASC 606, and applied the new provisions on a modified retrospective basis through a cumulative effect adjustment of $6.8 million , $5 million net of deferred income tax expense, to the opening balance of retained earnings related to a transfer of a nonfinancial asset that was previously recorded as a deferred gain on the Unaudited Condensed Consolidated Balance Sheets.

Compensation - Retirement Benefits

In March 2017, the FASB issued ASU No. 2017-07, an amendment to ASC 715, Compensation - Retirement Benefits , which changes the presentation of net periodic benefit cost on the income statement by requiring companies to present all components of net periodic benefit cost, other than service cost, outside a subtotal of income from operations. The amendment also states that only the service cost component of net periodic benefits costs is eligible for capitalization, when applicable. The amendment establishes a practical expedient that permits entities to use their previously disclosed service and other costs in their pension and other postretirement benefit plan footnotes in the prior comparative periods as the estimation basis when applying the retrospective presentation of these costs in the income statement. The Company adopted this guidance in the first quarter of 2019, and applied the new provisions on a retrospective basis for income statement presentation, and is applying the new provisions on a prospective basis for changes to capitalization of costs. Accordingly, the following amounts on the Unaudited Condensed Consolidated Statement of Operations for the three and six months ended March 31, 2019 , have been adjusted:



(Thousands)	As Previously Reported		Effect of Change			As Adjusted
Three Months Ended
Statements of Operations
Operation and maintenance	$	57,749	$	(952	)	$	56,797
Total operating expenses	$	841,251	$	(952	)	$	840,299
Operating income	$	177,792	$	952		$	178,744
Other income (expense), net	$	1,980	$	(952	)	$	1,028
Six Months Ended
Statements of Operations
Operation and maintenance	$	112,860	$	(1,903	)	$	110,957
Total operating expenses	$	1,471,311	$	(1,903	)	$	1,469,408
Operating income	$	253,037	$	1,903		$	254,940
Other income (expense), net	$	8,907	$	(1,903	)	$	7,004

The changes related to the costs that will be eligible for capitalization will not have a material impact on the Company's financial position, results of operations or cash flows upon adoption. There was no additional impact to the Company's financial position, results of operations or cash flows.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Compensation

In May 2017, the FASB issued ASU No. 2017-09, an amendment to ASC 718, Compensation - Stock Compensation , which clarifies the accounting for changes to the terms or conditions of share-based payments. The Company adopted this guidance in the first quarter of fiscal 2019, and will apply the new provisions prospectively to awards modified on or after October 1, 2018. There was no impact to the Company's financial position, results of operations or cash flows upon adoption.

Intangibles

In August 2018, the FASB issued ASU No. 2018-15, an amendment to ASC 350, Intangibles - Goodwill and Other , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company elected to early adopt this guidance in the second quarter of fiscal 2019, as the Company has begun work on key technology replacement and enhancement initiatives and will apply the new provisions on a prospective basis. There was no material impact to the Company's financial position, results of operations or cash flows upon adoption, however as work progresses on the Company's key technology initiatives there may be a material impact in the future.

Other Recent Updates to the Accounting Standards Codification

Leases

In February 2016, the FASB issued ASU No. 2016-02, an amendment to ASC 842, Leases , which, along with other ASU's containing minor amendments and technical corrections, provides for a comprehensive overhaul of the lease accounting model and changes the definition of a lease within the accounting literature. Under the new standard, all leases with a term greater than one year will be recorded on the balance sheet. Amortization of the related asset will be accounted for using one of two approaches prescribed by the guidance. Additional disclosures will be required to allow the user to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach is required for leases existing at the time of adoption.

In January 2018, the FASB issued ASU No. 2018-01, a further amendment to ASC 842, Leases , which was introduced by ASU No. 2016-02, as discussed above. This update provides an optional practical expedient that allows companies to not evaluate existing or expired land easements that were not previously accounted for under Topic 840 as leases. The Company expects to elect this practical expedient upon adoption. The guidance is effective for the Company beginning October 1, 2019.

In July 2018, the FASB issued ASU No. 2018-11, which provides an optional transition method to ASC 842 that allows the Company to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. At this time, the Company does not plan to early adopt the new guidance and expects to transition on a modified retrospective basis.

The Company is currently in the process of reviewing its contracts to identify all of its leases and evaluating its lease population. The Company’s operating leases primarily consist of office and land leases related to solar assets. While the Company is currently evaluating the full impact of the standard and its related updates, it expects to recognize right-of-use assets and liabilities arising from current operating leases on its statement of financial position upon adoption, however, these amounts are not reasonably estimable at this time. The Company expects to elect the package of practical expedients whereby the Company would not be required to reassess all of its leases identified, lease classifications and initial direct costs associated with leases. The Company does not expect the amendments to the standard to have any impact on its results of operations or cash flows.

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, an amendment to ASC 326, Financial Instruments - Credit Losses , which changes the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables. The new model requires recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred. 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. The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. The Company is currently evaluating the amendment to understand the impact on its financial position, results of operations and cash flows upon adoption and will apply the new guidance to its trade and loan receivables on a modified retrospective basis.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivatives and Hedging

In August 2017, the FASB issued ASU No. 2017-12, an amendment to ASC 815 , Derivatives and Hedging , which is intended to make targeted improvements to the accounting for hedging activities by better aligning an entity’s risk management activities and financial reporting for hedging relationships. These amendments modify the accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments are intended to simplify the application of the hedge accounting guidance and provide relief to companies by easing certain hedge documentation requirements. The guidance is effective for the Company beginning October 1, 2019, with early adoption permitted. Upon adoption, the transition requirements and elections will be applied to hedging relationships existing on the date of adoption. The Company does not currently apply hedge accounting to any of its risk management activities and thus does not expect the amendments to have any impact on its financial position, results of operations and cash flows upon adoption.

In October 2018, the FASB issued ASU No. 2018-16, an amendment to ASC 815, Derivatives and Hedging , which permits the use of the Overnight Swap Index rate based on the Secured Overnight Financing Rate as an additional acceptable U.S. benchmark interest rate for hedge accounting purposes. The guidance is effective for the Company beginning October 1, 2019, with early adoption permitted. The Company does not currently apply hedge accounting to any of its risk management activities and thus does not expect the amendments to have any impact on its financial position, results of operations and cash flows upon adoption.

Stock Compensation

In June 2018, the FASB issued ASU No. 2018-07, an amendment to ASC 718, Compensation - Stock Compensation , which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The guidance is effective for the Company beginning October 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of the amendment on the Company’s financial position, results of operations and cash flows upon adoption.

Fair Value

In August 2018, the FASB issued ASU No. 2018-13, an amendment to ASC 820, Fair Value Measurement , which removes, modifies and adds to certain disclosure requirements of fair value measurements. Disclosure requirements removed include the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Modifications include considerations around the requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse. The additions include the requirement to disclose changes in unrealized gains and losses for the period in other comprehensive income for recurring Level 3 fair value measurements held and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. Upon adoption, the amendments will be applied on a prospective or retrospective basis depending on the specific amendments’ transition requirements. The Company is currently evaluating the amendments to understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption and will apply the new guidance.

Compensation - Retirement Benefits

In August 2018, the FASB issued ASU No. 2018-14, an amendment to ASC 715, Compensation - Retirement Benefits , which removes disclosures that no longer are considered cost-beneficial, clarifies the specific requirements of certain disclosures and adds new disclosure requirements identified as relevant. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. Upon adoption, the amendments will be applied on a retrospective basis. The Company is continuing to evaluate the amendment to fully understand the impact on the Company's disclosures upon adoption.

3. REVENUE

Revenue is recognized when a performance obligation is satisfied by transferring control of a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer using the output method of progress. The Company elected to apply the invoice practical expedient for recognizing revenue, whereby the amounts invoiced to customers represent the value to the customer and the Company’s performance completion as of the invoice date. Therefore we do not disclose related unsatisfied performance obligations. The Company also elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax net in operating revenues on the Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Below is a listing of 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, by reporting segment and other business operations:



Revenue Recognized Over Time:
Segment	Performance Obligation	Description
Natural Gas Distribution	Natural gas utility sales	NJNG's performance obligation is to provide natural gas to residential, commercial and industrial customers as demanded, based on regulated tariff rates, which are established by the BPU. Revenues from the sale of natural gas are recognized in the period that gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period. Payment is due each month for the previous month's deliveries. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates. NJNG is entitled to be compensated for performance completed until service is terminated. Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers. As NJNG is acting as an agent on behalf of the third party supplier, revenue is recorded for the delivery of natural gas to the customer.
Clean Energy Ventures	Commercial solar and wind electricity	Clean Energy Ventures operates wholly-owned solar and formerly operated wind projects that recognize revenue as electricity is generated and transferred to the customer. The performance obligation is to provide electricity to the customer in accordance with contract terms or the interconnection agreement and is satisfied upon transfer of electricity generated. Due to the sale of our wind assets, wind electricity sales ceased in February 2019. Revenue is recognized as invoiced and the payment is due each month for the previous month's services.
Clean Energy Ventures	Residential solar electricity	Clean Energy Ventures provides access to residential rooftop and ground-mount solar equipment to customers who then pay the Company a monthly fee. The performance obligation is to provide electricity to the customer based on generation from the underlying residential solar asset and is satisfied upon transfer of electricity generated. Revenue is derived from the contract terms and is recognized as invoiced, with the payment due each month for the previous month's services.
Energy Services	Wholesale natural gas services	The performance obligation of Energy Services is to provide the customer transportation, storage and asset management services on an as needed basis. Energy Services generates revenue through management fees, demand charges, reservation fees and transportation charges centered around the buying and selling of the natural gas commodity, representing one series of distinct performance obligations. Revenue is recognized based upon the underlying natural gas quantities physically delivered and the customer obtaining control. Energy Services invoices customers on a monthly basis in line with the terms of the contract and based on the services provided. Payment is due each month for the previous month's invoiced services.
Home Services and Other	Service contracts	Home Services enters into service contracts with homeowners to provide maintenance and replacement services of applicable heating, cooling or ventilation equipment. All services provided relate to a distinct performance obligation which is to provide services for the specific equipment over the term of the contract. Revenue is recognized on a straight line basis over the term of the contract and payment is due upon receipt of the invoice.
Revenue Recognized at a Point in Time:
Home Services and Other	Installations	Home Services installs appliances, including but not limited to, furnaces, air conditioning units, boilers and generators to customers. The distinct performance obligation is the installation of the contracted appliance, which is satisfied at the point in time the item is installed. The transaction price for each installation differs accordingly. Revenue is recognition at a point in time upon completion of the installation, which is when the customer is billed.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during the three months ended March 31, 2019 is as follows:



	Regulated		Unregulated
(Thousands)	Natural Gas Distribution		Clean Energy Ventures	Energy Services		Home Services and Other		Total
Natural gas utility sales	$	288,168	—	—		—		$	288,168
Wholesale natural gas services	—		—	12,248		—		12,248
Service contracts	—		—	—		7,847		7,847
Installations and maintenance	—		—	—		4,486		4,486
Electricity sales	—		5,058	—		—		5,058
Eliminations ⁽¹⁾	—		—	—		(652	)	(652		)
Revenues from contracts with customers	288,168		5,058	12,248		11,681		317,155
Alternative revenue programs	7,901		—	—		—		7,901
Derivative Instruments	5,351		6,302	535,577		—		547,230
Eliminations ⁽¹⁾	—		—	(6,031	)	—		(6,031		)
Revenues out of scope	13,252		6,302	529,546		—		549,100
Total operating revenues	$	301,420	11,360	541,794		11,681		$	866,255


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

Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during the six months ended March 31, 2019 is as follows:



	Regulated		Unregulated
(Thousands)	Natural Gas Distribution		Clean Energy Ventures	Energy Services		Home Services and Other		Total
Natural gas utility sales	$	483,151	—	—		—		$	483,151
Wholesale natural gas services	—		—	22,328		—		22,328
Service contracts	—		—	—		15,643		15,643
Installations and maintenance	—		—	—		9,180		9,180
Electricity sales	—		12,199	—		—		12,199
Eliminations ⁽¹⁾	—		—	—		(1,197	)	(1,197		)
Revenues from contracts with customers	483,151		12,199	22,328		23,626		541,304
Alternative revenue programs	7,034		—	—		—		7,034
Derivative Instruments	11,200		14,058	1,112,764		—		1,138,022
Eliminations ⁽¹⁾	—		—	(8,338	)	—		(8,338		)
Revenues out of scope	18,234		14,058	1,104,426		—		1,136,718
Total operating revenues	$	501,385	26,257	1,126,754		23,626		$	1,678,022


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

Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the three months ended March 31, 2019 is as follows:



	Regulated		Unregulated
(Thousands)	Natural Gas Distribution		Clean Energy Ventures	Energy Services	Home Services and Other	Total
Residential	$	204,518	2,191	—	11,417	$	218,126
Commercial and industrial	61,452		2,867	12,248	264	76,831
Firm transportation	20,776		—	—	—	20,776
Interruptible and off-tariff	1,422		—	—	—	1,422
Revenues out of scope	13,252		6,302	529,546	—	549,100
Total operating revenues	$	301,420	11,360	541,794	11,681	$	866,255

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the six months ended March 31, 2019 , as follows:



	Regulated		Unregulated
(Thousands)	Natural Gas Distribution		Clean Energy Ventures	Energy Services	Home Services and Other	Total
Residential	$	338,208	4,323	—	23,134	$	365,665
Commercial and industrial	102,180		7,876	22,328	492	132,876
Firm transportation	39,710		—	—	—	39,710
Interruptible and off-tariff	3,053		—	—	—	3,053
Revenues out of scope	18,234		14,058	1,104,426	—	1,136,718
Total operating revenues	$	501,385	26,257	1,126,754	23,626	$	1,678,022

Customer Accounts Receivable/Credit Balances and Deposits

The timing of revenue recognition, customer billings and cash collections result in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Unaudited Condensed Consolidated Balance Sheets during the six months ended March 31, 2019 are as follows:



	Customer Accounts Receivable				Customers' Credit
(Thousands)	Billed		Unbilled		Balances and Deposits
Balance as of October 1, 2018	$	205,490	$	7,199	$	27,325
Increase (decrease)	68,434		35,651		(9,163		)
Balance as of March 31, 2019	$	273,924	$	42,850	$	18,162

The following table provides information about receivables and revenue earned on contracts in progress in excess of billings, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits, respectively, on the Unaudited Condensed Consolidated Balance Sheets as of March 31, 2019 :



(Thousands)	Natural Gas Distribution			Clean Energy Ventures	Energy Services	Home Services and Other		Eliminations		Total
Customer accounts receivable
Billed	$	113,472		2,557	156,349	2,344		(798	)	$	273,924
Unbilled	42,850			—	—	—		—		42,850
Customers' credit balances and deposits	(18,159		)	—	—	(3	)	—		(18,162		)
Total	$	138,163		2,557	156,349	2,341		(798	)	$	298,612

4. REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility capital investments based on the BPU's approval. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations.

NJNG's recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to make annual filings to the BPU for review of its BGSS, CIP and various other programs and related rates. Annual rate changes are typically requested to be effective at the beginning of the following fiscal year. All rate and program changes are subject to proper notification and BPU review and approval. In addition, NJNG is also permitted to implement certain BGSS rate changes on a provisional basis with proper notification to the BPU.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:



(Thousands)	March 31, 2019		September 30, 2018
Regulatory assets-current
New Jersey Clean Energy Program	$	5,772	$	14,052
Underrecovered gas costs	12,093		4,137
Conservation Incentive Program	40		—
Derivatives at fair value, net	1		108
Total current regulatory assets	$	17,906	$	18,297
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	31,436	$	33,017
Liability for future expenditures	128,897		130,800
Deferred income taxes	18,499		17,225
Derivatives at fair value, net	9		—
SAVEGREEN	5,570		8,636
Postemployment and other benefit costs	135,316		136,716
Deferred storm damage costs	9,772		10,858
Cost of removal	37,847		22,339
Other noncurrent regulatory assets	9,074		9,001
Total noncurrent regulatory assets	$	376,420	$	368,592
Regulatory liabilities-current
Conservation Incentive Program	$	—	$	6,994
Derivatives at fair value, net	3,717		1,191
Total current regulatory liabilities	$	3,717	$	8,185
Regulatory liabilities-noncurrent
Tax Act impact ⁽¹⁾	$	202,912	$	205,410
New Jersey Clean Energy Program	4,198		1,902
Other noncurrent regulatory liabilities	1,759		1,827
Total noncurrent regulatory liabilities	$	208,869	$	209,139


(1)	Reflects the re-measurement and subsequent amortization of NJNG's net deferred tax liabilities as a result of the change in federal tax rates enacted in the Tax Act.

Regulatory filings and/or actions that occurred during the current fiscal year include the following:


•	On December 18, 2018 , the BPU approved a decrease in NJNG's EE recovery rate reflecting actual costs incurred through September 30, 2018 , which will result in an annual decrease of $8.8 million , effective January 1, 2019 .


•	On December 28, 2018 , NJNG notified the BPU that it will increase the BGSS rate, effective February 1, 2019 , resulting in an estimated $10.9 million increase to the revenues credited to BGSS from February through September 30, 2019 .


•	On February 28, 2019 , NJNG filed a petition with the BPU seeking authority to implement a five -year IIP. The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP is approximately $507 million . All approved investments will be recovered through annual filings to adjust base rates.


•	On March 29, 2019 , the BPU approved NJNG’s annual SBC application requesting recovery of remediation expenses incurred through June 30, 2018 , an increase in the RAC rate of $1.4 million and an increase in the NJCEP factor of $1.9 million , effective April 1, 2019 .


•	On March 29, 2019 , NJNG filed a petition with the BPU requesting a base rate increase of approximately $8.7 million for the recovery associated with NJ RISE and SAFE II capital investment costs of approximately $75 million made through June 30, 2019 . Changes to base rates are anticipated to be effective October 1, 2019 .


•	On March 29, 2019 , NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $128.2 million , including a change in the Company’s overall rate of return on rate base to 7.87 percent . NJNG is also seeking permission to request recovery for SRL in a future filing, upon completion of the project.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. DERIVATIVE INSTRUMENTS

The Company is subject primarily to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company is exposed to foreign currency and interest rate risk, the Company may utilize foreign currency derivatives to hedge Canadian dollar denominated gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations in interest rates. All of these types of contracts are accounted for as derivatives. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. For a more detailed discussion of the Company's fair value measurement policies and level disclosures associated with NJR's derivative instruments, see Note 6. Fair Value .

Energy Services

Energy Services chooses not to designate its financial commodity and physical forward commodity derivatives as accounting hedges or to elect NPNS. The changes in the fair value of these derivatives are recorded as a component of gas purchases or operating revenues, as appropriate for Energy Services, on the Unaudited Condensed Consolidated Statements of Operations as unrealized gains or losses. For Energy Services at settlement, realized gains and losses on all financial derivative instruments are recognized as a component of gas purchases and realized gains and losses on all physical derivatives follow the presentation of the related unrealized gains and losses as a component of either gas purchases or operating revenues.

Energy Services also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of Canadian currency relative to the U.S. dollar. Energy Services may utilize foreign currency derivatives to lock in the exchange rates associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures, or swaps and are accounted for as derivatives. These derivatives are typically used to hedge demand fee payments on pipeline capacity, storage and gas purchase agreements.

As a result of Energy Services entering into transactions to borrow natural gas, commonly referred to as “park and loans,” an embedded derivative is recognized relating to differences between the fair value of the amount borrowed and the fair value of the amount that will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location over the contract term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed gas is expected to occur, and is considered a derivative transaction that is recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets, with changes in value recognized in current period earnings.

Expected production of SRECs is hedged through the use of forward and futures contracts. All contracts require the Company to physically deliver SRECs through the transfer of certificates as per contractual settlement schedules. For transactions occurring on or before December 31, 2015, the Company elected NPNS accounting treatment on SREC forward and futures contracts. Effective January 1, 2016, on a prospective basis, Energy Services no longer elects NPNS accounting treatment on SREC contracts entered into from January 1, 2016, and recognizes changes in the fair value of these derivatives as a component of operating revenues. Upon settlement of the contract, the related revenue is recognized when the SREC is transferred to the counterparty. NPNS is a contract-by-contract election and, where appropriate, the Company can and may elect normal accounting for certain contracts.

Natural Gas Distribution

Changes in fair value of NJNG's financial commodity derivatives are recorded as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets. The Company elects NPNS accounting treatment on all physical commodity contracts that NJNG entered into on or before December 31, 2015, and accounts for these contracts on an accrual basis. Accordingly, physical natural gas purchases are recognized in regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets when the contract settles and the natural gas is delivered. The average cost of natural gas is charged to expense in the current period earnings based on the BGSS factor times the therm sales. Effective for contracts executed on or after January 1, 2016, NJNG no longer elects NPNS accounting treatment on all physical forward commodity contracts. However, since NPNS is a contract-by-contract election, where it makes sense to do so, NJNG can and may elect certain contracts to be normal. Because NJNG recovers these amounts through future BGSS rates as increases or decreases to the cost of natural gas in NJNG’s tariff for gas service, the changes in fair value of these contracts are deferred as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In June 2015, NJNG entered into a treasury lock transaction to fix a benchmark treasury rate of 3.26 percent associated with a $125 million debt issuance that was finalized in May 2018. This debt issuance coincided with the maturity of NJNG's $125 million , 5.6 percent notes that came due May 15, 2018 . This treasury lock was settled on March 13, 2018 , which coincided with the pricing of the new debt being issued. Settlement of the treasury lock resulted in a $2.6 million loss, which is recorded as a component of regulatory assets on the Unaudited Condensed Consolidated Balance Sheets and will be amortized in earnings over the term of the $125 million , 4.01 percent notes that were issued on May 11, 2018 .

Clean Energy Ventures

The Company elects NPNS accounting treatment on PPA contracts that Clean Energy Ventures enters into that meet the definition of a derivative and accounts for the contract on an accrual basis. Accordingly, electricity sales are recognized in revenues throughout the term of the PPA as electricity is delivered. NPNS is a contract-by-contract election and where it makes sense to do so, the Company can and may elect certain contracts to be normal.

Home Services and Other

In January 2018 , NJR entered into a variable-for-fixed interest rate swap on its existing $100 million variable rate term loan, which fixed the variable rate at 2.84 percent . The swap will terminate on August 16, 2019 , which coincides with the maturity of the debt. The change in the fair value of the interest rate swap is recorded as a component of interest expense on the Unaudited Condensed Consolidated Statements of Operations.

Fair Value of Derivatives

The following table reflects the fair value of NJR's derivative assets and liabilities recognized on the Unaudited Condensed Consolidated Balance Sheets as of:



			Fair Value
			March 31, 2019						September 30, 2018
(Thousands)	Balance Sheet Location	Asset Derivatives			Liability Derivatives			Asset Derivatives			Liability Derivatives
Derivatives not designated as hedging instruments:
Natural Gas Distribution:
Physical commodity contracts	Derivatives - current		$	91		$	49		$	85		$	192
Financial commodity contracts	Derivatives - current		578			7			94			—
Energy Services:
Physical commodity contracts	Derivatives - current		4,868			17,474			7,667			18,158
	Derivatives - noncurrent		1,013			18,184			3,930			11,316
Financial commodity contracts	Derivatives - current		17,053			30,279			19,169			28,176
	Derivatives - noncurrent		12,264			6,599			6,630			11,548
Foreign currency contracts	Derivatives - current		2			210			—			126
	Derivatives - noncurrent		—			144			—			118
Home Services and Other:
Interest rate contracts	Derivatives - current		120			—			381			—
Total fair value of derivatives			$	35,989		$	72,946		$	37,956		$	69,634

Offsetting of Derivatives

The Company transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets and liabilities with the same counterparty. However, the Company’s policy is to present its derivative assets and liabilities on a gross basis at the contract level unit of account on the Unaudited Condensed Consolidated Balance Sheets.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but elects not to, financial collateral, as well as the net amounts the Company could present on the Unaudited Condensed Consolidated Balance Sheets but elects not to.



(Thousands)	Amounts Presented on Balance Sheets ⁽¹⁾			Offsetting Derivative Instruments ⁽²⁾				Financial Collateral Received/Pledged ⁽³⁾				Net Amounts ⁽⁴⁾
As of December 31, 2018:
Derivative assets:
Energy Services
Physical commodity contracts		$	5,881		$	(1,428	)		$	(200	)		$	4,253
Financial commodity contracts		29,317			(25,458		)		(2,389		)		1,470
Foreign currency contracts		2			(2		)		—				—
Total Energy Services		$	35,200		$	(26,888	)		$	(2,589	)		$	5,723
Natural Gas Distribution
Physical commodity contracts		$	91		$	—			$	—			$	91
Financial commodity contracts		578			(7		)		(571		)		—
Total Natural Gas Distribution		$	669		$	(7	)		$	(571	)		$	91
Home Services and Other
Interest rate contracts		$	120		$	—			$	—			$	120
Total Home Services and Other		$	120		$	—			$	—			$	120
Derivative liabilities:
Energy Services
Physical commodity contracts		$	35,658		$	(1,428	)		$	—			$	34,230
Financial commodity contracts		36,878			(25,458		)		(9,032		)		2,388
Foreign currency contracts		354			(2		)		—				352
Total Energy Services		$	72,890		$	(26,888	)		$	(9,032	)		$	36,970
Natural Gas Distribution
Physical commodity contracts		$	49		$	—			$	—			$	49
Financial commodity contracts		7			(7		)		—				—
Total Natural Gas Distribution		$	56		$	(7	)		$	—			$	49
As of September 30, 2018:
Derivative assets:
Energy Services
Physical commodity contracts		$	11,597		$	(3,944	)		$	(200	)		$	7,453
Financial commodity contracts		25,799			(18,775		)		—				7,024
Total Energy Services		$	37,396		$	(22,719	)		$	(200	)		$	14,477
Natural Gas Distribution
Physical commodity contracts		$	85		$	(3	)		$	—			$	82
Financial commodity contracts		94			—				(94		)		—
Total Natural Gas Distribution		$	179		$	(3	)		$	(94	)		$	82
Home Services and Other
Interest rate contracts		$	381		$	—			$	—			$	381
Total Home Services and Other		$	381		$	—			$	—			$	381
Derivative liabilities:
Energy Services
Physical commodity contracts		$	29,474		$	(3,944	)		$	—			$	25,530
Financial commodity contracts		39,724			(18,775		)		(20,949		)		—
Foreign currency contracts		244			—				—				244
Total Energy Services		$	69,442		$	(22,719	)		$	(20,949	)		$	25,774
Natural Gas Distribution
Physical commodity contracts		$	192		$	(3	)		$	—			$	189
Total Natural Gas Distribution		$	192		$	(3	)		$	—			$	189


(1)	Derivative assets and liabilities are presented on a gross basis on the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.


(2)	Includes transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with ISDA netting.


(3)	Financial collateral includes cash balances at FCMs as well as cash received from or pledged to other counterparties.


(4)	Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Energy Services utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical gas to be used for storage injection and its subsequent sale at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased gas are recognized prior to the gains or (losses) on the physical transaction, which are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged along with fair value changes in derivative instruments creates volatility in the results of Energy Services, although the Company's intended economic results relating to the entire transaction are unaffected.

The following table reflects the effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations as of:



(Thousands)	Location of gain (loss) recognized in income on derivatives	Amount of gain (loss) recognized in income on derivatives
		Three Months Ended						Six Months Ended
		March 31,						March 31,
Derivatives not designated as hedging instruments:		2019			2018			2019			2018
Energy Services:
Physical commodity contracts	Operating revenues	$	171		$	(11,952	)	$	(1,361	)	$	(10,742	)
Physical commodity contracts	Gas purchases	3,306			(44,646		)	(2,126		)	(67,343		)
Financial commodity contracts	Gas purchases	(2,231		)	13,767			(5,187		)	(12,230		)
Foreign currency contracts	Gas purchases	121			(215		)	(225		)	(263		)
Home Services and Other:
Interest rate contracts	Interest expense	(62		)	121			(185		)	121
Total unrealized and realized losses		$	1,305		$	(42,925	)	$	(9,084	)	$	(90,457	)

NJNG’s derivative contracts are part of the Company's risk management activities that relate to its natural gas purchases, BGSS incentive programs and debt financing. These transactions are entered into pursuant to regulatory approval. At settlement, the resulting gains and/or losses are payable to or recoverable from utility customers and are deferred in regulatory assets or liabilities resulting in no impact to earnings. The following table reflects the (losses) gains associated with NJNG's derivative instruments as of:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019		2018
Natural Gas Distribution:
Physical commodity contracts	$	1,436		$	(12,879	)	$	4,413	$	(15,855	)
Financial commodity contracts	(1,157		)	7,232			3,239		(1,576		)
Interest rate contracts	—			12,534			—		8,467
Total unrealized and realized (losses) gains	$	279		$	6,887		$	7,652	$	(8,964	)

NJNG and Energy Services had the following outstanding long (short) derivatives as of:



		Volume (Bcf)
		March 31, 2019		September 30, 2018
Natural Gas Distribution	Futures	32.1		27.9
	Physical	23.6		23.1
Energy Services	Futures	(4.0	)	(7.0	)
	Physical	18.6		51.2
	Swaps	(8.5	)	(17.3	)

Not included in the previous table are Energy Services' net notional amount of foreign currency transactions of approximately $4.3 million , NJR's interest rate swap, as previously discussed, and 932,000 SRECs at Energy Services that are open as of March 31, 2019 .

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Broker Margin

Futures exchanges have contract specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily marked-to-market relative to maintenance margin requirements. The Company maintains separate broker margin accounts for the Natural Gas Distribution and Energy Services segments. The balances are as follows:



(Thousands)	Balance Sheet Location	March 31, 2019		September 30, 2018
Natural Gas Distribution	Restricted broker margin accounts	$	2,049	$	2,038
Energy Services	Restricted broker margin accounts	$	58,485	$	51,681

Wholesale Credit Risk

NJNG, Energy Services and Clean Energy Ventures are exposed to credit risk as a result of their sales/wholesale marketing activities. As a result of the inherent volatility in the prices of natural gas commodities, derivatives, SRECs, electricity and RECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty fails to perform the obligations under its contract (e.g., failed to deliver or pay for natural gas, SRECs, electricity or RECs), then the Company could sustain a loss.

NJR monitors and manages the credit risk of its wholesale operations through credit policies and procedures that management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties' financial statements and/or credit ratings, daily monitoring of counterparties' credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to NJR's election not to extend credit or because exposure exceeds defined thresholds. Most of NJR's wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due.

Internally-rated exposure applies to counterparties that are not rated by S&P, Fitch or Moody's. In these cases, the counterparty's or guarantor's financial statements are reviewed, and similar methodologies and ratios used by S&P, Fitch and/or Moody's are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received.

The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of March 31, 2019 . The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services and Clean Energy Ventures residential solar installations.



(Thousands)	Gross Credit Exposure
Investment grade		$	187,355
Noninvestment grade		24,891
Internally rated investment grade		26,002
Internally rated noninvestment grade		31,345
Total		$	269,593

Conversely, certain of NJNG's and Energy Services' derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG's credit rating were to fall below its current level. NJNG's credit rating, with respect to S&P, reflects the overall corporate credit profile of NJR. Specifically, most, but not all, of these additional payments will be triggered if NJNG's debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings, but are based on certain financial metrics.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company's credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed applicable threshold limits. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2019 and September 30, 2018 , was $102,000 and $124,000 , respectively, for which the Company had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements had been invoked on March 31, 2019 and September 30, 2018 , the Company would have been required to post an additional $33,000 and $33,000 , respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected on the Unaudited Condensed Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.

6. FAIR VALUE

Fair Value of Assets and Liabilities

The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the Company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.

The estimated fair value of long-term debt at NJNG and NJR, including current maturities, excluding capital leases, debt issuance costs and solar asset financing obligations, is as follows:



(Thousands)	March 31, 2019		September 30, 2018
Carrying value ^{(1) (2) (3)}	$	1,172,045	$	1,172,045
Fair market value	$	1,200,720	$	1,158,051


(1)	Excludes capital leases of $40.2 million and $35.9 million as of March 31, 2019 and September 30, 2018 , respectively.


(2)	Excludes NJNG's debt issuance costs of $6.4 million and $6.5 million as of March 31, 2019 and September 30, 2018 , respectively.


(3)	Excludes NJR's debt issuance costs of $1.1 million for both March 31, 2019 and September 30, 2018 .

NJR utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate for the maturity of the specific issue and the Company's credit rating. As of March 31, 2019 , NJR discloses its debt within Level 2 of the fair value hierarchy.

Fair Value Hierarchy

NJR applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, investments in equity securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and include the following:

Level 1

Unadjusted quoted prices for identical assets or liabilities in active markets. NJR's Level 1 assets and liabilities include exchange traded natural gas futures and options contracts, listed equities and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that NJR refers internally to as basis swaps, fixed swaps, futures and financial options that are cleared through a FCM.

Level 2

Other significant observable inputs such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. NJR's Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). NJNG's treasury lock is also considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation model. Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:


•	widely accepted and public;


•	non-proprietary and sourced from an independent third party; and


•	observable and published.

These additional adjustments are generally not considered to be significant to the ultimate recognized values.


Level 3	Inputs derived from a significant amount of unobservable market data. These include NJR's best estimate of fair value and are derived primarily through the use of internal valuation methodologies.

Assets and liabilities measured at fair value on a recurring basis are summarized as follows:



	Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(Thousands)	(Level 1)			(Level 2)			(Level 3)			Total
As of March 31, 2019:
Assets:
Physical commodity contracts		$	—		$	5,972		$	—	$	5,972
Financial commodity contracts		26,036			3,859			—		29,895
Financial commodity contracts - foreign exchange		—			2			—		2
Interest rate contracts		—			120			—		120
Money market funds		74,923			—			—		74,923
Other		1,947			—			—		1,947
Total assets at fair value		$	102,906		$	9,953		$	—	$	112,859
Liabilities:
Physical commodity contracts		$	—		$	35,707		$	—	$	35,707
Financial commodity contracts		36,885			—			—		36,885
Financial commodity contracts - foreign exchange		—			354			—		354
Total liabilities at fair value		$	36,885		$	36,061		$	—	$	72,946
As of September 30, 2018:
Assets:
Physical commodity contracts		$	—		$	11,682		$	—	$	11,682
Financial commodity contracts		18,868			7,025			—		25,893
Interest rate contracts		—			381			—		381
Investments in equity securities		32,917			—			—		32,917
Other ⁽¹⁾		1,217			—			—		1,217
Total assets at fair value		$	53,002		$	19,088		$	—	$	72,090
Liabilities:
Physical commodity contracts		$	—		$	29,666		$	—	$	29,666
Financial commodity contracts		39,724			—			—		39,724
Financial commodity contracts - foreign exchange		—			244			—		244
Total liabilities at fair value		$	39,724		$	29,910		$	—	$	69,634


(1)	Includes money market funds.

New Jersey Resources Corporation

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. INVESTMENTS IN EQUITY INVESTEES

NJR's investments in equity method investees include the following as of:



(Thousands)	March 31, 2019		September 30, 2018
Steckman Ridge ⁽¹⁾	$	115,775	$	117,001
PennEast	79,428		73,865
Total	$	195,203	$	190,866


(1)	Includes loans with a total outstanding principal balance of $70.4 million for both March 31, 2019 and September 30, 2018 . The loans accrue interest at a variable rate that resets quarterly and are due October 1, 2023.

The Company, through its subsidiary NJR Pipeline Company, is an investor in PennEast, which is expected to construct and operate a 120 -mile natural gas pipeline that will extend from northeast Pennsylvania to western New Jersey. PennEast has advised that it currently expects the pipeline to begin construction in 2020 . However, construction could be delayed beyond 2020 due to factors that are beyond PennEast’s ability to control or estimate precisely, including potential delays in obtaining (or the inability to obtain) governmental and regulatory approvals and land-use rights, and unforeseen construction delays.

NJNG and Energy Services have entered into storage and park and loan agreements with Steckman Ridge. In addition, NJNG has entered into a precedent capacity agreement with PennEast. See Note 14. Related Party Transactions for more information on these intercompany transactions.

8. EARNINGS PER SHARE

The following table presents the calculation of the Company's basic and diluted earnings per share for:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands, except per share amounts)	2019		2018		2019		2018
Net income, as reported	$	73,573	$	140,266	$	159,821	$	263,965
Basic earnings per share
Weighted average shares of common stock outstanding-basic	88,836		87,595		88,692		87,295
Basic earnings per common share	$0.83		$1.60		$1.80		$3.02
Diluted earnings per share
Weighted average shares of common stock outstanding-basic	88,836		87,595		88,692		87,295
Incremental shares ⁽¹⁾	392		394		401		395
Weighted average shares of common stock outstanding-diluted	89,228		87,989		89,093		87,690
Diluted earnings per common share ⁽²⁾	$0.82		$1.59		$1.79		$3.01


(1)	Incremental shares consist primarily of unvested stock awards and performance shares.


(2)	There were no anti-dilutive shares excluded from the calculation of diluted earnings per share during fiscal 2019 and 2018 .

9. DEBT

NJR and NJNG finance working capital requirements and capital expenditures through various short-term debt and long-term financing arrangements, including a commercial paper program and committed unsecured credit facilities.

New Jersey Resources Corporation

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Credit Facilities

A summary of NJR's credit facility and NJNG's commercial paper program and credit facility are as follows:



(Thousands)	March 31, 2019			September 30, 2018			Expiration Dates
NJR
Bank revolving credit facilities ⁽¹⁾	$	425,000		$	425,000		December 2023
Notes outstanding at end of period	$	—		$	87,950
Weighted average interest rate at end of period	—		%	3.07		%
Amount available at end of period ⁽²⁾	$	421,315		$	322,144
Bank revolving credit facilities ⁽¹⁾	$	100,000		$	—		April 2019
Amount available at end of period	$	100,000		$	—
NJNG
Bank revolving credit facilities ⁽¹⁾	$	250,000		$	250,000		December 2023
Commercial paper outstanding at end of period	$	45,900		$	64,000
Weighted average interest rate at end of period	2.72		%	2.18		%
Amount available at end of period ⁽³⁾	$	203,369		$	185,269


(1)	Committed credit facilities, which require commitment fees on the unused amounts.


(2)	Letters of credit outstanding total $3.7 million and $14.9 million for March 31, 2019 and September 30, 2018 , respectively, which reduces amount available by the same amount.


(3)	Letters of credit outstanding total $731,000 for both March 31, 2019 and September 30, 2018 , which reduces the amount available by the same amount.

On December 5, 2018 , NJNG entered into an Amended and Restated Credit Agreement governing a $250 million NJNG Credit Facility. The NJNG Credit Facility expires on December 5, 2023 , subject to two mutual options for a one -year extension beyond that date. The NJNG Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJNG Credit Facility also includes an accordion feature, which would allow NJNG, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJNG Credit Facility in minimum increments of $50 million up to a maximum of $100 million .

On December 5, 2018 , NJR entered into an Amended and Restated Credit Agreement governing a $425 million NJR Credit Facility. The NJR Credit Facility expires on December 5, 2023 , subject to two mutual options for a one -year extension beyond that date. The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJR Credit Facility also includes an accordion feature, which would allow NJR, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJR Credit Facility in minimum increments of $50 million up to a maximum of $250 million . Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility.

For accounting purposes, the Company treated both of the new credit facilities as a debt modification.

On December 21, 2018 , NJR entered into a four -month, $100 million revolving line of credit facility, which expired on April 18, 2019 . As of March 31, 2019 , there were no borrowings against the facility.

Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.

New Jersey Resources Corporation

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-term Debt

NJNG

NJNG received $9.9 million and $7.8 million in December 2018 and 2017 , respectively, in connection with the sale-leaseback of its natural gas meters. NJNG records a capital lease obligation that is paid over the term of the lease and has the option to purchase the meters back at fair value upon expiration of the lease. NJNG exercised early purchase options with respect to certain outstanding meter leases by making final principal payments of $1.1 million during both the six months ended March 31, 2019 and 2018 .

On April 18, 2019 , NJNG remarketed three FMBs, in the amount of $35.8 million , with a weighted average interest rate of 3.02 percent . The bonds have maturity dates ranging from April 2038 to April 2059 .

10. EMPLOYEE BENEFIT PLANS

Pension and Other Postemployment Benefit Plans

The components of the net periodic cost for pension benefits, including the Company's Pension Equalization Plan, and OPEB costs (principally health care and life insurance) for employees and covered dependents were as follows:



	Pension												OPEB
	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	March 31,						March 31,						March 31,						March 31,
(Thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Service cost	$	1,846		$	2,034		$	3,691		$	4,069		$	1,101		$	1,151		$	2,202		$	2,303
Interest cost	3,043			2,624			6,086			5,247			2,081			1,591			4,162			3,182
Expected return on plan assets	(4,764		)	(4,909		)	(9,527		)	(9,819		)	(1,379		)	(1,338		)	(2,758		)	(2,676		)
Recognized actuarial loss	1,441			1,885			2,882			3,769			1,616			1,165			3,233			2,330
Prior service cost amortization	26			26			51			53			(91		)	(91		)	(182		)	(182		)
Net periodic benefit cost	$	1,592		$	1,660		$	3,183		$	3,319		$	3,328		$	2,478		$	6,657		$	4,957

The Company does not expect to be required to make additional contributions to fund the pension plans during fiscal 2019 or 2020 based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents. In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans. There were no discretionary contributions made during the six months ended March 31, 2019 and 2018 .

11. INCOME TAXES

ASC Topic 740, Income Taxes requires the use of an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating its estimated annual effective tax rate, NJR considers forecasted annual pre-tax income and estimated permanent book versus tax differences, as well as tax credits associated with solar and wind projects. For investment tax credits, the estimate is based on solar projects that are probable of being completed and placed in service during the current fiscal year based on the best information available at each reporting period. For production tax credits, the estimate is based on the forecast of electricity produced during the current fiscal year based on the best information available at each reporting period. Adjustments to the effective tax rate and management's estimates will occur as information and assumptions change.

Changes in tax laws or tax rates are recognized in the financial reporting period that includes the enactment date, the date in which the act is signed into law.

NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. During the six months ended March 31, 2019 and 2018 , the Company determined there was no need to recognize any liabilities associated with uncertain tax positions.

New Jersey Resources Corporation

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Tax Act

On December 22, 2017, the President signed into law the Tax Act. The law made several changes to the Internal Revenue Code of 1986, as amended, the most impactful to the Company of which was a reduction in the federal corporate income tax rate from 35 percent to 21 percent that became effective January 1, 2018. Since the Company's fiscal year end is September 30, it is required by the Internal Revenue Code to calculate a statutory rate based upon the federal tax rates in effect before and after the effective date of the change in the taxable year that includes the effective date. Accordingly, the Company applied a federal statutory tax rate of 24.5 percent during fiscal 2018 and as of October 1, 2018, uses the enacted rate of 21 percent . As a result of the changes associated with the Tax Act, the Company recognized a tax benefit of $58.5 million during the six months ended March 31, 2018 .

Effective Tax Rate

The forecasted effective tax rates were (5.8) percent and 17.2 percent , for the six months ended March 31, 2019 and 2018 , respectively. The decrease in the effective tax rate, when compared with the prior fiscal year, is due primarily to a decrease in forecasted pre-tax income combined with the lower federal statutory rate, and an increase in forecasted tax credits for the fiscal year ending September 30, 2019 . Forecasted tax credits, net of deferred income taxes, were $45.2 million and $23.2 million for fiscal 2019 and 2018 , respectively.

To the extent there are discrete tax items that are not included in the forecasted effective tax rate, the actual effective tax rate will differ from the estimated annual effective tax rate. The Company recognized $1.3 million and $2.8 million during the six months ended March 31, 2019 and 2018 , respectively, in excess tax benefits associated with the vesting of share-based awards, as a component of income tax (benefit) provision in its Unaudited Condensed Consolidated Statements of Operations. The six months ended March 31, 2018 , also included the the changes associated with the Tax Act as previously discussed. As a result of these discrete items, NJR’s actual effective tax rate was (6.6) percent and (7.9) percent during the six months ended March 31, 2019 and 2018 , respectively.

Other Tax Items

As of March 31, 2019 and September 30, 2018 , the Company had federal income tax net operating losses of approximately $136.8 million . Federal net operating losses incurred before the implementation of the Tax Act can generally be carried back two years and forward 20 years and will begin to expire in fiscal 2036, with the remainder expiring by 2038. The Company expects to exercise its ability to carryback federal net operating losses to offset taxable income in prior periods.

For the net operating losses it expects to carryback, the Company estimated the portion considered refundable and recorded receivables of approximately $23 million as of March 31, 2019 and September 30, 2018, as a component of other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets. Upon filing amended federal income tax returns to carryback its remaining federal net operating losses totaling $24.5 million , the Company will reduce its taxable income in those periods and recapture federal investment tax credits of the same amount that were previously utilized to offset taxable income.

In addition, as of March 31, 2019 and September 30, 2018 , the Company had ITC/PTC carryforwards of approximately $109.9 million and $121.1 million , respectively, which each have a life of 20 years. When the Company carries back the federal net operating losses noted above, it expects to recapture investment tax credits totaling $24.5 million . These recaptured tax credits are in addition to the $109.9 million and will be carried forward to offset future taxable income. The Company expects to utilize this entire carryforward, which would begin to expire in fiscal 2033.

As of March 31, 2019 and September 30, 2018 , the Company had state income tax net operating losses of approximately $385.4 million and $578.8 million , respectively. These state net operating losses have varying carry forward periods dictated by the state in which they were incurred. These state carry forward periods range from seven to 20 years and would begin to expire in fiscal 2021, with the majority expiring after 2035.

On February 7, 2019 , Clean Energy Ventures finalized the sale of its remaining wind assets. As a result of the sale, it is more likely than not that certain state net operating loss carryforwards will not be realizable prior to their expiration. The Company had a valuation allowance of $4 million as of March 31, 2019 and September 30, 2018 , related to state net operating loss carryforwards in Montana, Iowa and Kansas. The remaining state income tax net operating losses are expected to be utilized prior to expiration.

In March 2019, the IRS commenced an examination of the Company's federal income tax return for fiscal 2016.

The State of New Jersey is conducting a general tax examination for fiscal years 2014 through 2017 related to NJRHS. All periods subsequent to those ended September 30, 2013 are statutorily open to examination.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. COMMITMENTS AND CONTINGENT LIABILITIES

Cash Commitments

NJNG has entered into long-term contracts, expiring at various dates through September 2024 , for the supply, storage and transportation of natural gas. These contracts include annual fixed charges of approximately $63.8 million at current contract rates and volumes for the remainder of the fiscal year, which are recoverable through BGSS.

For the purpose of securing storage and pipeline capacity, the Energy Services segment enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by Energy Services to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from one to 10 years. Demand charges are established by interstate storage and pipeline operators and are regulated by FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and/or transport natural gas utilizing their respective assets.

Commitments as of March 31, 2019 , for natural gas purchases and future demand fees for the next five fiscal year periods are as follows:



(Thousands)	2019		2020		2021		2022		2023		Thereafter
Energy Services:
Natural gas purchases	$	212,509	$	98,677	$	12,253	$	—	$	—	$	—
Storage demand fees	16,112		26,227		15,648		11,749		6,953		2,599
Pipeline demand fees	34,875		69,617		38,650		24,811		19,186		5,424
Sub-total Energy Services	$	263,496	$	194,521	$	66,551	$	36,560	$	26,139	$	8,023
NJNG:
Natural gas purchases	$	50,881	$	44,346	$	34,879	$	34,844	$	35,939	$	38,281
Storage demand fees	18,400		33,881		24,162		15,696		9,037		6,613
Pipeline demand fees	45,416		93,593		104,462		94,029		88,231		617,010
Sub-total NJNG	$	114,697	$	171,820	$	163,503	$	144,569	$	133,207	$	661,904
Total	$	378,193	$	366,341	$	230,054	$	181,129	$	159,346	$	669,927

Legal Proceedings

Manufactured Gas Plant Remediation

NJNG is responsible for the remedial cleanup of five MGP sites, dating back to gas operations in the late 1800s and early 1900s, which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative proceedings with the NJDEP, and participating in various studies and investigations by outside consultants, to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under NJDEP regulations.

NJNG has had discussions with the NJDEP regarding NJNG’s association with two additional sites located within its service territory, upon which former MGP operations appear to have been located in the late 1800s or early 1900s. NJNG agreed to perform a preliminary assessment and site investigation at these sites to determine if there is soil and groundwater contamination present indicative of MGP operations. Preliminary results at one of the sites indicated the existence of contaminants from gas manufacturing activities. Upon completion of the site investigation phase, a remedial investigation will be conducted to further determine the nature and extent of potential contamination. Subsequent to this effort, and if sufficient information is available, the Company should be able to evaluate remedial alternatives, select an appropriate remedy that complies with NJDEP regulations and guidance, and estimate potential remedial costs. Given the progress made to date, the uncertainties regarding the extent of potential contamination and unknown efforts that may be necessary to remediate the site, the total amount of potential costs to complete all remedial actions cannot be reasonably estimated at this time. The costs associated with the completion of site investigation activities and the remedial investigation phase are estimated to be approximately $600,000 . Inclusive of this estimate, total costs incurred to date in the investigation of the site amount to approximately $1.4 million . The Company will continue to gather information to further refine and enhance its estimate of potential costs as it becomes available.

New Jersey Resources Corporation

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At the second site, NJNG is in the early investigatory stage, which includes conducting a preliminary assessment and site investigation to determine if there were former MGP operations active at the location and prior ownership of the site. NJNG will continue to gather information to determine whether a potential obligation exists to undertake further remedial investigation and remedial action, if any, and whether there are other potentially responsible parties.

NJNG periodically, and at least annually, performs an environmental review of MGP sites located in Atlantic Highlands, Berkeley, Long Branch, Manchester and Toms River, including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures to remediate and monitor the five MGP sites for which it is responsible, including potential liabilities for natural resource damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range from approximately $117.7 million to $204.1 million . NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, NJNG recorded an MGP remediation liability and a corresponding regulatory asset on the Unaudited Condensed Consolidated Balance Sheets of $130.8 million as of September 30, 2018 , based on the most likely amount at year end and $128.9 million as of March 31, 2019 , which includes adjustments for actual expenditures during fiscal 2019 . The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and insurance recoveries, if any.

NJNG recovers its remediation expenditures, including carrying costs, over rolling seven -year periods pursuant to a RAC approved by the BPU. On March 29, 2019 , the BPU approved NJNG's annual SBC filing requesting an increase in the RAC, which increased the annual recovery from $7.1 million to $8.5 million , effective April 1, 2019 . As of March 31, 2019 , $31.4 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Unaudited Condensed Consolidated Balance Sheets. NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination.

General

The Company is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory and arbitration proceedings relating to matters that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, the Company cannot state with confidence what the eventual outcome of the pending litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, NJR establishes accruals for litigation for those matters that present loss contingencies as to which it is both probable that a loss will be incurred and the amount of such loss can be reasonably estimated. NJR also discloses contingent matters for which there is a reasonable possibility of a loss. Based upon currently available information, NJR believes that the results of litigation that is currently pending, taken together, will not have a materially adverse effect on the Company’s financial condition, results of operations or cash flows. The actual results of resolving the pending litigation matters may be substantially higher than the amounts accrued.

The foregoing statements about NJR’s litigation are based upon the Company’s judgments, assumptions and estimates and are necessarily subjective and uncertain. The Company has a number of threatened and pending litigation matters at various stages. Certain of the Company’s significant litigation is described below.

Stafford Township

In February 2015, a natural gas fire and explosion occurred in Stafford Township, New Jersey as a result of a natural gas leak emanating from an underground pipe. There were no fatalities, although several employees of NJNG were injured and several homes were damaged. NJNG notified its insurance carrier and believes that any costs associated with the incident, including attorneys’ fees, property damage and other losses, will be substantially covered by insurance. All but one of the non-subrogated property damage claims and all of the personal injury claims asserted against the Company and co-defendants as well as all cross-claims have been settled subject to documentation as of April 30, 2019. The settlements will not have a material impact on the Company's financial position or results from operation.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. REPORTING SEGMENT AND OTHER OPERATIONS DATA

The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated wholesale and retail energy operations; the Midstream segment consists of the Company’s investments in natural gas transportation and storage facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.

Information related to the Company's various reporting segments and other operations is detailed below:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Operating revenues
Natural Gas Distribution
External customers	$	301,420		$	317,064		$	501,385		$	526,851
Clean Energy Ventures
External customers	11,360			12,866			26,257			26,862
Energy Services
External customers ⁽¹⁾	541,794			681,475			1,126,754			1,153,646
Intercompany	6,031			43,838			8,338			49,648
Subtotal	860,605			1,055,243			1,662,734			1,757,007
Home Services and Other
External customers	11,681			7,638			23,626			16,989
Intercompany	652			623			1,197			1,229
Eliminations	(6,683		)	(44,461		)	(9,535		)	(50,877		)
Total	$	866,255		$	1,019,043		$	1,678,022		$	1,724,348
Depreciation and amortization
Natural Gas Distribution	$	13,972		$	13,353		$	27,868		$	26,136
Clean Energy Ventures	8,091			8,928			16,014			17,863
Energy Services ⁽²⁾	25			15			52			29
Midstream	2			2			3			3
Subtotal	22,090			22,298			43,937			44,031
Home Services and Other	222			189			443			377
Eliminations	(1		)	(27		)	(237		)	(94		)
Total	$	22,311		$	22,460		$	44,143		$	44,314
Interest income ⁽³⁾
Natural Gas Distribution	$	181		$	131		$	380		$	250
Energy Services	14			106			14			106
Midstream	945			771			2,001			1,435
Subtotal	1,140			1,008			2,395			1,791
Home Services and Other	669			354			1,105			558
Eliminations	(1,390		)	(1,168		)	(2,882		)	(2,099		)
Total	$	419		$	194		$	618		$	250


(1)	Includes sales to Canada, which are immaterial.


(2)	The amortization of acquired wholesale energy contracts is excluded above and is included in gas purchases - nonutility on the Unaudited Condensed Consolidated Statements of Operations.


(3)	Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Interest expense, net of capitalized interest
Natural Gas Distribution	$	5,762		$	6,523		$	11,865		$	13,059
Clean Energy Ventures	4,657			4,344			10,085			8,552
Energy Services	1,624			1,203			3,511			2,460
Midstream	565			385			1,108			694
Subtotal	12,608			12,455			26,569			24,765
Home Services and Other	611			21			1,003			111
Eliminations	(710		)	(678		)	(1,577		)	(1,173		)
Total	$	12,509		$	11,798		$	25,995		$	23,703
Income tax provision (benefit)
Natural Gas Distribution	$	12,266		$	17,991		$	18,096		$	29,695
Clean Energy Ventures	(14,042		)	(12,722		)	(37,246		)	(86,710		)
Energy Services	(1,388		)	23,965			8,256			37,708
Midstream	1,219			3,131			2,181			(9,712		)
Subtotal	(1,945		)	32,365			(8,713		)	(29,019		)
Home Services and Other	(659		)	(1,281		)	(851		)	10,417
Eliminations	(348		)	(183		)	(349		)	(665		)
Total	$	(2,952	)	$	30,901		$	(9,913	)	$	(19,267	)
Equity in earnings of affiliates
Midstream	$	3,998		$	4,068		$	7,799		$	8,197
Eliminations	(627		)	(875		)	(1,267		)	(1,740		)
Total	$	3,371		$	3,193		$	6,532		$	6,457
Net financial earnings (loss)
Natural Gas Distribution	$	68,546		$	60,442		$	100,259		$	94,551
Clean Energy Ventures	21,730			10,051			31,935			81,301
Energy Services	19,304			72,832			27,674			93,106
Midstream	4,498			1,315			8,149			18,826
Subtotal	114,078			144,640			168,017			287,784
Home Services and Other	(1,581		)	(2,488		)	(1,505		)	(10,204		)
Eliminations	(80		)	(90		)	(2		)	(185		)
Total	$	112,417		$	142,062		$	166,510		$	277,395
Capital expenditures
Natural Gas Distribution	$	79,341		$	55,397		$	139,096		$	102,787
Clean Energy Ventures	20,394			40,605			52,520			58,992
Midstream	(1,689		)	—			—			—
Subtotal	98,046			96,002			191,616			161,779
Home Services and Other	5,055			1,846			5,786			3,159
Total	$	103,101		$	97,848		$	197,402		$	164,938
Investments in equity investees
Midstream	$	1,457		$	3,975		$	1,457		$	11,177
Total	$	1,457		$	3,975		$	1,457		$	11,177

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company's segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Net financial earnings ⁽¹⁾	$	112,417		$	142,062		$	166,510		$	277,395
Less:
Unrealized loss (gain) on derivative instruments and related transactions	10,226			(11,608		)	(707		)	23,246
Tax effect	(2,435		)	4,716			149			(3,343		)
Effects of economic hedging related to natural gas inventory	22,367			6,125			756			(19,262		)
Tax effect	(5,316		)	(1,715		)	(180		)	6,529
NFE tax adjustment	14,002			4,278			6,671			6,260
Net income ⁽¹⁾	$	73,573		$	140,266		$	159,821		$	263,965


(1)	Includes income tax benefit related to the Tax Act of $967,000 and $58.5 million , for the three and six months ended March 31, 2018 , respectively.

The Company uses derivative instruments as economic hedges of purchases and sales of physical gas inventory. For GAAP purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues and cost of gas related to physical gas flow is recognized when the gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical gas flows. Timing differences occur in two ways:


•	unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical gas inventory flows; and


•	unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in the same period as physical gas inventory movements occur.

NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Additionally, realized derivative gains and losses are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical gas flows. Included in the tax effects are current and deferred income tax expense corresponding with the NFE. Also included in the tax effects during the three and six months ended March 31, 2018 , are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the quarter. NJR also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.

The Company's assets for the various business segments and business operations are detailed below:



(Thousands)	March 31, 2019			September 30, 2018
Assets at end of period:
Natural Gas Distribution	$	2,790,221		$	2,663,054
Clean Energy Ventures ⁽¹⁾	721,162			865,018
Energy Services	320,476			396,852
Midstream	218,557			242,069
Subtotal	4,050,416			4,166,993
Home Services and Other	195,381			114,732
Intercompany assets ⁽²⁾	(155,824		)	(138,061		)
Total	$	4,089,973		$	4,143,664


(1)	Includes assets held for sale of $206.9 million for September 30, 2018 .


(2)	Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.

New Jersey Resources Corporation

Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. RELATED PARTY TRANSACTIONS

Effective April 1, 2010 , NJNG entered into a 10 -year agreement for 3 Bcf of firm storage capacity with Steckman Ridge. Under the terms of the agreement, NJNG incurs demand fees at market rates of approximately $9.3 million annually, a portion of which is eliminated in consolidation. These fees are recoverable through NJNG's BGSS mechanism and are included as a component of regulatory assets.

Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-jurisdictional natural gas storage facility, Steckman Ridge. As of March 31, 2019 , Energy Services has entered into transactions with Steckman Ridge for varying terms, all of which expire by October 31, 2020 .

Demand fees, net of eliminations, associated with Steckman Ridge were as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2019		2018		2019		2018
Natural Gas Distribution	$	1,443	$	1,407	$	2,916	$	2,855
Energy Services	701		680		1,413		1,381
Total	$	2,144	$	2,087	$	4,329	$	4,236

The following table summarizes demand fees payable to Steckman Ridge as of:



(Thousands)	March 31, 2019		September 30, 2018
Natural Gas Distribution	$	778	$	775
Energy Services	376		375
Total	$	1,154	$	1,150

NJNG and Energy Services have entered into various asset management agreements, the effects of which are eliminated in consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to Energy Services. As of March 31, 2019 , NJNG and Energy Services had five asset management agreements with expiration dates ranging from March 31, 2019 through October 31, 2021 .

NJNG has entered into a 15 -year transportation precedent agreement for committed capacity of 180,000 Dths per day with PennEast, to commence when PennEast is in service.

15. ACQUISITIONS AND DISPOSITIONS

Acquisitions

In October 2017, Adelphia, an indirect wholly owned subsidiary of NJR, entered into a Purchase and Sale Agreement with Talen pursuant to which Adelphia will acquire all of Talen’s membership interests in IEC for a base purchase price of $166 million . As additional consideration, Adelphia will pay Talen specified amounts of up to $23 million contingent upon the achievement of certain regulatory approvals and binding natural gas capacity commitments. In November 2017, the Company made an initial payment of $10 million towards the base purchase price, which is included in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets.

IEC owns an existing 84 -mile pipeline in southeastern Pennsylvania. The transaction is expected to close during fiscal 2019, following receipt of necessary permits and regulatory actions including those from the FERC and the Pennsylvania Public Utility Commission. Upon the closing, Adelphia will acquire IEC and, with it, IEC’s existing pipeline, related assets and rights of way. Adelphia has also agreed to provide firm natural gas transportation service for ten years following the closing to two power generators owned by affiliates of Talen that are currently served by IEC.

Dispositions

On February 7, 2019 , Clean Energy Ventures finalized the sale of its remaining wind assets to a subsidiary of Skyline Renewables LLC for a total purchase price of $208.6 million . The transaction generated a pre-tax gain of $645,000 , which was recognized as a component of O&M expense on the Unaudited Condensed Consolidated Statements of Operations.

New Jersey Resources Corporation

Part II

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Critical Accounting Policies

A summary of our critical accounting policies is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 2018 . Our critical accounting policies have not changed from those reported in the 2018 Annual Report on Form 10-K.

Recently Issued Accounting Standards

Refer to Note 2. Summary of Significant Accounting Policies for discussion of recently issued accounting standards.

Management's Overview

Consolidated

NJR is an energy services holding company providing retail natural gas service in New Jersey and wholesale natural gas and related energy services to customers in the United States and Canada. In addition, we invest in clean energy projects, midstream assets and provide various repair, sales and installations services. A more detailed description of our organizational structure can be found in Item 1. Business of our 2018 Annual Report on Form 10-K.

Reporting Segments

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

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

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operating Results

Net income (loss) by reporting segment and operations are as follows:



	Three Months Ended										Six Months Ended
	March 31,										March 31,
(Thousands)	2019					2018					2019					2018
Net income (loss)
Natural Gas Distribution	$	68,546		93	%	$	60,442		43	%	$	100,259		63	%	$	94,551		36	%
Clean Energy Ventures	7,728			10		5,773			4		25,264			16		75,042			28
Energy Services	(4,460		)	(6	)	75,810			54		28,914			18		86,930			33
Midstream	4,498			6		1,315			1		8,149			5		18,826			7
Home Services and Other	(1,668		)	(2	)	(2,394		)	(2	)	(1,693		)	(1	)	(10,110		)	(4	)
Eliminations ⁽¹⁾	(1,071		)	(1	)	(680		)	—		(1,072		)	(1	)	(1,274		)	—
Total	$	73,573		100	%	$	140,266		100	%	$	159,821		100	%	$	263,965		100	%


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

The decrease in net income during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , was driven primarily by decreased earnings at Energy Services. The decrease in net income during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , was driven primarily by decreased earnings at Energy Services and an income tax benefit of $58.5 million associated with the revaluation of deferred income taxes resulting from the Tax Act during the six months ended March 31, 2018 that did not recur during the six months ended March 31, 2019 . The primary drivers of the changes noted above are described in more detail in the individual segment discussions.

Assets by reporting segment and operations are as follows:



(Thousands)	March 31, 2019					September 30, 2018
Assets
Natural Gas Distribution	$	2,790,221		68	%	$	2,663,054		64	%
Clean Energy Ventures ⁽¹⁾	721,162			18		865,018			21
Energy Services	320,476			8		396,852			9
Midstream	218,557			5		242,069			6
Home Services and Other	195,381			5		114,732			3
Intercompany assets ⁽²⁾	(155,824		)	(4	)	(138,061		)	(3	)
Total	$	4,089,973		100	%	$	4,143,664		100	%


(1)	Includes assets held for sale of $206.9 million at September 30, 2018 .


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

The decrease in assets was due primarily to the sale of our remaining wind assets at Clean Energy Ventures, decreased gas in storage at Energy Services and our Natural Gas Distribution segment and the sale of equity securities at Midstream, partially offset by increased utility plant, accounts receivable and unbilled revenue at our Natural Gas Distribution segment and increased solar assets at Clean Energy Ventures.

Non-GAAP Financial Measures

Our management uses NFE, a non-GAAP financial measure, when evaluating our operating results. Energy Services economically hedges its natural gas inventory with financial derivative instruments. NFE is a measure of the earnings based on eliminating timing differences surrounding the recognition of certain gains or losses, to effectively match the earnings effects of the economic hedges with the physical sale of gas and, therefore, eliminates the impact of volatility to GAAP earnings associated with the derivative instruments. There is a related tax effect on current and deferred income tax expense corresponding with this non-GAAP measure. Also included in the prior year tax effect are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect. To the extent we utilize forwards, futures, or other derivatives to hedge forecasted SREC production, unrealized gains and losses are also eliminated for NFE purposes.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

GAAP requires us, during the interim periods, to estimate our annual effective tax rate and use this rate to calculate the year-to-date tax provision. We also determine an annual estimated effective tax rate for NFE purposes and calculate a quarterly tax adjustment based on the differences between our forecasted net income and our forecasted NFE for the fiscal year. Since the annual estimated effective tax rate is based on certain forecasted assumptions, including estimates surrounding completion of Clean Energy Ventures projects, the rate and resulting NFE are subject to change. No adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at year end.

Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for or a replacement of, the comparable GAAP measure and should be read in conjunction with those GAAP results. Below is a reconciliation of consolidated net income, the most directly comparable GAAP measure, to NFE:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands, except per share data)	2019			2018			2019			2018
Net income	$	73,573		$	140,266		$	159,821		$	263,965
Add:
Unrealized loss (gain) on derivative instruments and related transactions	10,226			(11,608		)	(707		)	23,246
Tax effect	(2,435		)	4,716			149			(3,343		)
Effects of economic hedging related to natural gas inventory ⁽¹⁾	22,367			6,125			756			(19,262		)
Tax effect	(5,316		)	(1,715		)	(180		)	6,529
NFE tax adjustment	14,002			4,278			6,671			6,260
Net financial earnings	$	112,417		$	142,062		$	166,510		$	277,395
Basic earnings per share	$	0.83		$	1.60		$	1.80		$	3.02
Add:
Unrealized loss (gain) on derivative instruments and related transactions	0.12			(0.13		)	(0.01		)	0.27
Tax effect	(0.03		)	0.05			—			(0.04		)
Effects of economic hedging related to natural gas inventory ⁽¹⁾	0.25			0.07			0.01			(0.22		)
Tax effect	(0.06		)	(0.02		)	—			0.08
NFE tax adjustment	0.16			0.05			0.08			0.07
Basic NFE per share	$	1.27		$	1.62		$	1.88		$	3.18


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

NFE by reporting segment and other operations, discussed in more detail within the operating results sections of each segment, is summarized as follows:



	Three Months Ended										Six Months Ended
	March 31,										March 31,
(Thousands)	2019					2018					2019					2018
Net financial earnings (loss)
Natural Gas Distribution	$	68,546		61	%	$	60,442		43	%	$	100,259		60	%	$	94,551		34	%
Clean Energy Ventures	21,730			19		10,051			7		31,935			19		81,301			29
Energy Services	19,304			17		72,832			51		27,674			17		93,106			34
Midstream	4,498			4		1,315			1		8,149			5		18,826			7
Home Services and Other	(1,581		)	(1	)	(2,488		)	(2	)	(1,505		)	(1	)	(10,204		)	(4	)
Eliminations ⁽¹⁾	(80		)	—		(90		)	—		(2		)	—		(185		)	—
Total	$	112,417		100	%	$	142,062		100	%	$	166,510		100	%	$	277,395		100	%


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

The decrease in NFE during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , was due primarily to low er financial margin generated at Energy Services resulting from narrower pricing spreads and less price volatility in the physical natural gas market. The decrease in NFE during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , was due primarily to the income tax benefit of $58.5 million associated with the revaluation of deferred income taxes resulting from the Tax Act during the six months ended March 31, 2018 , that did not recur during the six months ended March 31, 2019 , and low er financial margin generated at Energy Services, as previously discussed.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Natural Gas Distribution Segment

Overview

Our Natural Gas Distribution segment is comprised of NJNG, a natural gas utility that provides regulated retail natural gas service in central and northern New Jersey to approximately 546,100 residential and commercial customers in its service territory and also participates in the off-system sales and capacity release markets. The business is subject to various risks, which can negatively impact customer growth, operating and financing costs, fluctuations in commodity prices and customer conservation efforts. These risks include, but are not limited to, adverse economic conditions, customer usage, certain regulatory actions, environmental remediation and severe weather conditions. It is often difficult to predict the impact of events or trends associated with these risks.

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

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

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

Infrastructure projects

NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant associated with customer growth and its associated pipeline integrity management and infrastructure programs. Below is a summary of NJNG’s capital expenditures, including accruals, for the six months ended March 31, 2019 , and estimates of expected investments for fiscal 2019 and 2020 :

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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

On February 28, 2019 , NJNG filed a petition with the BPU seeking authority to implement a five-year Infrastructure Investment Program. The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP is approximately $507 million . All approved investments will be recovered through annual filings to adjust base rates.

SAFE II and NJ RISE

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

The BPU approved the 5-year SAFE II program and the associated rate mechanism, to replace the remaining unprotected steel mains and services from NJNG’s natural gas distribution system at an estimated cost of approximately $200 million , excluding AFUDC. The accelerated cost recovery methodology for the $157.5 million associated with the extension of SAFE II was approved in NJNG’s base rate case. The remaining $42.5 million in capital expenditures will be requested for recovery in future base rate cases.

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

In September 2018 , the BPU approved NJNG’s annual petition requesting a base rate increase of $6.8 million for the recovery of SAFE II and NJ RISE capital investment costs related to the twelve months ended June 30, 2018, with a weighted cost of capital of 6.9 percent including a return on equity of 9.75 percent , effective October 1, 2018 .

On March 29, 2019 , NJNG filed a petition with the BPU requesting a base rate increase of approximately $8.7 million for the recovery of NJ RISE and SAFE II capital investment costs of approximately $75 million made through June 30, 2019 . Changes to base rates are anticipated to be effective October 1, 2019 .

Southern Reliability Link

The SRL is an approximately 30-mile, 30-inch transmission main designed to support improved system reliability and integrity in the southern portion of NJNG’s service territory, estimated to cost between $200 million and $230 million . All approvals issued by state agencies are under appeal and certain road-opening permits are in the process of being secured. Construction began in December 2018, with an estimated in-service date in 2020 .

Customer growth

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



	March 31, 2019	March 31, 2018
Firm customers
Residential	482,126	467,014
Commercial, industrial & other	30,562	28,926
Residential transport	24,464	30,815
Commercial transport	8,907	10,058
Total firm customers	546,059	536,813
Other	59	58
Total customers	546,118	536,871

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

During the six months ended March 31, 2019 and 2018 , respectively, NJNG added 5,030 and 4,656 new customers and converted 153 and 324 existing customers to natural gas heat and other services. NJNG expects these new customer additions, and those customers who added additional natural gas services to their premises to contribute approximately $2.9 million annually to utility gross margin.

NJNG expects to add approximately 28,000 to 30,000 new customers during the three-year period of fiscal 2019 to 2021 . Based on information from municipalities and developers, as well as external industry analysts and management's experience, NJNG estimates that approximately 65 percent of the growth will come from new construction markets and 35 percent from customer conversions to natural gas from other fuel sources. This new customer and conversion growth would increase utility gross margin under NJNG's base rates by approximately $5.3 million annually, as calculated under NJNG's CIP tariff. See the Natural Gas Distribution Segment Operating Results section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations that follows for a definition and further discussion of utility gross margin .

Energy Efficiency Programs

SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are designed to encourage the installation of high-efficiency heating and cooling equipment and other energy-efficiency upgrades. Depending on the specific incentive or approval, NJNG recovers costs associated with the programs over a two to 10-year period through a tariff rider mechanism.

On December 18, 2018 , the BPU approved a decrease in NJNG's EE recovery rate reflecting actual costs incurred through September 30, 2018 , which will result in an annual decrease of $8.8 million , effective January 1, 2019 .

Since inception, $168 million in grants, rebates and loans has been provided to customers, with a total annual recovery of approximately $16.1 million . The recovery includes a weighted average cost of capital that ranges from 6.69 percent to 7.76 percent , with a return on equity of 9.75 percent to 10.3 percent .

Conservation Incentive Program/BGSS

The CIP facilitates normalizing NJNG’s utility gross margin for variances not only due to weather but also for other factors affecting customer usage, such as conservation and energy efficiency. Recovery of utility gross margin for the non-weather variance through the CIP is limited to the amount of certain gas supply cost savings achieved and is subject to a variable margin revenue test. Additionally, recovery of the CIP utility gross margin is subject to an annual earnings test. An annual review of the CIP must be filed by June 1, coincident with NJNG’s annual BGSS filing, during which NJNG can request rate changes to the CIP. In May 2014, the BPU approved the continuation of the CIP program with no expiration date.

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



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Weather ⁽¹⁾	$	(363	)	$	3,245		$	(1,831	)	$	1,877
Usage	4,283			(2,113		)	2,343			(1,471		)
Total	$	3,920		$	1,132		$	512		$	406


(1)	Compared with the CIP 20-year average, weather was 1 percent colder -than-normal and 1.5 percent warmer -than-normal during the three months ended March 31, 2019 and 2018 , respectively, and 2.4 percent colder -than-normal and 0.9 percent warmer -than-normal during the six months ended March 31, 2019 and 2018 , respectively.

Recovery of natural gas costs

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

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

On April 18, 2019 , the BPU approved NJNG’s annual petition to maintain its BGSS rate for residential and small commercial customers and increase its balancing charge rate, resulting in a $10.3 million increase to the annual revenues credited to BGSS, as well changes to the CIP rates, which will result in a $30.9 million annual recovery decrease, effective October 1, 2018 . The balancing charge rate includes the cost of balancing natural gas deliveries with customer usage for sales and transportation customers and balancing charge revenues are credited to BGSS.

On December 28, 2018 , NJNG notified the BPU that it will implement a BGSS increase of five percent to a typical customer’s bill effective February 1, 2019 , which will result in an increase in revenues credited to BGSS of $10.9 million through September 2019 .

BGSS Incentive Programs

NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing programs that include off-system sales, capacity release and storage incentive programs. These programs are designed to encourage better utilization and hedging of NJNG’s natural gas supply, transportation and storage assets. Depending on the program, NJNG shares 80 or 85 percent of utility gross margin generated by these programs with firm customers. Utility gross margin from incentive programs was $1.4 million and $2.4 million during the three months ended March 31, 2019 and 2018 , respectively, and $3.4 million and $6.8 million during the six months ended March 31, 2019 and 2018 , respectively.

Hedging

In order to provide relative price stability to its natural gas supply portfolio, NJNG employs a hedging strategy with the goal of having at least 75 percent of the Company's projected winter periodic BGSS gas sales volumes hedged by each November 1 and at least 25 percent of the projected periodic BGSS gas sales hedged for the following April through March period. This is accomplished with the use of various financial instruments including futures, swaps and options used in conjunction with commodity and/or weather-related hedging activity.

Commodity prices

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

(1) Data source from Platts, a division of McGraw Hill Financial.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

The maximum price per MMBtu was $9.17 and $94.93 and the minimum price was $1.25 and $0.53 for the six months ended March 31, 2019 and 2018 , respectively. A more detailed discussion of the impacts of the price of natural gas on operating revenues, gas purchases and cash flows can be found in the Results of Operations and Cash Flow sections of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Societal Benefits Charge

USF

NJNG’s qualifying customers are eligible for the USF program, which is administered by the New Jersey Department of Community Affairs, to help make energy bills more affordable. In September 2018 , the BPU approved NJNG’s annual USF compliance filing to increase the statewide USF rate, which will result in a $1 million annual increase, effective October 1, 2018 .

Environmental Remediation

NJNG is responsible for the environmental remediation of five MGP sites, which contain contaminated residues from former gas manufacturing operations that ceased operating at these sites by the mid-1950s and, in some cases, had been discontinued many years earlier. Actual MGP remediation costs may vary from management's estimates due to the developing nature of remediation requirements, regulatory decisions by the NJDEP and related litigation. NJNG reviews these costs at the end of each fiscal year and adjusts its liability and corresponding regulatory asset as necessary to reflect its expected future remediation obligation. Accordingly, NJNG recognized a regulatory asset and an obligation of $128.9 million as of March 31, 2019 , a decrease of $1.9 million , compared with September 30, 2018 . NJNG is currently authorized to recover remediation costs of approximately $7.1 million annually, which is based on expenditures through June 30, 2017 . On March 29, 2019 , the BPU approved NJNG’s annual SBC application requesting recovery of remediation expenses incurred through June 30, 2018 , an increase in the RAC rate of $1.4 million and an increase in the NJCEP factor of $1.9 million , effective April 1, 2019 .

NJNG has had discussions with the NJDEP regarding NJNG’s association with two additional sites located within its service territory. Preliminary results at one of the sites has indicated the existence of contaminants from gas manufacturing activities. The costs associated with the completion of site investigation activities and the remedial investigation phase are estimated to be approximately $600,000 . Inclusive of this estimate, total costs incurred to date in the investigation of the site amount to approximately $1.4 million . The Company will continue to gather information to further refine and enhance its estimate of potential costs as it becomes available. See Note 12. Commitments and Contingent Liabilities for a more detailed description.

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

Operating Results

NJNG's operating results are as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2019		2018		2019		2018
Operating revenues	$	301,420	$	317,064	$	501,385	$	526,851
Operating expenses
Gas purchases ⁽¹⁾	145,171		141,988		237,349		226,743
Operation and maintenance	39,507		38,689		76,390		73,510
Regulatory rider expense	15,391		19,604		28,023		31,373
Depreciation and amortization	13,972		13,353		27,868		26,136
Energy and other taxes	1,599		19,263		2,943		33,013
Total operating expenses	215,640		232,897		372,573		390,775
Operating income	85,780		84,167		128,812		136,076
Other income, net	794		789		1,408		1,229
Interest expense, net of capitalized interest	5,762		6,523		11,865		13,059
Income tax provision	12,266		17,991		18,096		29,695
Net income	$	68,546	$	60,442	$	100,259	$	94,551


(1)	Includes related party transactions of approximately $7.1 million and $45.4 million for the three months ended March 31, 2019 and 2018 , respectively, and $11.6 million and $52.6 million for the six months ended March 31, 2019 and 2018 , respectively, the majority of which is eliminated in consolidation.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operating Revenues and Gas Purchases

During the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , operating revenues decreased by 4.9 percent and gas purchases increased 2.2 percent . During the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , operating revenues decreased by 4.8 percent and gas purchases increased 4.7 percent .

The factors contributing to the (decreases) increases in operating revenues and gas purchases are as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019 v. 2018						2019 v. 2018
(Thousands)	Operating revenues			Gas purchases			Operating revenues			Gas purchases
ASC 606 adoption - sales tax election	(17,873		)	—			$	(30,277	)	$	—
Off-system sales	(14,457		)	(14,161		)	(19,902		)	(19,285		)
Tax Act impact to base rates	(9,176		)	—			(14,913		)	—
Tax Act refund ⁽¹⁾	8,777			—			8,777			—
Average BGSS rates	12,247			12,247			17,889			17,889
Firm sales	3,309			4,665			12,386			9,440
SAFE II/NJ RISE	3,108			—			5,052			—
CIP adjustments	2,787			—			105			—
Other ⁽²⁾	(4,366		)	432			(4,583		)	2,562
Total (decrease) increase	$	(15,644	)	$	3,183		$	(25,466	)	$	10,606


(1)	Excludes sales tax of $582,000 which is included in the ASC 606 adoption - sales tax election line.


(2)	Other includes changes in rider rates, including those related to EE, NJCEP and other programs.

Off-system sales were lower due primarily to a 37.4 percent reduction in volumes, partially offset by an 6.7 percent increase in the average price of gas sold. Firm sales increased primarily due to customer growth and higher usage related to weather being 3.5 percent colder during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 .

Non-GAAP Financial Measures

Management uses utility gross margin, a non-GAAP financial measure, when evaluating the operating results of NJNG. NJNG's utility gross margin is defined as natural gas revenues less natural gas purchases, sales tax, and regulatory rider expenses, and may not be comparable to the definition of gross margin used by others in the natural gas distribution business and other industries. Management believes that utility gross margin provides a meaningful basis for evaluating utility operations since natural gas costs, sales tax and regulatory rider expenses are included in operating revenue and passed through to customers and, therefore, have no effect on utility gross margin. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measure.

Utility Gross Margin

A reconciliation of operating revenues, the closest GAAP financial measure to NJNG's utility gross margin, is as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2019		2018		2019		2018
Operating revenues	$	301,420	$	317,064	$	501,385	$	526,851
Less:
Gas purchases	145,171		141,988		237,349		226,743
Energy taxes ⁽¹⁾	—		17,873		—		30,277
Regulatory rider expense	15,391		19,604		28,023		31,373
Utility gross margin	$	140,858	$	137,599	$	236,013	$	238,458


(1)	Energy taxes does not include sales tax during the three and six months ended March 31, 2019 , due to the adoption of ASC 606, Revenue from Contracts with Customers. Energy taxes includes only sales tax on operating revenues during the six months ended March 31, 2018 , excluding tax-exempt sales.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Utility gross margin consists of three components:


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


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


•	utility gross margin generated from off-tariff customers, as well as interruptible customers.

The following provides more information on the components of utility gross margin and associated throughput (Bcf) of natural gas delivered to customers:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019			2018			2019			2018
($ in thousands)	Margin		Bcf	Margin		Bcf	Margin		Bcf	Margin		Bcf
Utility gross margin/throughput
Residential	$	99,645	22.6	$	94,555	22.5	$	163,784	37.1	$	159,290	36.1
Commercial, industrial and other	20,673		5.0	19,230		4.2	34,019		7.8	33,148		6.8
Firm transportation	17,871		5.2	20,177		6.6	32,267		9.6	36,437		11.2
Total utility firm gross margin/throughput	138,189		32.8	133,962		33.3	230,070		54.5	228,875		54.1
BGSS incentive programs	1,402		28.4	2,360		36.7	3,357		55.8	6,795		75.4
Interruptible/off-tariff agreements	1,267		7.8	1,277		8.5	2,586		12.8	2,788		18.4
Total utility gross margin/throughput	$	140,858	69.0	$	137,599	78.5	$	236,013	123.1	$	238,458	147.9

Utility Firm Gross Margin

Utility firm gross margin increase d $4.2 million and $1.2 million during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended March 31, 2018 , due primarily to customer growth and an increase in rates related to the NJ RISE/SAFE II programs, partially offset by decreased base rates due to the lower federal income tax rate resulting from the Tax Act.

BGSS Incentive Programs

The factors contributing to the change in utility gross margin generated by BGSS incentive programs are as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2019 v. 2018				2019 v. 2018
Storage		$	84			$	(1,505	)
Capacity release		(744		)		(1,315		)
Off-system sales		(298		)		(618		)
Total decrease		$	(958	)		$	(3,438	)

The decrease during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , was due primarily to a decrease in capacity release volume, as well as lower margins in off-system sales. The decrease during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , was due primarily to fewer market opportunities for the storage incentive program, a decrease in capacity release volume, as well as lower margins in off-system sales.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operation and Maintenance Expense

The factors contributing to the increase in O&M expense are as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2019 v. 2018				2019 v. 2018
Shared corporate costs		$	1,335			$	2,716
Compensation and benefits ⁽¹⁾		47				1,096
Donations		(28		)		(753		)
Other		(536		)		(179		)
Total increase		$	818			$	2,880


(1)	Includes higher compensation costs due to increased headcount, partially offset by a recalculation of paid time off for certain union employees as part of recent collective bargaining agreement.

Depreciation Expense

Depreciation expense increased $619,000 and $1.7 million during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended March 31, 2018 , as a result of additional utility plant being placed into service.

Income Tax Provision

Income tax provision decreased $5.7 million and $11.6 million during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended March 31, 2018 , due primarily to the lower income tax rate and the amortization of overcollected taxes included in base rates primarily related to timing differences associated with utility plant deprecation resulting from the Tax Act.

Net Income

Net income increased $8.1 million during three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to customer growth and increased rates related to the NJ RISE/SAFE II programs . Net income increased $5.7 million during six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to customer growth and increased rates related to the NJ RISE/SAFE II programs , partially offset by increased O&M, as previously discussed.

Clean Energy Ventures Segment

Overview

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

The primary contributors toward the value of qualifying clean energy projects are tax incentives and SRECs. Changes in the federal statutes related to the ITC or in the marketplace and/or relevant legislation surrounding solar renewable energy credits, could significantly affect future results.

Solar

Since inception, Clean Energy Ventures has constructed a total of 254.1 MW of solar capacity and has an additional 31.3 MW under construction. During the six months ended March 31, 2019 , NJRCEV placed into service two commercial projects totaling approximately 19.2 MW of solar capacity. There were no commercial projects placed into service during the six months ended March 31, 2018 . Projects that are placed in service through December 31, 2019, qualify for a 30-percent federal ITC. The credit will decline to 26 percent for property under construction during 2020 and to 22 percent for property under construction during 2021. The ITC will be reduced to 10 percent for any property that is under construction before 2022, but not placed in service before 2024.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Clean Energy Ventures may enter into transactions to sell certain of its commercial solar assets concurrent with agreements to lease the assets back over a period of six to 15 years. The Company will continue to operate the solar assets and are responsible for related expenses and entitled to retain the revenue generated from SRECs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the buyer; however, the lease payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Accordingly, for solar projects financed under sale leasebacks, Clean Energy Ventures recognizes the equivalent value of the ITC in other income on the Unaudited Condensed Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease. Clean Energy Ventures did not enter into any sale-leaseback transactions for its commercial solar assets during the six months ended March 31, 2019 and 2018 , and currently does not expect that it will enter into any such transactions through the end of the fiscal year.

As part of its solar investment portfolio, Clean Energy Ventures operates a residential solar program, The Sunlight Advantage®, that provides qualifying homeowners the opportunity to have a solar system installed at their home with no installation or maintenance expenses. Clean Energy Ventures owns, operates and maintains the system over the life of the contract in exchange for monthly payments. Clean Energy Ventures' residential solar leasing program installed approximately 1.9 MW of capacity for 189 customers, and 1.8 MW of capacity for 200 customers during the three months ended March 31, 2019 and 2018 , respectively, and 3.6 MW of capacity for 355 customers and 3.6 MW of capacity for 391 customers during the six months ended March 31, 2019 and 2018 , respectively.

The Company had $59 million and $11.4 million of solar-related capital expenditures that were ITC-eligible and placed in service during six months ended March 31, 2019 and 2018 , respectively.

Once a solar installation has received the proper certifications and commences operations, each MWh of electricity produced creates an SREC that represents the renewable energy attribute of the solar-electricity generated that can be sold to third parties, predominantly load-serving entities that are required to comply with the solar requirements under New Jersey's renewable portfolio standard. SREC activity consisted of the following:



	Six Months Ended
	March 31,
	2019		2018
Inventory balance as of October 1,	105,192		48,357
SRECs generated	100,451		88,056
SRECs delivered	(68,820	)	(55,680	)
Inventory balance as of March 31,	136,823		80,733

During the six months ended March 31, 2019 , SRECs generated increased inventory by 14.1 percent , compared with the six months ended March 31, 2018 , and the average SREC sales price was $192 and $221 during the six months ended March 31, 2019 , and 2018 , respectively.

Clean Energy Ventures hedges its expected SREC production through the use of forward sales contracts. The following table reflects the hedged percentage of our projected inventory related to its in-service commercial and residential assets:



Energy Year ⁽¹⁾	Percent of SRECs Hedged
2019	99%
2020	100%
2021	87%
2022	21%


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

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

Onshore Wind

Clean Energy Ventures invested in small to mid-size onshore wind projects that fit its investment profile. The wind projects were eligible for PTCs for a 10-year period following commencement of operations and have PPAs of various terms in place, which typically govern the sale of energy, capacity and/or renewable energy credits. Once a wind installation commenced operations,

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

each MWh of electricity produced created a REC that represented the renewable energy attribute of the wind-electricity generated that can be sold to third parties. There are no direct costs associated with the production of RECs by our wind assets and all related costs were included as a component of O&M expenses on the Unaudited Condensed Consolidated Statements of Operations.

In June 2018 , Clean Energy Ventures completed the sale of its membership interest in its 9.7 MW wind farm in Two Dot, Montana to NorthWestern Energy for a total purchase price of $18.5 million . The transaction generated a pre-tax gain of approximately $951,000 , which was recognized as a reduction to O&M on the Unaudited Condensed Consolidated Statements of Operations.

On February 7, 2019 , Clean Energy Ventures finalized the sale of its remaining wind assets to a subsidiary of Skyline Renewables LLC for total proceeds of $208.6 million . The transaction generated a pre-tax gain of $645,000 , which was recognized as a component of O&M expense on the Unaudited Condensed Consolidated Statements of Operations.

Operating Results

Clean Energy Ventures’ financial results are summarized as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Operating revenues	$	11,360		$	12,866		$	26,257		$	26,862
Operating expenses
Operation and maintenance	4,546			6,206			11,240			11,304
Depreciation and amortization	8,091			8,928			16,014			17,863
Other taxes	297			265			751			669
Total operating expenses	12,934			15,399			28,005			29,836
Operating loss	(1,574		)	(2,533		)	(1,748		)	(2,974		)
Other expense, net	(83		)	(72		)	(149		)	(142		)
Interest expense, net	4,657			4,344			10,085			8,552
Income tax benefit	(14,042		)	(12,722		)	(37,246		)	(86,710		)
Net income	$	7,728		$	5,773		$	25,264		$	75,042

Operating Revenues

Operating revenues decreased $1.5 million and $605,000 during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended March 31, 2018 , due primarily to decreased wind electricity sales as a result of the sale of the remaining wind assets on February 7, 2019 , partially offset by increased electricity sales from solar assets and increased SREC revenue.

Operation and Maintenance Expense

O&M expense decreased $1.7 million during the three months ended March 31, 2019 , compared with the three ended March 31, 2018 , due primarily to a pre-tax gain of 645,000 , associated with the sale of the wind assets, as well as a decrease in maintenance costs and consulting expense.

O&M expense decreased $64,000 during the three and six months ended March 31, 2019 , compared with the three and six months ended March 31, 2018 , due primarily to a pre-tax gain of 645,000 , associated with the sale of the wind assets, partially offset by higher compensation costs and shared corporate costs.

Depreciation Expense

Depreciation expense decreased $837,000 and $1.8 million during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended March 31, 2018 , due primarily to depreciation on wind assets no longer being recorded, partially offset by increases in solar capital additions placed in service.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Income Tax Benefit

Income tax benefit increased $1.3 million during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to an increase in ITCs recognized. Income tax benefit decreased $49.5 million during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to an income tax benefit of $63.1 million associated with the revaluation of deferred income taxes resulting from the Tax Act during the six months ended March 31, 2018 , that did not recur during the six months ended March 31, 2019 , partially offset by an increase in ITCs recognized.

Net Income

Net income increased $2 million during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to the pre-tax gain recognized on the sale of the remaining wind assets, decreased O&M expenses and increased income tax benefit, as previously discussed. Net income decreased $49.8 million during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to the decreased income tax benefit, as previously discussed.

Non-GAAP Financial Measures

Management of the Company uses NFE, a non-GAAP financial measure, when evaluating the operating results of Clean Energy Ventures. GAAP requires us, during the interim periods, to estimate our annual effective tax rate and use this rate to calculate the year-to-date tax provision. We also determine an annual estimated effective tax rate for NFE purposes and calculate a quarterly tax adjustment based on the differences between our forecasted net income and our forecasted NFE for the fiscal year. This adjustment is applied to Clean Energy Ventures, as such adjustment is primarily related to tax credits generated by Clean Energy Ventures. No adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at year end. Accordingly, for NFE purposes, the annual estimated effective tax rate is (10.2) percent for fiscal 2019 and 15.3 percent for fiscal 2018 .

Since the annual estimated effective tax rate is based on certain forecasted assumptions, including estimates surrounding completion of projects, the rate and resulting NFE are subject to change. The details of such tax adjustments can be found in the table below. Non-GAAP financial measures are not in accordance with, or an alternative to GAAP, and should be considered in addition to, and not as a substitute for the comparable GAAP measure. A reconciliation of Clean Energy Ventures' net income, the most directly comparable GAAP financial measure to NFE is as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2019		2018		2019		2018
Net income	$	7,728	$	5,773	$	25,264	$	75,042
Add:
Net income to NFE tax adjustment	14,002		4,278		6,671		6,259
Net financial earnings	$	21,730	$	10,051	$	31,935	$	81,301

Energy Services Segment

Overview

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

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

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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

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

Operating Results

Energy Services’ financial results are summarized as follows:



	Three Months Ended					Six Months Ended
	March 31,					March 31,
(Thousands)	2019			2018		2019		2018
Operating revenues ⁽¹⁾	$	547,825		$	725,313	$	1,135,092	$	1,203,294
Operating expenses
Gas purchases (including demand charges ⁽²⁾⁽³⁾ )	546,395			622,347		1,082,903		1,068,557
Operation and maintenance	5,367			1,076		10,640		5,512
Depreciation and amortization	25			15		52		29
Other taxes	294			1,019		867		2,236
Total operating expenses	552,081			624,457		1,094,462		1,076,334
Operating (loss) income	(4,256		)	100,856		40,630		126,960
Other income, net	32			122		51		138
Interest expense, net	1,624			1,203		3,511		2,460
Income tax (benefit) provision	(1,388		)	23,965		8,256		37,708
Net (loss) income	$	(4,460	)	$	75,810	$	28,914	$	86,930


(1)	Includes related party transactions of approximately $6 million and $43.8 million for the three months ended March 31, 2019 and 2018 , respectively, and $8.3 million and $49.6 million for the six months ended March 31, 2019 and 2018 , respectively, which are eliminated in consolidation.


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


(3)	Includes related party transactions of approximately $1.1 million and $1.1 million for the three months ended March 31, 2019 and 2018 , respectively, and $2.3 million and $2.3 million for the six months ended March 31, 2019 and 2018 , respectively, a portion of which is eliminated in consolidation.

Energy Services' portfolio of financial derivative instruments are composed of:



	Six Months Ended
	March 31,
(in Bcf)	2019	2018
Net short futures contracts	12.5	38.4

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Operating Revenues and Gas Purchases

Operating revenues decreased $177.5 million and gas purchases decreased $76 million during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to less price volatility in the physical gas market. Operating revenues decreased $68.2 million and gas purchases increased $14.3 million during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to less market volatility and decreased volumes.

Future results at Energy Services are contingent upon natural gas market price volatility driven by variations in both the supply and demand balances caused by weather and other factors. As a result, variations in weather patterns in the key market areas served may affect earnings during the fiscal year. Changes in market fundamentals such as an increase in supply and decrease in demand due to milder temperatures, and reduced volatility can negatively impact Energy Services' earnings. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Natural Gas Distribution Segment for Tetco M-3 Daily Prices, which illustrates the daily natural gas prices in the Northeast market region.

Operation and Maintenance Expense

O&M expense increased $4.3 million and $5.1 million during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended months ended March 31, 2018 , due primarily to a pre-tax gain of $3.7 million associated with the sale of NJR Retail Services Company in February 2018, as well as increased compensation costs and share corporate costs.

Income Tax Provision

Income tax provision decreased $25.4 million during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to decreased operating income. Income tax provision decreased $29.5 million during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to decreased operating income, along with income tax expense of $7.7 million during the six months ended March 31, 2018 , associated with the revaluation of deferred income taxes that did not recur during the six months ended March 31, 2019 .

Net Income

Net income decreased $80.3 million and $58 million during the three and six months ended March 31, 2019 , compared with the three months ended March 31, 2018 , respectively, due primarily to decreased operating income, partially offset by the related decrease in income tax provision.

Non-GAAP Financial Measures

Management uses financial margin and NFE, non-GAAP financial measures, when evaluating the operating results of Energy Services. Financial margin and NFE are based on removing timing differences associated with certain derivative instruments, as discussed above. There is a related tax effect on current and deferred income tax expense corresponding with NFE. Also included in the tax effect are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the six months ended March 31, 2018 .

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

When Energy Services reconciles the most directly comparable GAAP measure to both financial margin and NFE, the current period unrealized gains and losses on derivatives are excluded as a reconciling item. Financial margin and NFE also exclude the effects of economic hedging of the value of our natural gas in storage and, therefore, only include realized gains and losses related to natural gas withdrawn from storage, effectively matching the full earnings effects of the derivatives with realized margins on the related physical gas flows.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Financial Margin

The following table is a computation of Energy Services' financial margin:



	Three Months Ended					Six Months Ended
	March 31,					March 31,
(Thousands)	2019		2018			2019			2018
Operating revenues ⁽¹⁾	$	547,825	$	725,313		$	1,135,092		$	1,203,294
Less: Gas purchases	546,395		622,347			1,082,903			1,068,557
Add:
Unrealized loss (gain) on derivative instruments and related transactions	8,805		(12,249		)	(2,372		)	21,624
Effects of economic hedging related to natural gas inventory ⁽²⁾	22,367		6,125			756			(19,262		)
Financial margin	$	32,602	$	96,842		$	50,573		$	137,099


(1)	Includes unrealized losses related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $1.3 million and $762,000 for the three months ended March 31, 2019 and 2018 , respectively, and $1.4 million and $1.7 million for the six months ended March 31, 2019 and 2018 , respectively.


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

A reconciliation of operating income, the closest GAAP financial measure, to Energy Services' financial margin is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Operating (loss) income	$	(4,256	)	$	100,856		$	40,630		$	126,960
Add:
Operation and maintenance	5,367			1,076			10,640			5,512
Depreciation and amortization	25			15			52			29
Other taxes	294			1,019			867			2,236
Subtotal	1,430			102,966			52,189			134,737
Add:
Unrealized loss (gain) on derivative instruments and related transactions	8,805			(12,249		)	(2,372		)	21,624
Effects of economic hedging related to natural gas inventory	22,367			6,125			756			(19,262		)
Financial margin	$	32,602		$	96,842		$	50,573		$	137,099

Financial margin decreased $64.2 million and $86.5 million during the three and six months ended March 31, 2019 , compared with the three and six months ended March 31, 2018 , respectively, due primarily to narrower pricing spreads and less price volatility in the physical natural gas market.

Net Financial Earnings

A reconciliation of Energy Services' net income, the most directly comparable GAAP financial measure, to NFE is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Net (loss) income	$	(4,460	)	$	75,810		$	28,914		$	86,930
Add:
Unrealized loss (gain) on derivative instruments and related transactions	8,805			(12,249		)	(2,372		)	21,624
Tax effect ⁽¹⁾	(2,092		)	4,861			556			(2,715		)
Effects of economic hedging related to natural gas inventory	22,367			6,125			756			(19,262		)
Tax effect	(5,316		)	(1,715		)	(180		)	6,529
Net financial earnings	$	19,304		$	72,832		$	27,674		$	93,106


(1)	Includes taxes related to an intercompany transaction between NJNG and Energy Services that have been eliminated in consolidation of approximately $(310,000) and $(172,000) for the three months ended March 31, 2019 and 2018 , respectively, and $(334,000) and $(654,000) for the six months ended March 31, 2019 and 2018 , respectively.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

NFE decreased $53.5 million during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to lower financial margin. NFE decreased $65.4 million during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to lower financial margin, as well as income tax expense of $7.7 million associated with the revaluation of deferred income taxes resulting from the Tax Act, during the six months ended March 31, 2018 , that did not recur during the six months ended March 31, 2019 .

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

Midstream Segment

Overview

Our Midstream segment invests in natural gas assets, such as natural gas transportation and storage facilities. We believe that acquiring, owning and developing these midstream assets, which operate under a tariff structure that has either regulated or market-based rates, can provide us a growth opportunity. To that end, we have a 50 percent ownership interest in Steckman Ridge, a storage facility that operates under market-based rates and a 20 percent ownership interest in PennEast, a natural gas pipeline.

PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018. PennEast has advised that it currently expects the pipeline to begin construction in 2020 . However, construction could be delayed beyond 2020 , due to factors beyond PennEast’s ability to control or estimate precisely, including potential delays in obtaining (or the inability to obtain) governmental and regulatory approvals and land-use rights, and unforeseen construction delays. As of March 31, 2019 , our net investments in Steckman Ridge and PennEast were $115.8 million and $79.4 million , respectively.

Operating Results

The financial results of our Midstream segment are summarized as follows:



	Three Months Ended				Six Months Ended
	March 31,				March 31,
(Thousands)	2019		2018		2019		2018
Equity in earnings of affiliates	$	3,998	$	4,068	$	7,799	$	8,197
Operation and maintenance	$	1,067	$	589	$	1,703	$	961
Other income, net	$	3,354	$	1,356	$	5,346	$	2,577
Interest expense, net	$	565	$	385	$	1,108	$	694
Income tax provision (benefit)	$	1,219	$	3,131	$	2,181	$	(9,712	)
Net income	$	4,498	$	1,315	$	8,149	$	18,826

Equity in earnings of affiliates decreased $70,000 and $398,000 during the three and six months ended March 31, 2019 , compared with the three and six months ended March 31, 2018 , due primarily to decreases in storage revenue and increases in debt service costs at Steckman Ridge, partially offset by an increase in AFUDC earned at PennEast.

O&M expense increased $478,000 and $742,000 during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended months ended March 31, 2018 , due primarily to increased shared corporate costs and consulting expenses.

Other income increased $2 million and $2.8 million during the three and six months ended March 31, 2019 , respectively, compared with the three and six months ended March 31, 2018 , due primarily to the realized and unrealized gains of $1.6 million associated with the sale of Dominion shares and increased dividend income associated with our investment in equity securities.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Income taxes decreased $1.9 million during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to the recognition of stranded tax effects reclassified from AOCI related to an other-than-temporary loss on equity securities that was recorded in March 2018, that did not recur. Income taxes increased $11.9 million during the six months ended March 31, 2019 , due primarily to an income tax benefit of $13.8 million associated with the revaluation of deferred income taxes resulting from the Tax Act during the six months ended March 31, 2018 , that did not recur during the six months ended March 31, 2019 .

Net income increased $3.2 million during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 , due primarily to increased other income and the decrease in income tax expense as previously discussed. Net income decreased $10.7 million six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to the decreased income tax benefit, partially offset by increased other income, as previously discussed.

Home Services and Other Operations

Overview

The financial results of Home Services and Other consist primarily of the operating results of NJRHS. NJRHS provides service, sales and installation of appliances to approximately 109,000 service contract customers and has been focused on growing its installation business and expanding its service contract customer base. Home Services and Other also includes organizational expenses incurred at NJR and rental income at CR&R.

Operating Results

The consolidated financial results of Home Services and Other are summarized as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Operating revenues	$	12,333		$	8,261		$	24,823		$	18,218
Operation and maintenance	$	13,004		$	10,734		$	24,030		$	20,611
Energy and other taxes	$	873		$	993		$	1,743		$	2,113
Other income, net	$	50		$	—		$	(148	)	$	5,301
Income tax (benefit) provision	$	(659	)	$	(1,281	)	$	(851	)	$	10,417
Net loss	$	(1,668	)	$	(2,394	)	$	(1,693	)	$	(10,110	)

Operating revenue increased $4.1 million and $6.6 million during the three and six months ended March 31, 2019 , compared with the three and six months ended March 31, 2018 , due primarily to increased contract revenue at NJRHS resulting from the adoption of ASC 606, Revenue from Contracts with Customers . As of October 1, 2018, NJRHS recognizes contract revenue on a straight line basis over the term of the contract. Previously, contract revenue was recognized on a seasonal basis based on demand for services.

O&M increased $2.3 million and $3.4 million during the three and six months ended March 31, 2019 , compared with the three and six months ended March 31, 2018 , due primarily to increased consulting expenses related to technology improvement projects as well as increased compensation costs.

Other income, net remained relatively flat during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 . Other income, net decreased $5.4 million during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to the sale of equity securities in an energy company, which resulted in a pre-tax gain of $5.3 million during the six months ended March 31, 2018 .

Income tax benefit remained relatively flat during the three months ended March 31, 2019 , compared with the three months ended March 31, 2018 . Income tax provision decreased $11.3 million during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , due primarily to income tax expense of $10.7 million associated with the revaluation of deferred income taxes resulting from the Tax Act during the six months ended March 31, 2018 , that did not recur during the six months ended March 31, 2019 .

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Net loss decreased $726,000 and $8.4 million during the three and six months ended March 31, 2019 , compared with the three and six months ended March 31, 2018 , due primarily to the increase in operating revenue and decrease in income tax provision, partially offset by the decrease in other income, net and the increase in O&M, as previously discussed.

Non-GAAP Financial Measures

NFE is based on removing timing differences associated with NJR's variable-for-fixed interest rate swap. Non-GAAP financial measures are not in accordance with, or an alternative to GAAP, and should be considered in addition to, and not as a substitute for the comparable GAAP measure. A reconciliation of Home Services and Other's net income, the most directly comparable GAAP financial measure, to NFE is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2019			2018			2019			2018
Net loss	$	(1,668	)	$	(2,394	)	$	(1,693	)	$	(10,110	)
Add:
Unrealized loss (gain) on derivative instruments and related transactions	120			(121		)	261			(121		)
Tax effect	(33		)	27			(73		)	27
Net financial loss	$	(1,581	)	$	(2,488	)	$	(1,505	)	$	(10,204	)

Liquidity and Capital Resources

Our objective is to maintain an efficient consolidated capital structure that reflects the different characteristics of each business segment and business operations and provides adequate financial flexibility for accessing capital markets as required.

Our consolidated capital structure was as follows:



	March 31, 2019		September 30, 2018
Common stock equity	54	%	49	%
Long-term debt	40		41
Short-term debt	6		10
Total	100	%	100	%

Common Stock Equity

We satisfy our external common equity requirements, if any, through issuances of our common stock, including the proceeds from stock issuances under our DRP. The DRP allows us, at our option, to use treasury shares or newly issued shares to raise capital. NJR raised approximately $24.5 million and $22.7 million of equity by issuing approximately 507,000 and 554,000 shares of common stock through the waiver discount feature of the DRP during the six months ended March 31, 2019 and 2018 , respectively. NJR also raised $9.5 million and $9.9 million of equity through the DRP by issuing approximately 205,000 and 242,000 shares of treasury stock, during the six months ended March 31, 2019 and 2018 , respectively.

In 1996, the Board of Directors authorized us to implement a share repurchase program, which was expanded seven times since the inception of the program, authorizing a total of 19.5 million shares of common stock for repurchase. As of March 31, 2019 , we repurchased a total of approximately 17.1 million of those shares and may repurchase an additional 2.4 million shares under the approved program. There were no shares repurchased during the six months ended March 31, 2019 and 2018 .

Debt

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

We believe that our existing borrowing availability, equity proceeds and cash flow from operations will be sufficient to satisfy our and our subsidiaries' working capital, capital expenditures and dividend requirements for the next 12 months. NJR, NJNG, Clean Energy Ventures and Energy Services currently anticipate that each of their financing requirements for the next 12

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

months will be met primarily through the issuance of short and long-term debt and equity, including proceeds from our DRP and including utilizing the waiver discount feature.

We believe that as of March 31, 2019 , NJR and NJNG were, and currently are, in compliance with all existing debt covenants, both financial and non-financial.

Short-Term Debt

We use our short-term borrowings primarily to finance Energy Services' short-term liquidity needs, Midstream investments and PennEast contributions, share repurchases and, on an initial basis, Clean Energy Ventures' investments. Energy Services' use of high volume storage facilities and anticipated pipeline park-and-loan arrangements, combined with related economic hedging activities in the volatile wholesale natural gas market, create significant short-term cash requirements.

As of March 31, 2019 , NJR had revolving credit facilities totaling $525 million , with $521.3 million available under the facilities.

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

NJNG’s commercial paper is sold through several commercial banks under an issuing and paying agency agreement and is supported by the $250 million NJNG Credit Facility. As of March 31, 2019 , the unused amount available under the NJNG Credit Facility, including amounts allocated to the backstop under the commercial paper program and the issuance of letters of credit, was $203.4 million .

Short-term borrowings were as follows:



	Three Months Ended			Six Months Ended
(Thousands)	March 31, 2019
NJR
Notes Payable to banks:
Balance at end of period	$	—			$	—
Weighted average interest rate at end of period	—		%		—		%
Average balance for the period	$	162,767			$	190,212
Weighted average interest rate for average balance	3.44		%		3.33		%
Month end maximum for the period	$	268,050			$	280,000
NJNG
Commercial Paper and Notes Payable to banks:
Balance at end of period	$	45,900			$	45,900
Weighted average interest rate at end of period	2.72		%		2.72		%
Average balance for the period	$	64,045			$	80,606
Weighted average interest rate for average balance	2.76		%		2.65		%
Month end maximum for the period	$	68,700			$	123,500

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

NJR

Based on its average borrowings during the three and six months ended March 31, 2019 , NJR's average interest rate was 3.44 percent and 3.33 percent , respectively, resulting in interest expense of approximately $1.4 million and $3.1 million , respectively.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

As of March 31, 2019 , NJR had three letters of credit outstanding totaling $3.7 million , which reduced the amount available under the NJR Credit Facility by the same amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties.

On December 5, 2018 , NJR entered into an Amended and Restated Credit Agreement governing a $425 million NJR Credit Facility. The NJR Credit Facility expires on December 5, 2023 , subject to two mutual options for a one-year extension beyond that date. The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJR Credit Facility also includes an accordion feature, which would allow NJR, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJR Credit Facility in minimum increments of $50 million up to a maximum of $250 million. Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility.

On December 21, 2018 , NJR entered into a four-month $100 million revolving line of credit facility, which expired on April 18, 2019 . As of March 31, 2019 , there were no borrowings against the facility.

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

NJNG

As noted above, based on its average borrowings during the three and six months ended March 31, 2019 , NJNG's average interest rate was 2.76 percent and 2.65 percent , respectively, resulting in interest expense of approximately $444,000 and $1.1 million , respectively.

As of March 31, 2019 , NJNG had two letters of credit outstanding for $731,000 , which reduced the amount available under NJNG's committed credit facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the counterparties.

On December 5, 2018 , NJNG entered into an Amended and Restated Credit Agreement governing a $250 million NJNG Credit Facility. The NJNG Credit Facility expires on December 5, 2023 , subject to two mutual options for a one-year extension beyond that date. The NJNG Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJNG Credit Facility also includes an accordion feature, which would allow NJNG, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJNG Credit Facility in minimum increments of $50 million up to a maximum of $100 million.

Short-Term Debt Covenants

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

• incur additional debt;

• incur liens and encumbrances;

• make dispositions of assets;

• enter into transactions with affiliates; and

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

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

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

Default Provisions

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

• defaults for non-payment;

• defaults for breach of representations and warranties;

• defaults for insolvency;

• defaults for non-performance of covenants;

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

• guarantor defaults.

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

Long-Term Debt

NJR

As of March 31, 2019 , NJR had the following outstanding:

• $100 million variable rate term loan due August 16, 2019 ;

• $50 million of 3.25 percent senior notes due September 2022 ;

• $50 million of 3.2 percent senior notes due August 18, 2023 ;

• $100 million of 3.48 percent senior notes due November 7, 2024 ;

• $100 million of 3.54 percent senior notes due August 18, 2026 ; and

• $100 million of 3.96 percent senior notes due June 8, 2028 .

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

NJNG

As of March 31, 2019 , NJNG's long-term debt consisted of $575 million in fixed-rate debt issuances secured by the Mortgage Indenture, with maturities ranging from 2024 to 2048 , $97 million in secured variable rate debt with maturities ranging from 2027 to 2041 and $29.6 million in capital leases with various maturities ranging from 2019 to 2025 .

NJR is not obligated directly or contingently with respect to the NJNG notes or the FMBs.

Long-Term Debt Covenants and Default Provisions

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

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

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

• incur liens and encumbrances;

• make loans and investments;

• make dispositions of assets;

• make dividends or restricted payments;

• enter into transactions with affiliates; and

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

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

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

• failure for 30 days to pay interest when due;

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

• failure to make sinking fund payments when due;

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

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

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

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

Sale-Leaseback

NJNG

NJNG received $9.9 million and $7.8 million in December 2018 and 2017 , respectively, in connection with the sale-leaseback of its natural gas meters. NJNG exercised early purchase options with respect to certain outstanding meter leases by making final principal payments of $1.1 million during both the six months ended March 31, 2019 and 2018 . NJNG continues to evaluate this sale-leaseback program based on current market conditions. As noted, natural gas meters are accepted as property under the Mortgage Indenture.

Clean Energy Ventures

Clean Energy Ventures has entered into transactions to sell certain of its commercial solar assets concurrent with agreements to lease the assets back over six to 15 -year terms. These sale-leasebacks are financing obligations secured by the solar assets and related future cash flows from SREC and energy sales. ITCs and other tax benefits associated with these solar projects were transferred to the buyer. Clean Energy Ventures will continue to operate the solar projects and retain ownership of SRECs generated, and has the option to renew the lease or repurchase the assets at the end of the lease term per the terms of the arrangement. Clean Energy Ventures did not enter into sale-leasebacks transactions during the six months ended March 31, 2019 and 2018 .

Contractual Obligations

NJNG's total capital expenditures are projected to be $338.9 million and $448.6 million , in fiscal 2019 and 2020 , respectively. Total capital expenditures spent or accrued during the six months ended March 31, 2019 , were $142.7 million . NJNG expects to fund its obligations with a combination of cash flow from operations, cash on hand, issuance of commercial paper, available

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

capacity under its revolving credit facility and the issuance of long-term debt. As of March 31, 2019 , NJNG's future MGP expenditures are estimated to be $128.9 million . For a more detailed description of MGP expenditures see Note 12. Commitments and Contingent Liabilities in the accompanying Unaudited Condensed Consolidated Financial Statements .

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

Clean Energy Ventures' expenditures include clean energy projects that support our goal to promote renewable energy. Accordingly, Clean Energy Ventures enters into agreements to install solar equipment involving both residential and commercial projects. During the six months ended March 31, 2019 , total capital expenditures spent or accrued related to the purchase and installation of solar equipment were $51.3 million . An additional $62.5 million has been committed for solar projects to be placed into service during fiscal 2019 and beyond. We estimate solar-related capital expenditures for projects during fiscal 2019 to be between $153 million and $167 million .

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

During the six months ended March 31, 2019 , capital expenditures related to our Midstream investment in the Adelphia project were $4.6 million . We estimate expenditures to be between $230 million and $270 million in fiscal 2019 . During the six months ended March 31, 2018 , capital expenditures related to our Midstream investment in the PennEast pipeline project were $1.5 million . We estimate expenditures related to our Midstream investment in the PennEast project to be between $4 million and $14 million in fiscal 2019 .

Energy Services does not currently anticipate any significant capital expenditures in fiscal 2019 and 2020 .

More detailed information regarding contractual obligations is contained in Liquidity and Capital Resources - Contractual Obligations section of Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 2018 .

Off-Balance-Sheet Arrangements

Our off-balance-sheet arrangements consist of guarantees covering approximately $339.6 million of natural gas purchases, SREC sales and demand fee commitments and outstanding letters of credit totaling $4.4 million .

Cash Flows

Operating Activities

Cash flows from operating activities during the six months ended March 31, 2019 , totaled $171.8 million compared with $312.5 million during the six months ended March 31, 2018 . Operating cash flows are primarily affected by variations in working capital, which can be impacted by several factors, including:

• seasonality of our business;

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

• timing of storage injections and withdrawals;

• the deferral and recovery of gas costs;

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

• broker margin requirements;

• impact of unusual weather patterns on our wholesale business;

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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

• volumes of natural gas purchased and sold; and

• timing of SREC deliveries.

The decrease of $140.7 million in cash flows from operating activities during the six months ended March 31, 2019 , compared with the six months ended March 31, 2018 , was due primarily to lower financial margin generated at Energy Services along with increased working capital requirements.

Investing Activities

Cash flows from investing activities totaled $42.5 million during the six months ended March 31, 2019 , compared with Cash flows (used in) investing activities totaling $(168.8) million during the six months ended March 31, 2018 . The increase of $211.3 million was due primarily to proceeds, net of closing costs, from the sale of our wind assets of $205.7 million and Dominion shares of $34.5 million , partially offset by an increase in expenditures of $36.3 million and $6.5 million for utility plant and solar projects, respectively.

Financing Activities

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

Cash flows used in financing activities totaled $132.5 million during the six months ended March 31, 2019 , compared with $140.9 million during the six months ended March 31, 2018 . The decrease of $8.5 million is due primarily to payments of short-term debt at NJR and NJNG and an increase in dividends paid to shareowners.

Credit Ratings

The table below summarizes NJNG's credit ratings as of March 31, 2019 , issued by three rating entities, S&P, Moody's and Fitch:



	S&P	Moody's	Fitch
Corporate Rating	BBB+	N/A	A-
Commercial Paper	A-2	P-1	F-2
Senior Secured	A	Aa3	A+
Ratings Outlook	Negative	Negative	Stable

On November 29, 2018, Fitch assigned a first-time long-term issuer default rating to NJNG. The rating reflects a constructive regulatory environment, including margin decoupling and fuel cost recovery, and strong customer growth. Other considerations were the weakened credit metrics driven by the impact of tax reform and an elevated capital program, with a substantial portion of investment recovered under tracking mechanisms. On March 28, 2019, Fitch affirmed the ratings outlook as stable.

On February 8, 2019, Moody’s revised NJNG's secured rating from Aa2 to Aa3. This change reflects Moody’s view that the Company's credit measures are expected to deteriorate due to loss of cash flow from deferred taxes, lower authorized returns and peak capital programs in 2019 and 2020. These measures are mitigated by the credit supportive regulatory rate construct and NJNG's recovery mechanism. Management's response and regulatory outcomes have partially mitigated some of the near term negative cash flow impacts related to tax reform. This action does not currently affect any of NJNG’s short or long term borrowing rates.

The S&P rating was reaffirmed on August 18, 2018 . NJNG's S&P, Moody's and Fitch ratings are investment-grade ratings. NJR is not a rated entity.

New Jersey Resources Corporation

Part I

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (Continued)

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Risk Management

Commodity Market Risks

Natural gas is a nationally traded commodity. Its prices are determined effectively by the NYMEX, ICE and over-the-counter markets. The prices on the NYMEX, CME, ICE and over-the-counter markets generally reflect the national balance of natural gas supply and demand, but are also significantly influenced from time to time by other events.

Our regulated and deregulated businesses are subject to market risk due to fluctuations in the price of natural gas. To economically hedge against such fluctuations, we have entered into forwards, futures, options and swap agreements. To manage these derivative instruments, we have well-defined risk management policies and procedures that include daily monitoring of volumetric limits and monetary guidelines. Our natural gas businesses are conducted through two of our operating subsidiaries. NJNG is a regulated utility that uses futures, options and swaps to provide relative price stability, and its recovery of natural gas costs is governed by the BPU. Energy Services uses futures, options, swaps and physical contracts to economically hedge purchases and sales of natural gas.

The following table reflects the changes in the fair market value of financial derivatives related to natural gas purchases and sales:



	Balance				Increase			Less			Balance
(Thousands)	September 30, 2018				(Decrease) in Fair Market Value			Amounts Settled			March 31, 2019
Natural Gas Distribution		$	94			(1,482	)		(1,959	)		$	571
Energy Services		(13,925		)		(7,727	)		(14,091	)		(7,561		)
Total		$	(13,831	)		(9,209	)		(16,050	)		$	(6,990	)

There were no changes in methods of valuations during the six months ended March 31, 2019 .

The following is a summary of fair market value of financial derivatives at March 31, 2019 , excluding foreign exchange contracts discussed below, by method of valuation and by maturity for each fiscal year period:



(Thousands)	2019			2020		2021 - 2023			After 2023		Total Fair Value
Price based on NYMEX/CME	$	1,689		1,542			629			—		$	3,860
Price based on ICE	(1,285		)	(7,578	)		(1,987	)		—		(10,850		)
Total	$	404		(6,036	)		(1,358	)		—		$	(6,990	)

The following is a summary of financial derivatives by type as of March 31, 2019 :



		Volume Bcf		Price per MMBtu ⁽¹⁾	Amounts included in Derivatives (Thousands)
Natural Gas Distribution	Futures	32.1		2.06 - 2.94		$	571
Energy Services	Futures	(4.0	)	.93 - 4.43		(11,421		)
	Swaps	(8.5	)	2.72 - 3.46		3,860
Total						$	(6,990	)


(1)	Million British thermal unit

New Jersey Resources Corporation

Part I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

The following table reflects the changes in the fair market value of physical commodity contracts:



	Balance				Increase			Less			Balance
(Thousands)	September 30, 2018				(Decrease) in Fair Market Value			Amounts Settled			March 31, 2019
Natural Gas Distribution - Prices based on other external data		$	(107	)		2,558			2,409			$	42
Energy Services - Prices based on other external data		(17,877		)		(18,287	)		(6,387	)		(29,777		)
Total		$	(17,984	)		(15,729	)		(3,978	)		$	(29,735	)

The following table reflects the changes in the fair market value of interest rate contracts:



	Balance			Increase			Less		Balance
(Thousands)	September 30, 2018			(Decrease) in Fair Market Value			Amounts Settled		March 31, 2019
Home Services and Other - Prices based on other external data		381			(185	)		76		120
Total		$	381		(185	)		76		$	120

Our market price risk is predominately linked with changes in the price of natural gas at the Henry Hub, the delivery point for the NYMEX natural gas futures contracts. Based on price sensitivity analysis, an illustrative 10 percent movement in the natural gas futures contract price, for example, increases (decreases) the reported derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed price swap positions by approximately $3.7 million . This analysis does not include potential changes to reported credit adjustments embedded in the $2.9 million reported fair value.



Derivative Fair Value Sensitivity Analysis
(Thousands)	Henry Hub Futures and Fixed Price Swaps
Percent increase in NYMEX natural gas futures prices	0%		5%			10%			15%			20%
Estimated change in derivative fair value	$	—	$	(1,849	)	$	(3,698	)	$	(5,547	)	$	(7,396	)
Ending derivative fair value	$	2,884	$	1,035		$	(814	)	$	(2,663	)	$	(4,512	)

Percent decrease in NYMEX natural gas futures prices	0%		(5)%			(10)%			(15)%			(20)%
Estimated change in derivative fair value	$	—	$	1,849		$	3,698		$	5,547		$	7,396
Ending derivative fair value	$	2,884	$	4,733		$	6,582		$	8,431		$	10,280

Wholesale Credit Risk

The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade counterparties, as of March 31, 2019 . Gross credit exposure is defined as the unrealized fair value of derivative and energy trading contracts plus any outstanding wholesale receivable for the value of natural gas or power delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received. Net credit exposure is defined as gross credit exposure reduced by collateral received from counterparties and/or payables, where netting agreements exist. The amounts presented below exclude accounts receivable for NJNG retail natural gas sales and services.

Energy Services' & Clean Energy Ventures' counterparty credit exposure as of March 31, 2019 , is as follows:



(Thousands)	Gross Credit Exposure			Net Credit Exposure
Investment grade		$	181,650		$	144,901
Noninvestment grade		24,534			923
Internally rated investment grade		25,334			17,955
Internally rated noninvestment grade		11,493			4,064
Total		$	243,011		$	167,843

New Jersey Resources Corporation

Part I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

NJNG's counterparty credit exposure as of March 31, 2019 , is as follows:



(Thousands)	Gross Credit Exposure			Net Credit Exposure
Investment grade		$	5,705		$	4,109
Noninvestment grade		357			—
Internally rated investment grade		668			367
Internally rated noninvestment grade		19,852			12,745
Total		$	26,582		$	17,221

Due to the inherent volatility in the market price for natural gas, electricity and SRECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty failed to perform the obligations under its contract (for example, failed to make payment for natural gas received), we could sustain a loss. This loss would comprise the loss on natural gas delivered but not paid for and/or the cost of replacing natural gas not delivered or received at a price that exceeds the original contract price. Any such loss could have a material impact on our financial condition, results of operations or cash flows.

Effects of Interest Rate and Foreign Currency Rate Fluctuations

We are also exposed to changes in interest rates on our debt hedges, variable rate debt and changes in foreign currency rates for our business conducted in Canada using Canadian dollars. We do not believe an immediate 10 percent increase or decrease in interest rates or foreign currency rates would have a material effect on our operating results or cash flows.

Information regarding NJR's interest rate risk can be found in Item 7A. Quantitative and Qualitative Disclosures About Market Risks and the Liquidity and Capital Resources - Debt section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the period ended September 30, 2018 .

Effects of Inflation

Although inflation rates have been relatively low to moderate in recent years, including the three most recent fiscal years, any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of our utility subsidiary. We attempt to minimize the effects of inflation through cost control, productivity improvements and regulatory actions, when appropriate.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of end of the period covered by this report, our disclosure controls and procedures are effective, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended March 31, 2019 , that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

New Jersey Resources Corporation

Part II

ITEM 1. LEGAL PROCEEDINGS

Information regarding reportable legal proceedings is contained in Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K for the year ended September 30, 2018 , and is set forth in Part I, Item 1, Note 12. Commitments and Contingent Liabilities -Legal Proceedings on the Unaudited Condensed Consolidated Financial Statements, which is incorporated by reference. No legal proceedings became reportable during the quarter ended March 31, 2019 , and there have been no material developments during such quarter regarding any previously reported legal proceedings, which have not been previously disclosed.

ITEM 1A. RISK FACTORS

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical, under the circumstances, some level of risk and uncertainty will always be present. Part I, Item 1A. Risk Factors of our 2018 Annual Report on Form 10-K includes a detailed discussion of our risk factors. Those risks and uncertainties have the potential to materially affect our financial condition and results of operations. There have been no material changes in our risk factors from those previously disclosed in Part I, Item 1A , of our 2018 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth our repurchase activity for the quarter ended March 31, 2019 :



Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
1/01/19 - 1/31/19	—	$	—	—	2,431,053
2/01/19 - 2/28/19	—	—		—	2,431,053
3/01/19 - 3/31/19	—	—		—	2,431,053
Total	—	$	—	—	2,431,053

The stock repurchase plan, which was authorized by our Board of Directors, became effective in September 1996 and as of March 31, 2019 , included 19.5 million shares of common stock for repurchase, of which, approximately 2.4 million shares remained available for repurchase. The stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder, unless the repurchase plan is earlier terminated by action of our Board of Directors or further shares are authorized for repurchase.

New Jersey Resources Corporation

Part II

ITEM 6. EXHIBITS



Exhibit Number	Exhibit Description



4.1+	Amended and Restated Indenture, dated as of April 1, 2019, between NJNG and New Jersey Economic Development Authority and U.S. Bank National Association, as Trustee

4.2+	Second Amendment to the Loan Agreement, dated as of April 1, 2019, NJNG and New Jersey Economic Development Authority

4.3+	Amended and Restated Continuing Disclosure Undertaking, dated as of April 18, 2019

4.4+	Fourth Supplemental Indenture, dated as of April 1, 2019, between NJNG and U.S. Bank National Association, as Trustee

31.1+	Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

31.2+	Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

32.1+ †	Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

32.2+ †	Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

101+	Interactive Data File (Form 10-Q, for the fiscal period ended March 31, 2019, furnished in XBRL (eXtensible Business Reporting Language))

_ ______________________________


+	Filed herewith.

† This certificate accompanies this report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by NJR for purposes of Section 18 or any other provision of the Securities Exchange Act of 1934, as amended.

New Jersey Resources Corporation

Part II

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		NEW JERSEY RESOURCES CORPORATION
		(Registrant)
Date:	May 3, 2019
		By:/s/ Patrick Migliaccio
		Patrick Migliaccio
		Senior Vice President and
		Chief Financial Officer

Amended and Restated Indenture

between

New Jersey Economic Development Authority

and

U.S. Bank National Association, as Trustee

Relating to

New Jersey Economic Development Authority

$10,300,000 Natural Gas Facilities Refunding Revenue Bonds, Series 2005A

(New Jersey Natural Gas Company Project)

and

$10,500,000 Natural Gas Facilities Refunding Revenue Bonds, Series 2005B

(New Jersey Natural Gas Company Project)

and

$15,000,000 Natural Gas Facilities Revenue Bonds, Series 2005C

(New Jersey Natural Gas Company Project)

________________________

Dated as of October 1, 2005

and Amended and Restated as of April 1, 2019

Table of Contents



Section		Heading		Page

Article I.		Definitions; Content of Certificates and Opinions		4
Section 1.1.			Definitions	4
Section 1.2.			Content of Certificates and Opinions	22
Section 1.3.			Interpretation	22
Article II.		The Bonds		23
	Section 2.1.		Authorization of Bonds	23
	Section 2.2.		Bonds	23
	Section 2.3.		Interest Rates	24
	Section 2.4.		Demand Purchase of Bonds	33
	Section 2.5.		Execution of Bonds	34
	Section 2.6.		Transfer of Bonds	34
	Section 2.7.		Exchange of Bonds	35
	Section 2.8.		Bond Register	36
	Section 2.9.		Temporary Bonds	36
	Section 2.10.		Bonds Mutilated, Lost, Destroyed or Stolen	36
	Section 2.11.		Book‑Entry Only System	36
	Section 2.12.		Calculation Agent	38
Article III		Issuance of Bonds; Application of Proceeds; Application of Funds of the Borrower to Pay Costs of Issuance		39
	Section 3.1.		Issuance of the Bonds	39
	Section 3.2.		Application of Proceeds of Bonds	40
Article IV.		Redemption and Purchase of Bonds		40
	Section 4.1.		Terms of Redemption of Bonds	40
	Section 4.2.		Selection of Bonds for Redemption	42
	Section 4.3.		Notice of Redemption	43
	Section 4.4.		Partial Redemption of Bonds	43
	Section 4.5.		Effect of Redemption of Bonds	44
	Section 4.6.		Mandatory Tender for Purchase of Bonds	44
	Section 4.7.		Purchase and Remarketing of Bonds	45
	Section 4.8.		Purchase in Lieu of Optional Redemption	52
	Section 4.9.		Purchase in Lieu of Acceleration	52
Article V.		Revenues; Funds and Accounts; Payment of Principal and Interest		53
	Section 5.1.		Pledge and Assignment; Bond Fund	53
	Section 5.2.		Allocation of Revenues	54
	Section 5.3.		Priority of Moneys in Bond Fund; Letter of Credit Account	54
	Section 5.4.		Letter of Credit	56
	Section 5.5.		Investment of Moneys	57



	Section 5.6.		Rebate Fund	58
	Section 5.7.		Transfer of Additional Payments	59
	Section 5.8.		Indemnification	59
	Section 5.9.		Voting of First Mortgage Bonds Held by the Trustee	59
	Section 5.10.		[Reserved]	59
	Section 5.11.		No Transfer of First Mortgage Bonds Held by the Trustee; Exception	59
	Section 5.12.		Credits on First Mortgage Bonds	60
Article VI.		Particular Covenants		60
	Section 6.1.		Punctual Payment	60
	Section 6.2.		Extension of Payment of Bonds	60
	Section 6.3.		Against Encumbrances	60
	Section 6.4.		Power to Issue Bonds and Make Pledge and Assignment; Limited Obligations	61
	Section 6.5.		Accounting Records and Reports	61
	Section 6.6.		Arbitrage Covenants	61
	Section 6.7.		Other Covenants	62
	Section 6.8.		Further Assurances	62
	Section 6.9.		Continuing Disclosure	62
Article VII.		Events of Default and Remedies of Bondholders		63
	Section 7.1.		Events of Default; Acceleration; Waiver of Default	63
	Section 7.2.		Institution of Legal Proceedings by Trustee	65
	Section 7.3.		Application of Revenues and Other Funds After Default	65
	Section 7.4.		Trustee to Represent Bondholders	66
	Section 7.5.		Bondholders’ Direction of Proceedings	67
	Section 7.6.		Limitation on Bondholders’ Right to Sue	67
	Section 7.7.		Obligation of Authority	68
	Section 7.8.		Termination of Proceedings	68
	Section 7.9.		Remedies Not Exclusive	68
	Section 7.10.		No Waiver of Default	68
	Section 7.11.		Consent of Credit Provider and Bank to Defaults and Waivers	68
	Section 7.12.		Authority’s Rights	69
	Section 7.13.		Right of Sole Holder or Beneficial Owner to Require Assignment by Trustee	69
Article VIII.		The Trustee, the Paying Agent, the Bond Registrar, the Tender Agent, and the Remarketing Agent		70
	Section 8.1.		Duties, Immunities and Liabilities of Trustee and Bond Registrar	70
	Section 8.2.		Merger or Consolidation	73
	Section 8.3.		Liability of Trustee	73
	Section 8.4.		Right of Trustee to Rely on Documents	75
	Section 8.5.		Preservation and Inspection of Documents	76
	Section 8.6.		Compensation and Indemnification	76



	Section 8.7.		Paying Agent	77
	Section 8.8.		Trustee and Authority Required to Accept Directions and Actions of Borrower	78
	Section 8.9.		Independent Counsel	78
	Section 8.10.		Limitation on Trustee’s Liability	78
	Section 8.11.		Notices to Rating Agency and Credit Provider	79
	Section 8.12.		Duties of Remarketing Agent	79
	Section 8.13.		Eligibility of Remarketing Agent; Replacement	79
	Section 8.14.		Compensation of Remarketing Agent	80
	Section 8.15.		Appointment and Duties of Tender Agent	80
	Section 8.16.		Eligibility of Tender Agent; Replacement	80
	Section 8.17.		Compensation of Tender Agent	81
	Section 8.18.		Appointment and Duties of Bond Registrar	81
	Section 8.19.		Eligibility of Bond Registrar	81
	Section 8.20.		Bond Registrar’s Performance of Duties	81
	Section 8.21.		Replacement of Bond Registrar	81
	Section 8.22.		Successor Remarketing Agent by Merger	82
	Section 8.23.		P.L. 2005 c. 92 Compliance	82
	Section 8.24.		Compliance With L. 2005, c. 271 Reporting Requirements	82
	Section 8.25.		Compliance With L. 2005, c. 51	82
	Section 8.26.		Compliance With Executive Order 117	82
	Section 8.27.		[Reserved]	83
	Section 8.28.		Rule G‑34	83
Article IX.		Modification or Amendment of the Indenture, the Loan Agreement and the First Mortgage Bonds		83
	Section 9.1.		Amendments Permitted	83
	Section 9.2.		Effect of Supplemental Indenture	85
	Section 9.3.		Endorsement of Bonds; Preparation of New Bonds	85
	Section 9.4.		Amendment of Particular Bonds	85
	Section 9.5.		Amendment of Loan Agreement	85
	Section 9.6.		Amendment of First Mortgage Bonds or the Mortgage Indenture	86
Article X.		Defeasance		87
	Section 10.1.		Discharge of Indenture	87
	Section 10.2.		Discharge of Liability on Bonds	88
	Section 10.3.		Deposit of Money or Securities with Trustee	88
	Section 10.4.		Payment of Bonds After Discharge of Indenture Obligation	89
Article XI.		Miscellaneous		90
	Section 11.1.		Liability of Authority Limited to Revenues	90
	Section 11.2.		Successor Is Deemed Included in All References to Predecessor	91
	Section 11.3.		Limitation of Rights to Parties and Bondholders	91



	Section 11.4.			Waiver of Notice	91
	Section 11.5.			Disposal of Bonds	92
	Section 11.6.			Severability of Invalid Provisions	92
	Section 11.7.			Governing Law; Venue	92
	Section 11.8.			Notices	92
	Section 11.9.			Evidence of Rights of Bondholders	93
	Section 11.10.			Disqualified Bonds	94
	Section 11.11.			Money Held for Particular Bonds	94
	Section 11.12.			Funds and Accounts	94
	Section 11.13.			Rights of Credit Provider	95
	Section 11.14.			Waiver of Personal Liability	95
	Section 11.15.			Authority May Rely On Certificates	95
	Section 11.16.			Authority Not Responsible	96
	Section 11.17.			Business Day	96
	Section 11.18.			Complete Agreement	96
	Section 11.19.			Execution in Several Counterparts	96
	Section 11.20.			Application of New Jersey Contractual Liability Act	96

Exhibit A		0	Form of Bonds
Exhibit B		0	Form of Investor Letter
Exhibit C		0	Form of Bank Index Rate Period Conversion Notice

‑16‑

Amended and Restated Indenture

This Amended and Restated Indenture (the “Indenture” ), dated as of April 1, 2019 is between the New Jersey Economic Development Authority, a public body corporate and politic constituting an instrumentality of the State of New Jersey (the “Authority” ), and U.S. Bank National Association, a national banking association, being qualified to accept and administer the trusts hereby created (the “Trustee” );

W i t n e s s e t h:

Whereas, the New Jersey Economic Development Authority Act, constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey (the “State” ), approved August 7, 1974, as amended and supplemented (the “Act” ), declares it to be in the public interest and to be the policy of the State to foster and promote the economy of the State, increase opportunities for gainful employment and improve living conditions, assist in the economic development or redevelopment of political subdivisions within the State, and otherwise contribute to the prosperity, health and general welfare of the State and its inhabitants by inducing manufacturing, industrial, commercial, recreational, retail, service and other employment promoting enterprises to locate, remain or expand within the State by making available financial assistance; and

Whereas, New Jersey Natural Gas Company (the “Borrower” ) requested that the Authority issue, and the Authority issued, its Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project) in an aggregate principal amount of $10,300,000 (the “Series 2005A Bonds” ), the proceeds of which Series 2005A Bonds were used to refund the Authority’s Natural Gas Facilities Refunding Revenue Bonds, Series 1993A (New Jersey Natural Gas Company Project) which were outstanding in the aggregate principal amount of $10,300,000 (the “Series 1993A Bonds” ), the proceeds of which Series 1993A Bonds were issued to pay a portion of the cost of refunding the Authority’s Natural Gas Facilities Revenue Bonds, Series 1983 (New Jersey Natural Gas Company Project) (the “Series 1983 Bonds” ), the proceeds of which Series 1983 Bonds were used to finance the purchase, construction and equipping by the Borrower of certain natural gas distribution mains and functionally related equipment (the “1983 Project” ) and to pay certain costs of issuance of the Series 1983 Bonds;

Whereas, the Borrower requested that the Authority issue, and the Authority issued, its Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project) in an aggregate principal amount of $10,500,000 (the “Series 2005B Bonds” ), the proceeds of which Series 2005B Bonds were used to refund the Authority’s Natural Gas Facilities Refunding Revenue Bonds, Series 1994A (New Jersey Natural Gas Company Project) which were outstanding in the aggregate principal amount of $10,500,000 (the “Series 1994A Bonds” and together with the Series 1993A Bonds, the “Refunded Bonds” ), the proceeds of which Series 1994A Bonds were used issued to pay a portion of the cost of refunding the Authority’s Natural Gas Facilities Revenue Bonds, Series 1984 (New Jersey Natural Gas Company Project) (the “Series 1984 Bonds” ), the proceeds of which Series 1984 Bonds were used to finance the purchase, construction and equipping by the Borrower of certain natural gas distribution mains and functionally related equipment (the “1984 Project” ) and pay certain costs of issuance of the Series 1984 Bonds;

Whereas, the Borrower requested that the Authority issue, and the Authority issued, its Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project) in an aggregate principal amount of $15,000,000 (the “Series 2005C Bonds”, and with the Series 2005A Bonds and Series 2005B Bonds are hereinafter collectively, the “Bonds” ), the proceeds of which Series 2005C Bonds were used to to finance the purchase, construction and equipping by the Borrower of certain natural gas distribution mains and functionally related equipment (the “2005C Project” or “New Project” and together with the 1983 Project and the 1984 Project are referred to collectively as the “Project” or Projects” ) and pay certain costs of issuance of the Series 2005C Bonds;

Whereas, the Authority duly entered into a loan agreement, dated as of October 1, 2005 (as hereinafter in Section 1.1 further defined, the “Loan Agreement” ), with the Borrower specifying the terms and conditions of a loan by the Authority to the Borrower of the proceeds of the Bonds for refunding the Refunded Bonds and financing the 2005C Project, and of the payment by the Borrower to the Authority of amounts sufficient for the payment of the principal of and premium, if any, and interest on the Bonds and certain related expenses, initially secured by the issuance and delivery by the Borrower to the Authority of (i) First Mortgage Bonds, Series II due 2023 in the aggregate principal amount of $10,300,000 (the “Series II First Mortgage Bonds” ), (ii) First Mortgage Bonds, Series JJ due 2024 in the aggregate principal amount of $10,500,000 (the “Series JJ First Mortgage Bonds” ) and (iii) First Mortgage Bonds, Series KK due 2040 in the aggregate principal amount of $15,000,000 (the “Series KK First Mortgage Bonds” ) (the Series II First Mortgage Bonds, the Series JJ First Mortgage Bonds and the Series KK First Mortgage Bonds are referred to collectively as, the “Initial First Mortgage Bonds” ), each such series issued pursuant to the Thirty-First Supplemental Indenture, dated as of October 1, 2005, to the Indenture of Mortgage and Deed of Trust to The Bank of New York Mellon Trust Company, N.A. (successor in interest to Harris Trust and Savings Bank), dated April 1, 1952, as subsequently amended and restated by the Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement by and between the Borrower and U.S. Bank National Association, as mortgage trustee (the “Mortgage Trustee” ), dated as of September 1, 2014, as amended and supplemented (the “Mortgage Indenture” );

Whereas, to reflect certain amendments to the Bonds and the Original Indenture (as defined below), the Initial First Mortgage Bonds will be exchanged for new series of bonds as follows (i) First Mortgage Bonds, Series WW due 2042 in the aggregate principal amount of $10,300,000 (the “ Series WW First Mortgage Bonds ”) in exchange for the Series II First Mortgage Bonds, (ii) First Mortgage Bonds, Series XX due 2038 in the aggregate principal amount of $10,500,000 (the “Series XX First Mortgage Bonds” ) in exchange for the Series JJ First Mortgage Bonds and (iii) First Mortgage Bonds, Series YY due 2059 in the aggregate principal amount of $15,000,000 (the “Series YY First Mortgage Bonds” ) in exchange for the Series KK First Mortgage Bonds (the Series WW First Mortgage Bonds, the Series XX First Mortgage Bonds and the Series YY First Mortgage Bonds are referred to collectively as, the “First Mortgage Bonds” ), each such series issued pursuant to the Mortgage Indenture, including as supplemented by the Fourth Supplemental Indenture, dated as of April 1, 2019;

Whereas, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal or Purchase Price thereof and interest thereon, the Authority executed and delivered the Indenture of Trust dated as of October 1, 2005 (the “2005 Indenture” ) between the Authority and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as trustee (the “Prior Trustee” );

Whereas, the 2005 Indenture has been previously supplemented and amended by the Supplement and Amendment of Agreements dated September 24, 2014 by and among the Authority, the Prior Trustee and the Borrower (the “Supplement and Amendment” and together with the 2005 Indenture, the “Original Indenture” );

Whereas, the payment of principal of and interest (but not premium) on each series of the Bonds when due was insured by a separate financial guaranty insurance policy for each series of the Bonds (collectively, the “Bond Insurance Policies” ) issued by Financial Guaranty Insurance Company, which such policies have been novated to National Public Finance Guarantee Corporation (the “Bond Insurer” );

Whereas, on January 17, 2017, the Borrower purchased the Bonds in lieu of redemption in accordance with the terms of the Original Indenture and the Borrower is the Beneficial Owner of all of the Bonds Outstanding (the “Current Bondholder” );

Whereas, the Bond Insurance Policies have been cancelled, which cancellations became effective April 18, 2019 pursuant to the Cancellation Agreement dated as of April 18, 2019 by and among the Authority, the Prior Trustee, the Borrower, the Current Bondholder and the Bond Insurer;

Whereas, the Borrower has requested that the Authority amend and restate the Original Indenture to (i) reflect the cancellations of the Bond Insurance Policies and the amendment of the Bonds, the Original Indenture and the Original Loan Agreement to remove references to such Policies, (ii) provide for the extension of the related maturity for each series of the Bonds, (iii) provide for the exchange of the previously issued Initial First Mortgage Bonds for new series of corresponding First Mortgage Bonds and (iv) make certain other changes to the Original Indenture and the Bonds;

Whereas, Section 804 of the Original Indenture provides that the term and provisions of the Original Indenture and the rights and obligations of the Authority and Bondholders may be modified and amended in any respect upon the entering into between the Authority and the Trustee of a Supplemental Indenture with the consent of the Holders of all of the Bonds Outstanding and Section 902 of the Original Indenture requires the written consent of the Bond Insurer with respect to certain amendments to the Original Indenture;

Whereas, the Authority and the Trustee, pursuant to (i) Section 804 of the Original Indenture, have obtained the written consent of the Current Bondholder and (ii) Section 902 of the Original Indenture, have obtained the written consent of the Bond Insurer;

Whereas, all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special and limited obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture have been in all respects duly authorized;

Now, Therefore, This Indenture Witnesseth, that in order to secure the payment of the principal or Purchase Price of, and the premium, if any, and interest on, all Bonds at any time issued and Outstanding under this Indenture, according to their tenor, and thereafter to secure any amounts due to any Credit Provider pursuant to any Reimbursement Agreement with respect to any Letter of Credit and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Holders (as defined herein) thereof, and for other valuable consideration, the receipt of which is hereby acknowledged, the Authority does hereby irrevocably grant, convey, transfer, assign and pledge unto the Trustee all right, title and interest of the Authority in, to and under the Loan Agreement (except as provided in Section 5.1(B) hereof), including the First Mortgage Bonds, and does hereby covenant and agree with the Trustee, for the equal and proportionate benefit of the respective Holders from time to time of the Bonds, and the Credit Provider, if any, as follows:

Article I

Definitions; Content of Certificates and Opinions

Section 1.1. Definitions . Unless the context otherwise requires, the terms defined in this Article shall, for all purposes of this Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined.

“Accountant” means any firm of independent certified public accountants selected by the Borrower.

“Act” has the meaning assigned thereto in the recitals.

“Additional Payments” means (i) all reasonable fees, charges and expenses of the Trustee for services rendered under this Indenture and all amounts referred to in Section 8.6 of this Indenture, as and when the same become due and payable; (ii) the reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under the Loan Agreement, the Remarketing Agreement, any Reimbursement Agreement or this Indenture; and (iii) the reasonable fees and expenses of the Authority or any agent or attorney selected by the Authority to act on its behalf in connection with the Loan Agreement, the Remarketing

Agreement, any Reimbursement Agreement, the Bonds or this Indenture, including, without limitation, any and all reasonable expenses incurred in connection with the authorization, issuance, sale and delivery of any such Bonds or in connection with any litigation, investigation or other proceeding which may at any time be instituted involving the Loan Agreement, the Remarketing Agreement, any Reimbursement Agreement, the Bonds or this Indenture or any of the other documents contemplated thereby, or in connection with the reasonable supervision or inspection of the Borrower, its properties, assets or operations or otherwise in connection with the administration of the Loan Agreement. Such Additional Payments shall be billed to the Borrower by the Authority or the Trustee from time to time, together with a statement certifying that the amount billed has been incurred or paid by the Authority or the Trustee for one or more of the above items. After such a demand, amounts so billed shall be paid by the Borrower within 30 days after the date of invoice.

“Administrative Fees and Expenses” means the reasonable and necessary expenses incurred by the Authority pursuant to the Loan Agreement or this Indenture and the compensation and expenses paid to or incurred by the Trustee, the Tender Agent, the Bond Registrar, the Remarketing Agent and/or any Paying Agent under the Loan Agreement or this Indenture, which include but are not limited to printing of Bonds, accomplishing transfers or new registration of Bonds, or other charges and other disbursements including those of their respective officers, directors, members, attorneys, agents and employees incurred in and about the administration and execution of the Loan Agreement and this Indenture.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, the Person specified.

“Alternate Letter of Credit” means an alternate irrevocable letter of credit, including, if applicable, a confirming letter of credit, or similar credit facility issued by a commercial bank, savings institution or other financial institution, the terms of which shall in all material respects be the same as those of the Letter of Credit then in effect, delivered to the Trustee pursuant to Section 2.12 of the Loan Agreement, and any extensions, amendments or supplements thereto.

“Alternate Rate” means an interest rate equal to 110% of the SIFMA Municipal Index, but in no event a rate in excess of the Maximum Rate.

“Applicable Factor” means during any Bank Index Rate Period, with an Approving Opinion, a percentage as may be designated in writing by the Borrower, and confirmed by the Market Agent, as the Applicable Factor for such Bank Index Rate Period pursuant to Section 2.3(E)(4).

“Applicable Spread” means, with respect to each Bank Index Rate Period, the number of basis points determined by the Market Agent on or before the first day of such Bank Index Rate Period and designated by the Borrower in accordance with Section 2.3(E)(4) (which may include a schedule for the Applicable Spread based upon the ratings assigned to the long‑term unenhanced debt of the Borrower as described in subparagraph (a) in this definition) that, when added to the SIFMA Index or the product of the LIBOR Index multiplied by the Applicable Factor, as applicable,

would equal the minimum interest rate per annum that would enable the Bonds to be sold on such date at a price equal to the principal amount thereof (without regard to accrued interest, if any, thereon).

“Approving Opinion” means an opinion of Bond Counsel, acceptable to the Authority, that an action being taken (i) is authorized by applicable law and this Indenture, and (ii) will not adversely affect the Tax‑exempt status of interest on the Bonds.

“Authority” means the New Jersey Economic Development Authority, a public body politic and corporate and a political subdivision of the State organized and existing by virtue of the Act, and its successors and assigns.

“Authorized Denomination” means (i) during any Variable Interest Rate Period or any Term Interest Rate Period of less than one year, $100,000 or any multiple of $5,000 in excess thereof, (ii) during any Bank Index Rate Period, denominations of $250,000 and any larger denomination constituting an integral multiple of $5,000, and (iii) at any other time, $5,000 or any multiple thereof.

“Authorized Representative” means (i) with respect to the Authority, the Chairman, Vice Chairman, Chief Executive Officer, Chief Financial Officer, Director of Bonds and Incentives, Director of Closing Services, Secretary or Assistant Secretary and, when used with reference to an act or document, also means any other person authorized by resolution of the Authority to perform such act or sign such document; (ii) with respect to the Borrower, the person or persons at the time designated to act on behalf of the Borrower by a written certificate signed by the Borrower, furnished to the Trustee, the Credit Provider, if any, and the Authority, containing the specimen signature of each such person and signed on behalf of the Borrower by its President or Vice President, which certificate may designate an alternate or alternates; and (iii) with respect to the Credit Provider, if any, the person or persons at the time designated to act on behalf of the Credit Provider by a written certificate signed by the Credit Provider, furnished to the Trustee, the Borrower and the Authority, containing the specimen signature of each such person.

“Available Moneys” means, if a Letter of Credit is then in effect, (1) moneys derived from drawings under a Letter of Credit, (2) moneys provided by the Borrower held by the Trustee in funds and accounts established under this Indenture (except the Rebate Fund or the account described in Section 4.7(G) hereof) and subject to the lien of the Indenture for a period of at least 123 consecutive days and not commingled with any moneys so held for less than said period and during and prior to which period no petition in bankruptcy was filed by or against, and no receivership, insolvency, assignment for the benefit of creditors or other similar proceeding has been commenced by or against the Borrower or the Authority, (3) investment income derived from the investment of moneys described in clause (2) so long as (A) investments of such moneys are in Investment Securities rated by each Rating Agency in any of the two highest long‑term rating categories without regard to modifiers or, if applicable, in the highest short‑term rating category without regard to modifiers and (B) with respect to such investment earnings there has been delivered to the Trustee an opinion of nationally recognized bankruptcy counsel to the effect that the use of such amounts for such purpose would not constitute a voidable preference under Section 547 of the Bankruptcy Code should the Borrower or the Authority become the debtor in a case under the Bankruptcy Code

or (4) proceeds of any remarketing of the Bonds (other than proceeds derived from a remarketing to the Authority or the Borrower or any affiliate of the Authority or the Borrower) or any refunding bonds issued to refund the Bonds.

“Bank” means, during any Bank Index Rate Period, the Holder of the Bonds, provided that there is a single Holder of all of the Bonds and provided further that the Bonds are not then held under the Book‑Entry System. If there is more than one Holder of the Bonds during any Bank Index Rate Period, “Bank” means Holders owning a majority of the aggregate principal amount of the Bonds then Outstanding. If the Bonds are then held under the Book‑Entry System during any Bank Index Rate Period, “Bank” means the Beneficial Owner of the Bonds, provided that there is a single Beneficial Owner of all of the Bonds. If there is more than one Beneficial Owner of the Bonds during any Bank Index Rate Period, “Bank” means Beneficial Owners who are the beneficial owners of a majority of the aggregate principal amount of the Bonds then Outstanding.

“Bank Bonds” has the meaning ascribed thereto in Section 4.7(C)(2)(a) hereof.

“Bank Index Rate” means the LIBOR Index Rate or the rate given such term in a Bank Index Rate Agreement.

“Bank Index Rate Agreement” means any agreement with respect to the Bonds between the Borrower and the Bank which may be designated as the Bank Index Rate Agreement.

“Bank Index Rate Bonds” means Bonds of a particular series that bear interest at a Bank Index Rate.

“Bank Index Rate Conversion Date” means each date on which the Interest Rate Period for the Bonds is changed to a Bank Index Rate Period pursuant to Section 2.3(E) (including without limitation a change from one Bank Index Rate Period to a subsequent Bank Index Rate Period).

“Bank Index Rate Period” means any period during which the Bonds bear interest at a Bank Index Rate.

“Bank Purchase Date” means, during any Bank Index Rate Period, (i) the date designated by the Borrower pursuant to Section 2.3(E)(3) and (ii) the date on which the Borrower elects to purchase the Bonds in lieu of acceleration thereof pursuant to Section 4.9.

“Bankruptcy Code” means Title 11 of the United States Code, as amended, and any successor statute or statutes having substantively the same function.

“Beneficial Owners” means those individuals, partnerships, corporations or other entities for whom the Direct Participants have caused DTC to hold Book‑Entry Bonds.

“Bond Counsel” means any attorney at law or firm of attorneys acceptable to the Trustee or the Authority of nationally recognized standing in matters pertaining to the federal tax exemption

of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America and acceptable to the Authority.

“Bond Fund” means the fund by that name established pursuant to Section 5.1 hereof.

“Bondholder” whenever used with respect to a Bond, means the person in whose name such Bond is registered.

“Bond Payment Date” means any date upon which any amounts payable with respect to the Bonds shall become due, whether on an Interest Payment Date, upon redemption, acceleration, maturity or otherwise.

“Bond Registrar” means the entity or entities performing the duties of the bond registrar pursuant to Section 2.8 hereof.

“Bonds” means, collectively, the Series 2005A Bonds, the Series 2005B Bonds and the Series 2005C Bonds.

“Book‑Entry Bonds” means the Bonds registered in the name of the nominee of DTC, or any successor securities depository for such Bonds, as the registered owner thereof pursuant to the terms and provisions of Section 2.11 hereof.

“Borrower” means New Jersey Natural Gas Company, a corporation duly organized, validly existing and in good standing under the laws of the State, or any entity which is the surviving, resulting or transferee entity in any merger, consolidation or transfer of assets permitted under Section 4.15 of the Loan Agreement and also means, unless the context otherwise requires, an assignee of the Loan Agreement as permitted by Section 4.19 of the Loan Agreement.

“Borrower Bonds” has the meaning ascribed thereto in Section 4.7(C)(2)(b) hereof.

“Business Day” means any day other than (i) a Saturday or Sunday, (ii) a day on which commercial banks in New York, New York, or the city or cities in which the Corporate Trust Office of the Trustee or the Tender Agent, the office of the Remarketing Agent designated pursuant to Section 8.12 or, if applicable, the office of the Credit Provider at which demands for payment under the Letter of Credit are to be presented are authorized or required by law to close, (iii) a day on which the New York Stock Exchange is closed, or (iv) if a Letter of Credit is in effect, any day not a business day for purposes of the Letter of Credit or the Reimbursement Agreement.

“Calculation Agent” means, (i) during any Bank Index Rate Period, such Calculation Agent as may be selected by the Borrower meeting the requirements of Sections 2.12(A) and 2.12(B), and (ii) during any Index Interest Rate Period, the Person selected by the Borrower.

“Capitalization” means the total of all the following items appearing on, or included in, the Borrower’s consolidated balance sheet: (i) liabilities for indebtedness maturing more than 12 months from the date of determination and (ii) common stock, preferred stock, premium on

capital stock, capital surplus, capital in excess of par value, and retained earnings (however the foregoing may be designated), less, to the extent not otherwise deducted, the cost of shares of the Borrower’s capital stock held in the Borrower’s treasury. Capitalization will be determined in accordance with generally accepted accounting principles and practices applicable to the type of business in which the Borrower is engaged and approved by independent accountants regularly retained by the Borrower, and may be determined as of a date not more than 60 days prior to the happening of the event for which the determination is being made.

“Certificate,” “Statement,” “Request,” “Requisition” or “Order” of the Authority, the Credit Provider or the Borrower means, respectively, a written certificate, statement, request, requisition or order signed in the name of the Authority by an Authorized Representative of the Authority, in the name of the Borrower by an Authorized Representative of the Borrower, or in the name of the Credit Provider by an Authorized Representative of the Credit Provider, as applicable. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by Section 1.2 hereof, each such instrument shall include the statements provided for in Section 1.2 hereof.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Computation Date” means with respect to Bank Index Rate Bonds, (i) during each LIBOR Index Rate Period, the first day of such period and thereafter, the second London Banking Day immediately preceding each LIBOR Index Reset Date and (ii) during any other Bank Index Rate Period, as set forth and in accordance with the terms of the applicable Bank Index Rate Agreement.

“Continuing Disclosure Agreement” means any continuing disclosure undertaking entered into by the Borrower relating to the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Conversion Date” means each date on which the Interest Rate Period for the Bonds is converted from one type of Interest Rate Period to another type of Interest Rate Period, from a Term Interest Rate Period to another Term Interest Rate Period or from a Bank Index Rate Period to another Bank Index Rate Period.

“Corporate Trust Office” means, (i) with respect to the Trustee, the corporate trust office of the Trustee at Edison, New Jersey, or such other office designated by the Trustee from time to time by notice to the Authority, the Borrower, the Credit Provider, if any, and the Remarketing Agent, and (ii) with respect to the Tender Agent, if other than the Trustee, such office designated by the Tender Agent to the Borrower, the Remarketing Agent and the Credit Provider, if any, as its Corporate Trust Office.

“Costs of Issuance” means costs or expenses directly or indirectly payable by or reimbursable to the Authority or the Borrower and related to the authorization, issuance, sale and delivery of the Bonds, including but not limited to the fees and expenses of the Authority, including

its reasonable attorneys fees, costs of preparation and reproduction of documents, printing expenses, filing and recording fees, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, underwriting fee, financial advisor fees, fees and charges for preparation, execution and safekeeping of the Bonds and any other cost, charge or fee in connection with the original issuance of the Bonds which constitutes a “cost of issuance” within the meaning of Section 147(g) of the Code.

“Counsel” means the attorney or firm of attorneys representing a particular party.

“Credit Provider” means any commercial bank, savings association or other financial institution issuing a Letter of Credit complying with Section 2.12 of the Loan Agreement and party to a Reimbursement Agreement.

“Daily Interest Rate” means a variable interest rate on all or a portion of the Bonds established daily in accordance with Section 2.3(B) hereof.

“Daily Interest Rate Period” means each period of time during which Daily Interest Rates are in effect.

“Default Rate” has the meaning set forth in the applicable Bank Index Rate Agreement.

“Determination of Taxability” means (1) during the Bank Index Rate Period, as set forth in the applicable Bank Index Rate Agreement; and (2) at all other times, a determination that, due to the untruth or inaccuracy of any representation or warranty made by the Borrower in the Loan Agreement or the breach of any covenant or warranty of the Borrower contained in the Loan Agreement, interest on the Bonds, or any of them, is determined not to be Tax‑exempt by (i) a final administrative determination of the Internal Revenue Service or a final judicial decision of a court of competent jurisdiction in a proceeding of which the Borrower received notice and in which the Borrower was afforded an opportunity to participate to the full extent permitted by law or (ii) an Approving Opinion obtained by the Borrower and delivered to the Trustee. A determination or decision will not be considered final for purposes of clause (i) of the preceding sentence unless (A) the Authority or the holder or holders of the Bonds involved in the proceeding in which the issue is raised (i) shall have given the Borrower and the Trustee prompt written notice of the commencement thereof, and (ii) shall have offered the Borrower the opportunity to control the proceeding; provided the Borrower agrees to pay all expenses and costs in connection therewith and to indemnify the Authority and such holder or holders against all liability for such expenses and costs (except that any such holder may engage separate counsel for the holder or holders of the Bonds, and the Borrower shall not be liable for the fees or expenses of such counsel but shall be liable for the fees and expenses of counsel to the Authority); and (B) such proceeding shall not be subject to a further right of appeal or shall not have been timely appealed.

“Direct Participants” means those broker‑dealers, banks and other financial institutions from time to time for which DTC holds the Bonds as securities depository.

“DTC” means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the New York Banking Law, or any successor securities depository for the Bonds.

“Effective Date” means April 18, 2019.

“Electronic Means” means telegram, telex, telecopy, electronic mail or other telecommunications or electronic telecommunications device capable of creating a written notice that is operative as between the parties and acceptable for use by them.

“Environmental Regulation” means any federal, state or local law, statute, code, ordinance, regulation, requirement or rule relating to dangerous, toxic or hazardous pollutants, hazardous substances, chemical waste, materials or substances.

“Escrow Agent” means The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as escrow agent under the Escrow Deposit Agreement with respect to the Series 1993A Bonds and Wachovia Bank, National Association, as escrow agent under the Escrow Deposit Agreement with respect to the Series 1994A Bonds.

“Escrow Deposit Agreement” means the respective Escrow Deposit Agreement among the Authority, the Borrower and the Escrow Agent with respect to the Series 1993A Bonds and Series 1994A Bonds.

“Event of Default” means any of the events specified in Section 7.1 hereof.

“Excess Interest” has the meaning set forth in Section 2.3(E)(3)(c) hereof.

“First Mortgage Bonds” means the First Mortgage Bonds defined in the recitals contained in this Indenture. References to the First Mortgage Bonds shall mean the First Mortgage Bonds of the series related to the respective series of the Bonds.

“Fitch” means Fitch Ratings, Inc., its successors and their assigns, or, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent.

“Government Obligations” means the following:

(A) bonds, notes, certificates of indebtedness, treasury bills or other securities constituting direct obligations of, or obligations on which the full and timely payment of principal and interest is fully and unconditionally guaranteed by, the United States of America; and

(B) evidences of direct ownership of a proportionate or individual interest in future interest or principal payments on specified direct obligations of, or obligations for

which the full and timely payment of the principal of and interest is unconditionally guaranteed by, the United States of America, which obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian in form and substance satisfactory to the Trustee.

“Fund” means any of the special trust funds established pursuant to this Indenture.

“Holder” whenever used herein with respect to a Bond, means the person in whose name such Bond is registered.

“Indemnified Parties” shall have the meaning set forth in Section 4.07 of the Loan Agreement and Section 5.8 hereof.

“Indenture” means this Amended and Restated Indenture, as originally executed or as it may from time to time be supplemented, modified, amended or restated, in accordance of the terms hereof.

“Index Interest Rate” means a variable interest rate on all or a portion of the Bonds established in accordance with Section 2.3(D) hereof.

“Index Interest Rate Period” means each period of time during which Index Interest Rates are in effect.

“Initial Period” means the new Term Interest Rate Period commencing on the Effective Date and ending on March 31, 2042 with respect to the Series 2005A Bonds, March 31, 2038 with respect to the Series 2005B Bonds and March 31, 20__ with respect to the Series 2005C Bonds.

“Interest Account” means the account by that name in the Bond Fund established pursuant to Section 5.2 hereof.

“Interest Payment Date” means, (i) during a Variable Interest Rate Period, the first Business Day of each calendar month next succeeding the end of the Interest Period to which such Interest Payment Date relates, (ii) during a Term Interest Rate Period of more than six calendar months (other than the Initial Period), the first day of the calendar month that is six months after the commencement of such Term Interest Rate Period, and the first day of each sixth calendar month thereafter until the end of such Term Interest Rate Period; with respect to the Bonds during the Initial Period, each February 1 and August 1, commencing August 1, 2019, (iii) each Conversion Date and (iv) the Principal Payment Date.

“Interest Period” means the period from and including any Interest Payment Date to and including the day immediately preceding the next following Interest Payment Date, except that the first Interest Period shall be the period from and including the Issuance Date to and including the day immediately preceding the first Interest Payment Date for the Bonds; provided, that while the Bonds bear interest at the Bank Index Rate, the Interest Period shall be the period as set forth and in accordance with the terms of the applicable Bank Index Rate Agreement.

“Interest Rate Period” means a Daily Interest Rate Period, a Weekly Interest Rate Period, an Index Interest Rate Period, a Term Interest Rate Period or a Bank Index Rate Period.

“Investment Securities” means any securities permitted by applicable law as selected by the Borrower in writing to the Trustee, including any of the following securities (other than those issued by the Authority or the Borrower):

(A) Government Obligations;

(B) bonds, notes or other obligations of any state of the United States or any political subdivision of any state, which at the time of their purchase are rated in either of the two highest rating categories by a nationally recognized rating service;

(C) certificates of deposit or time or demand deposits constituting direct obligations of any bank, bank holding company, savings and loan association or trust company organized under the laws of the United States or any state thereof (including the Trustee or any of its affiliates), except that investments may be made only in certificates of deposit or time or demand deposits which are:

(1) insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation, or any other similar United States Government deposit insurance program then in existence; or

(2) continuously and fully secured by Government Obligations, which have a market value, exclusive of accrued interest, at all times at least equal to the principal amount of such certificates of deposit or time or demand deposits; or

(3) issued by a bank, bank holding company, savings and loan association or trust company under the laws of the United States or any state thereof (including the Trustee or any of its affiliates) whose outstanding unsecured long‑term debt is rated at the time of issuance in either of the two highest rating categories by a Rating Agency;

(D) repurchase agreements with any bank, bank holding company, savings and loan association, trust company or other financial institution organized under the laws of the United States of America or any state thereof (including the Trustee or any of its affiliates), that are continuously and fully secured by Government Obligations and that have a market value, exclusive of accrued interest, at all times at least equal to the principal amount of such repurchase agreements, provided that each such repurchase agreement conforms to current industry standards as to form and time, is in commercially reasonable form, is for a commercially reasonable period, results in transfer of legal title to identified Government Obligations that are segregated in a custodial or trust account for the benefit of the Trustee, and further provided that Government Obligations acquired pursuant to such repurchase agreements shall be valued at the lower of the then current market value thereof or the repurchase price thereof set forth in the applicable repurchase agreement;

(E) investment agreements constituting an obligation of a bank, bank holding company, savings and loan association, trust company, insurance company or other financial institution whose outstanding unsecured short‑term debt is rated at the time of such agreement in the highest rating category by a Rating Agency or whose outstanding unsecured long‑term debt is rated at the time of such agreement in either of the two highest rating categories by a Rating Agency;

(F) short term discount obligations of the Federal National Mortgage Association and the Government National Mortgage Association;

(G) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P, of AAAm‑G, AAA‑m, or AA‑m and if rated by Moody’s, rated Aaa, Aa1 or Aa2 including any such fund to which the Trustee or any of its affiliates provides services as an investment advisor of custodian.

(H) commercial paper of “prime” quality of the highest ranking or of the highest letter and number rating as provided for by Moody’s, S&P, or Fitch, provided that the issuer of the commercial paper shall be organized and operating within the United States, shall have total assets in excess of $500,000,000, and shall issue debt, other than commercial paper that is rated “A” or higher by Moody’s, S&P, or Fitch, and provided further that such commercial paper shall have a maximum maturity of 270 days or less; and

(I) such other investments permitted by law and approved in writing by the Credit Provider, if any.

“Investor Letter” means a letter in substantially the form of Exhibit B attached hereto and delivered pursuant to Section 2.6.

“Issuance Date” means October 18, 2005.

“Letter of Credit” means (i) any irrevocable letter of credit meeting the requirements of Section 2.12 of the Loan Agreement, including any extensions, amendments or supplements thereto naming the Trustee as beneficiary and delivered to the Trustee pursuant to the terms of the Loan Agreement on (a) any Conversion Date, (b) any Business Day during a Term Interest Rate Period on which the Bonds are otherwise subject to optional redemption; or (c) any Business Day during a Variable Interest Rate Period; and (ii) in the event of delivery of an Alternate Letter of Credit, such Alternate Letter of Credit.

“Letter of Credit Account” means the account by that name in the Bond Fund established pursuant to Section 5.3 hereof.

“LIBOR Index” means the rate of interest per annum determined by the Calculation Agent based on the rate for United States dollar deposits for delivery on the LIBOR Index Reset Date for a period equal to one month as reported on Reuters Screen LIBOR01 page (or any successor page)

at approximately 11:00 a.m., London time, on each Computation Date (or if not so reported, then as determined by the Calculation Agent from another recognized source of interbank quotation). If for any reason such rate is not available at such time, then the rate for the applicable interest period will be determined by such comparable alternate method and which shall be a market conventional rate designed to measure interest rates in a similar manner, as reasonably selected by the applicable Bank, with prior written notice of such rate and corresponding calculation methodology by the Calculation Agent to the Borrower. Any successor rate or alternate methodology must be an interest-based index, variations in the value of which can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds in United States dollars. In order to account for the relationship of the replacement index to the original one-month LIBOR Index Rate, such alternate method will incorporate any positive or negative spread to any replacement index as is necessary to ensure that the alternate method will measure interest rates in a manner similar to the original one-month LIBOR Index Rate. Notwithstanding anything in this Indenture to the contrary, if the LIBOR Index determined as provided above would be less than zero percent (0.0%), then the LIBOR Index shall be deemed to be zero percent (0.0%).

“LIBOR Index Rate” means a per annum rate of interest established on each Computation Date equal to the product of (a) the sum of (i) the Applicable Spread plus (ii) the product of (x) the LIBOR Index multiplied by (y) the Applicable Factor multiplied by (b) the Margin Rate Factor; provided, however, that (A) if the LIBOR Index Rate would otherwise be 65% or less of the LIBOR Index plus the Applicable Spread, then the LIBOR Index Rate shall be 65.01% of the LIBOR Index plus the Applicable Spread and (B) if the LIBOR Index Rate would otherwise be more than 135% of the LIBOR Index plus the Applicable Spread, then the LIBOR Index Rate shall be 135% of the LIBOR Index plus the Applicable Spread. The LIBOR Index Rate shall be rounded to the fifth decimal place.

“LIBOR Index Rate Conversion Date” means (a) the date on which the Bonds begin to bear interest at the LIBOR Index Rate or (b) if the Bonds have previously borne interest at the LIBOR Index Rate during a LIBOR Index Rate Period then ending, the Bank Purchase Date or Conversion Date occurring at the end of the then ending LIBOR Index Rate Period.

“LIBOR Index Rate Period” means each period from and including a LIBOR Index Rate Conversion Date to but excluding the earliest of (i) the immediately succeeding Bank Purchase Date, (ii) the immediately succeeding Conversion Date and (iii) the Principal Payment Date or earlier redemption or purchase of all of the Bonds of such series.

“LIBOR Index Reset Date” means the first Business Day of each calendar month.

“Loan” means the loan of the proceeds of the Bonds by the Authority to the Borrower.

“Loan Agreement” means that certain Loan Agreement by and between the Authority and the Borrower, dated as of October 1, 2005, as originally executed (the “2005 Loan Agreement” ), as supplemented and amended by the Supplement and Amendment (the 2005 Loan Agreement as supplemented and amended by the Supplement and Amendment is referred to as, the “Original Loan Agreement” ), as further supplemented and amended by the Second Amendment to Loan

Agreement dated as of April 1, 2019 between the Authority and the Borrower (the “Second Amendment to Loan Agreement” and together with the Original Loan Agreement, and as it may from time to time be further supplemented, modified, amended or restated in accordance with the terms thereof and of this Indenture, the “Loan Agreement” ).

“Loan Default Event” means any one or more of the events specified in Section 5.1 of the Loan Agreement.

“Loan Documents” means this Indenture, the Loan Agreement, the Mortgage Indenture, the First Mortgage Bonds, the Continuing Disclosure Agreement, the Escrow Agreement and the Remarketing Agreement.

“Loan Payments” means the loan repayments required to be made by the Borrower pursuant to the Loan Agreement.

“London Banking Day” means any day that is a day for trading by and between banks in Dollar deposits in the London interbank market.

“Margin Rate Factor” means the greater of (a) 1.0 and (b) the product of (i) one minus the Maximum Federal Corporate Tax Rate multiplied by (ii) 1.26582, rounded upward to the second decimal place. The effective date of any change in the Margin Rate Factor shall be the effective date of the decrease or increase (as applicable) in the Maximum Federal Corporate Tax Rate resulting in such change.

“Market Agent” means a third‑party financial advisory firm, investment banking firm, commercial bank or any other financial institution with experience in pricing information for Tax‑exempt municipal securities, as selected by the Borrower, with the consent of the Bank, to serve as market agent in connection with a conversion to a Bank Index Rate Period.

“Maximum Federal Corporate Tax Rate” means, for any day, the maximum rate of income taxation imposed on corporations pursuant to Section 11(b) of the Code, as in effect as of such day (or, if as a result of a change in the Code the rate of income taxation imposed on corporations generally shall not be applicable to the Bank, the maximum statutory rate of federal income taxation which could apply to the Bank as of such day).

“Maximum Rate” means 10% per annum or with respect to Bank Bonds, 18% per annum.

“Moody’s” means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, or, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent.

“Mortgage Indenture” shall mean the Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement by and between the Borrower and U.S. Bank National Association, as trustee, dated as of September 1, 2014, as supplemented or amended.

“Mortgage Trustee” means U.S. Bank National Association, as the present trustee under the Mortgage Indenture, and its successors in the trusts thereby created.

“Net Proceeds” means the proceeds from insurance with respect to the Projects, less any costs reasonably expended by the Borrower to receive such proceeds.

“Non‑Public Information” means information in a Rule G‑34 Document that is intended to remain confidential in order to maintain internal security or confidentiality of personal information, including but not limited to fees assessed by liquidity providers, staff names and contact information and information that could be used in a fraudulent manner, such as liquidity facility bank routing or account numbers.

“Opinion of Counsel” means a written opinion of counsel (who may be counsel for the Borrower) selected by the Borrower. If and to the extent required by the provisions of Section 1.2 hereof, each Opinion of Counsel shall include the statements provided for in Section 1.2 hereof.

“Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 11.10 hereof) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except (1) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (2) Bonds with respect to which liability of the Authority shall have been discharged in accordance with Section 10.2 hereof, including Bonds (or portions of Bonds) referred to in Section 11.10 hereof; and (3) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to this Indenture.

“Owner” whenever used with respect to a Bond, means the person in whose name such Bond is registered.

“Paying Agent” means the Paying Agent described in Section 8.7 hereof.

“Person” means an individual, corporation, firm, association, limited liability company, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

“Principal Account” means the account by that name in the Bond Fund established pursuant to Section 5.2 hereof.

“Principal Payment Date” means (i) April 1, 2042 with respect to the Series 2005A Bonds; (ii) April 1, 2038 with respect to the Series 2005B Bonds; and (iii) April 1, 2059 with respect to the Series 2005C Bonds.

“Project” or “Projects” means collectively, any buildings, structures, fixtures, equipment and improvements financed or refinanced in whole or in part from the proceeds of the sale of the Refunded Bonds and the Series 2005C Bonds.

“Purchase Date” means the date on which any Bond is required to be purchased pursuant to Section 2.4, 4.6, 4.8 or 4.9 hereof.

“Purchase Price” means that amount equal to 100% of the principal amount of any Bond purchased pursuant to Section 2.4, 4.6, 4.8 or 4.9 hereof, plus accrued and unpaid interest thereon to but not including the Purchase Date.

“Purchase Price Payments” means the purchase price payments required to be made by the Borrower pursuant to Section 2.3(a) of the Loan Agreement.

“Qualified Newspaper” means The Wall Street Journal or The Bond Buyer or any other newspaper or journal containing financial news, printed in the English language and customarily published on each Business Day, of general circulation in New York, New York, and selected by the Trustee, whose decision shall be final and conclusive.

“Rating Agency” means Moody’s, if Moody’s is then rating the Bonds, S&P, if S&P is then rating the Bonds, and Fitch, if Fitch is then rating the Bonds, or any other nationally recognized securities rating agency selected by the Borrower, with the approval of the Remarketing Agent.

“Rebate Amount” and “Rebate Expert” shall have the meanings assigned to them in the Tax Agreement.

“Rebate Fund” means the fund by that name created pursuant to Section 5.6 hereof.

“Record Date” means (i) the Business Day immediately preceding the applicable Interest Payment Date during a Variable Interest Rate Period or a Term Interest Rate Period of six months or less and (ii) the day, whether a Business Day, that is the fifteenth day of the month prior to an Interest Payment Date during any Term Interest Rate Period of more than six months.

“Redemption Account” means the account by that name established in the Bond Fund pursuant to Section 5.2 hereof.

“Refunded Bonds” is defined in the recitals hereto.

“Reimbursement Agreement” means any reimbursement or letter of credit agreement pursuant to which a Letter of Credit is issued, together with any other documents executed pursuant thereto or in connection therewith or with the related Letter of Credit, as any of the same may be amended, supplemented, restated or replaced from time to time, or any other similar agreements entered into in connection with a Letter of Credit or the issuance of any Alternate Letter of Credit.

“Remarketing Agent” means U.S. Bancorp Investments, Inc., and its respective successors, under this Indenture.

“Remarketing Agreement” means the Reoffering Agreement, dated as of even date herewith, between the Borrower and the Remarketing Agent and any agreement or instrument pursuant to which a successor to the Remarketing Agent shall perform its services.

“Reserved Rights” means all of the rights of the Authority under the Loan Agreement as defined therein.

“Revenues” means all amounts received by the Authority or the Trustee for the account of the Authority pursuant or with respect to the Loan Agreement, the First Mortgage Bonds or the Letter of Credit (if applicable) including, without limiting the generality of the foregoing, Loan Payments (including both timely and delinquent payments and any late charges paid from whatever source), prepayments, insurance proceeds, condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to this Indenture, but not including Administrative Fees and Expenses and other payments to the Authority, the Trustee or other parties, including pursuant to Sections 2.3(c), 4.05, 4.06, 4.07 and 5.6 of the Loan Agreement, any moneys paid for deposit into the Rebate Fund pursuant to Section 4.04 of the Loan Agreement, Purchase Price Payments pursuant to Section 2.3(a) of the Loan Agreement, or payments received under the Letter of Credit pursuant to Section 4.7(D) hereof.

“Rule G‑34 Documents” means: (i) the letter of credit agreement, reimbursement agreement, loan agreement, guaranty agreement or standby bond purchase agreement with respect to the Bonds; (ii) the indenture, bond resolution or any other document that establishes an obligation to provide liquidity for the Bonds as well as provisions with respect to such liquidity, including, without limitation, the circumstances under which a liquidity facility may terminate, the notice period for bondholder tenders and the term out period for Bank Bonds; and (iii) any amendments, extensions, renewals, replacements or terminations thereof.

“S&P” means S&P Global Ratings, a division of S&P Global Inc., its successors and their assigns, or, if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, any other nationally recognized securities rating agency designated by the Borrower, with the approval of the Remarketing Agent.

“Securities Depository” means The Depository Trust Company, New York, New York, its successors and assigns or, if the Depository Trust Company or its successor or assign resigns from its functions as Securities Depository for the Bonds, any other securities depository that agrees to follow the procedures required to be followed by the Securities Depository in connection with the Bonds and that is selected by the Borrower as indicated in a certificate of the Borrower delivered to the Trustee.

“Series 1993A Bonds” means the $10,300,000 Natural Gas Facilities Refunding Revenue Bonds, Series 1993A (New Jersey Natural Gas Company Project).

“Series 1994A Bonds” means the $10,500,000 Natural Gas Facilities Refunding Revenue Bonds, Series 1994A (New Jersey Natural Gas Company Project).

“Series 2005A Bonds” means the series of Bonds designated as such, as provided in Section 2.1 hereof, authorized and issued hereunder in an aggregate principal amount not to exceed $10,300,000.

“Series 2005B Bonds” means the series of Bonds designated as such, as provided in Section 2.1 hereof, authorized and issued hereunder in an aggregate principal amount not to exceed $10,500,000.

“Series 2005C Bonds” means the series of Bonds designated as such, as provided in Section 2.1 hereof, authorized and issued hereunder in an aggregate principal amount not to exceed $15,000,000.

“SIFMA” means the Securities Industry & Financial Markets Association (formerly the Bond Market Association).

“SIFMA Index” means, for any Computation Date, the level of the index which is issued weekly and which is compiled from the weekly interest rate resets of Tax‑exempt variable rate issues included in a database maintained by Municipal Market Data which meet specific criteria established from time to time by SIFMA and issued on each Computation Date. If the SIFMA Index is no longer published, then “SIFMA Index” shall mean the S&P Weekly High Grade Index. If the S&P Weekly High Grade Index is no longer published, then “SIFMA Index” shall mean the prevailing rate determined by the Calculation Agent for Tax‑exempt state and local government bonds meeting criteria determined in good faith by the Calculation Agent to be comparable under the circumstances to the criteria used by SIFMA to determine the SIFMA Index immediately prior to the date on which SIFMA ceased publication of the SIFMA Index. Notwithstanding anything in this Indenture to the contrary, if the SIFMA Index determined as provided above would be less than zero percent (0.0%), then the SIFMA Index shall be deemed to be zero percent (0.0%).

“SIFMA Municipal Index” means, with respect to any date on which an Index Interest Rate is set or any other relevant date of determination, the SIFMA Municipal Swap Index as published on such date or, if not published on such date, then as published as of the most recent date for which such index was published or such other weekly, high‑grade index comprised of seven‑day, Tax‑exempt variable rate demand notes produced by Municipal Market Data, Inc., or its successor, or as otherwise designated by SIFMA; provided, however, that, if such index is no longer produced by Municipal Market Data, Inc. or its successor, then “SIFMA Municipal Index” shall mean such other reasonably comparable index selected by the Remarketing Agent in consultation with the Borrower, for Tax‑exempt state and local government bonds meeting the then‑current Securities Industry and Financial Markets Association criteria.

“State” means the State of New Jersey.

“Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending this Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder.

“Taxable Date” has the meaning set forth in the applicable Bank Index Rate Agreement.

“Taxable Rate” has the meaning set forth in the applicable Bank Index Rate Agreement.

“Tax Agreement” means the Tax Certificate of the Borrower, dated the Issuance Date, as supplemented, amended or restated thereafter.

“Tax‑exempt” means, with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from gross income of the Holders or Beneficial Owners thereof for federal income tax purposes (other than in the case of a Holder or Beneficial Owner of any Bonds who is a substantial user of the Project financed with the proceeds of such Bonds or a related person within the meaning of Section 147(a) of the Code) whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating tax liabilities, including any alternative minimum tax or environmental tax, under the Code.

“Tender Agent” means initially the Trustee and thereafter any successor tender agent appointed pursuant to Section 8.16 hereof.

“Tender Notice” has the meaning ascribed thereto in Section 2.4(A) hereof.

“Term Interest Rate” means an interest rate on all or a portion of the Bonds established in accordance with Section 2.3(C) hereof.

“Term Interest Rate Period” means each fixed period of time during which a Term Interest Rate is in effect.

“Trustee” means U.S. Bank National Association, a national banking association organized and existing under and by virtue of the laws of the United States of America, or its successor as Trustee hereunder as provided in Section 8.1.

“Variable Interest Rate” means the Daily Interest Rate, the Weekly Interest Rate, the Index Interest Rate and the Bank Index Rate.

“Variable Interest Rate Period” means each period during which a Variable Interest Rate is in effect.

“Weekly Interest Rate” means a variable interest rate on all or a portion of the Bonds established weekly in accordance with Section 2.3(B) hereof.

“Weekly Interest Rate Period” means each period during which Weekly Interest Rates are in effect.

Section 1.2. Content of Certificates and Opinions . Every certificate or opinion provided for in this Indenture with respect to compliance with any provision hereof shall include (1) a statement that the Person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement of the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such Person, such Person has made or caused to be made such examination or investigation as is necessary to enable such Person to express an informed opinion with respect to the subject matter referred to in the instrument to which such Person’s signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement of whether, in the opinion of such Person, such provision has been complied with.

Any such certificate or opinion made or given by an officer of the Authority or an officer or duly authorized representative of the Borrower may be based, insofar as it relates to legal, accounting or business matters of either of them, upon a certificate or opinion of or representation by counsel, an Accountant or a management consultant, unless such officer knows, or in the case of the Borrower, in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel, an Accountant or a management consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Authority or the Borrower, as the case may be) upon a certificate or opinion of or representation by an officer of the Authority or the Borrower, unless such counsel, Accountant or management consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such Person’s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the Authority or the Borrower, or the same counsel or Accountant or management consultant, as the case may be, need not certify to or opine upon all of the matters required to be certified to or opined upon under any provision of this Indenture, but different officers, counsel, Accountants or management consultants may certify to or opine upon different matters, respectively. All reasonable costs and expenses of the Authority incurred in connection with any such required certifications, including, but not limited to, reasonable costs and expenses of counsel, shall be borne by the Borrower, and the Authority shall have no liability therefor.

Section 1.3. Interpretation . (A) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to mean and include the neuter, masculine or feminine gender, as appropriate.

(B) Headings of articles and Sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof.

(C) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof.

Article II

The Bonds

Section 2.1. Authorization of Bonds . There shall be issued under and secured by this Indenture Bonds in the aggregate principal amount of $10,300,000, to be designated “Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project)”, in the aggregate principal amount of $10,500,000, to be designated “Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project)” and in the aggregate principal amount of $15,000,000, to be designated “Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project).” This Indenture constitutes a continuing agreement with the Holders from time to time of the Bonds to secure the full payment of the principal (or redemption price) of and interest on all such Bonds subject to the covenants, provisions and conditions herein contained.

Section 2.2. Bonds . The Bonds shall be dated the Issuance Date and shall mature (subject to prior redemption at the prices and dates and upon the terms and conditions hereinafter set forth) on the related Principal Payment Dates. The Bonds shall bear interest on the unpaid principal amount thereof as set forth in Section 2.3 hereof; provided, however, that in no event shall the rate of interest on any Bond exceed at any time the Maximum Rate. If an Event of Default shall have occurred and be continuing, then all Bonds bearing interest at (i) a Daily Interest Rate, a Weekly Interest Rate or an Index Interest Rate shall bear interest at the Alternate Rate, (ii) a Term Index Rate shall bear interest at the rate on the Bonds on the day before the Event of Default occurred, or (iii) a Bank Index Rate shall bear interest at the Default Rate, in each case from the date of such Event of Default until such Event of Default shall be cured or waived. Each Bond will bear interest from the Interest Payment Date to which interest has been paid next preceding the date of authentication thereof, unless authenticated on an Interest Payment Date to which interest has been paid, in which event it will bear interest from such Interest Payment Date, or unless no interest has been paid on such Bond, in which event it will bear interest from the Issuance Date.

The Bonds shall be issued as fully registered Bonds in Authorized Denominations. The Bonds of each series shall be issued in substantially the form set forth in Exhibit A to this Indenture with such variations, insertions or omissions as are appropriate and not inconsistent therewith and shall conform generally to the rules and regulations of any governmental authority or usage or requirement of law with respect thereto. The Bonds shall be numbered and lettered from one upward preceded by the letter “R” prefixed to the number and may bear such additional letters, numbers, legends or designations as the Bond Registrar determines are desirable.

On the Effective Date, the Bonds shall be exchanged for the outstanding Bonds of the related series, shall be registered in the name of Cede & Co. and delivered to DTC, each series of Bonds shall be evidenced by one bond certificate in the principal amount of such series of the Bonds, and during any Bank Index Rate Period each shall be issued in physical, certificated form registered in the name of the Holder thereof or as otherwise directed by the Holder. Each Bond bearing interest at a Bank Index Rate shall contain a legend indicating that the transferability of such Bond is subject to the restrictions set forth in this Indenture. Registered ownership of the Bonds, or any portion thereof, may not thereafter be transferred except as set forth in Section 2.6.

On the Effective Date, the Trustee is hereby directed to exchange the Initial First Mortgage Bonds for the First Mortgage Bonds.

The Bonds shall be subject to redemption and mandatory tender for purchase as provided in Sections 4.1, 4.6 and 4.8 hereof.

THE STATE OF NEW JERSEY IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE OF NEW JERSEY IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL, PURCHASE PRICE OR PREMIUM, IF ANY, OF OR INTEREST ON THE BONDS. THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THIS INDENTURE AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THIS INDENTURE FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER.

Section 2.3. Interest Rates . (A) The Bonds shall bear interest from and including the Issuance Date until payment of the principal or redemption price thereof shall have been made or provided for in accordance with the provisions hereof, whether at maturity, upon redemption or otherwise or until the Bonds have been accelerated pursuant hereto. Interest on the Bonds with respect to each Interest Period shall be paid on the immediately succeeding Interest Payment Date, as provided below, provided that if any Interest Payment Date is not a Business Day, such interest shall be mailed or wired pursuant to this Section 2.3 on the next succeeding Business Day, with the same effect as if made on the day such payment was due. During a Daily Interest Rate Period, Weekly Interest Rate Period, Index Interest Rate Period or a Term Interest Rate Period of six calendar months or less, interest on the Bonds shall be computed upon the basis of a 365‑day year or 366‑day year, as applicable, for the number of days actually elapsed. During any Term Interest Rate Period of more than six calendar months, interest on the Bonds shall be computed upon the basis of a 360‑day year, consisting of twelve 30‑day months. During any LIBOR Index Rate Period, interest on the Bonds shall be computed on the basis of a 360‑day year for the actual number of days elapsed. During any Bank Index Rate Period, other than a LIBOR Index Rate Period, interest on the Bonds shall be computed as set forth and in accordance with the terms of the applicable Bank Index Rate Agreement. Interest on the Bonds accruing at the Default Rate shall be computed upon the basis of a 365‑day year or 366‑day year, as applicable, for the number of days actually elapsed.

Payment of the interest on any Bond of a series shall be made to the Person appearing on the bond registration books of the Bond Registrar as the Bondholder thereof on the Record Date, such interest to be paid by the Paying Agent to such Bondholder (i) by check mailed on the Interest Payment Date to such Bondholder’s address as it appears on the registration books, or at such other address as has been furnished to the Bond Registrar as provided below in writing by such Bondholder not later than the Record Date, (ii) for any Bondholder holding Bonds of such series accruing interest at the Daily Interest Rate, the Weekly Interest Rate, the Index Interest Rate or a Bank Index Rate by wire transfer in immediately available funds at an account maintained in the United States at such wire address as such Bondholder shall specify in its written request (any such written request shall remain in effect until rescinded in writing by such Bondholder), or (iii) during a Term Interest Rate Period, upon written request at least three Business Days prior to the applicable Record Date of a Bondholder of Bonds of such series aggregating not less than $1,000,000 in principal amount, by wire transfer in immediately available funds at an account maintained in the United States at such wire address as such Bondholder shall specify in its written request (any such written request shall remain in effect until rescinded in writing by such Bondholder); except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the Bondholder in whose name any such Bonds are registered at the close of business on the fifth Business Day next preceding the date of payment of such defaulted interest. Both the principal of and premium, if any, on the Bonds shall be payable upon surrender thereof in lawful money of the United States of America at the Corporate Trust Office of the Trustee.

(B) In the manner hereinafter provided, the term of each series of Bonds (or any portion thereof pursuant to Section 2.3(G) hereof) will be divided into consecutive Interest Rate Periods, during each of which such Bonds shall bear interest at a Daily Interest Rate, Weekly Interest Rate, Index Interest Rate, Term Interest Rate or Bank Index Rate. A series of Bonds may bear interest in a different Interest Rate Period than the other series of Bonds. A series of Bonds that bears interest in the same Interest Rate Period as the other series may have different interest rates than the other series. On the Effective Date, (i) the Series 2005A Bonds shall be in a new Term Interest Rate Period and shall bear interest at the Term Interest Rate of ___% per annum, which Term Interest Rate Period shall be effective from the Effective Date and shall continue through the end of the Initial Period, which is the day before the Principal Payment Date, subject to prior redemption, (ii) the Series 2005B Bonds shall be in a new Term Interest Rate Period and shall bear interest at the Term Interest Rate of ___% per annum, which Term Interest Rate Period shall be effective from the Effective Date and shall continue through the end of the Initial Period, which is the day before the Principal Payment Date, subject to prior redemption, and (iii) the Series 2005C Bonds shall be in a new Term Interest Rate Period and shall bear interest at the Term Interest Rate of ___% per annum, which Term Interest Rate Period shall be effective from the Effective Date and shall continue through the end of the Initial Period, subject to prior redemption. Notwithstanding any other provision of this Indenture or the Bonds, no notices shall be required in connection with the conversion of the Interest Rate Period for the Bonds on the Effective Date.

(1) Determination of Daily Interest Rate and Weekly Interest Rate. During each Daily Interest Rate Period, the Bonds shall bear interest at the Daily Interest Rate, which shall be determined by the Remarketing Agent not later than 10:00 a.m. (New York City

time) on each Business Day during such Daily Interest Rate Period to take effect on such Business Day. During each Weekly Interest Rate Period, the Bonds shall bear interest at the Weekly Interest Rate, which shall be determined by the Remarketing Agent not later than 4:00 p.m. (New York City time) on Wednesday of each week (or by 4:00 p.m. (New York City time) on the next succeeding Business Day if such Wednesday is not a Business Day) during such Weekly Interest Rate Period for the week commencing on the next succeeding Thursday (unless such Weekly Interest Rate is determined on the next succeeding Business Day if Wednesday is not a Business Day, in which case it shall be effective on the day of such determination); provided, however, that if the then current Interest Rate Period is a not a Weekly Interest Rate Period, the first Weekly Interest Rate shall be determined not later than the Business Day next preceding the effective date of such Weekly Interest Rate Period. The Daily Interest Rate or the Weekly Interest Rate, as applicable, shall be the rate determined by the Remarketing Agent (on the basis of examination of obligations comparable to the applicable Bonds known by the Remarketing Agent to have been priced or traded under then prevailing market conditions) to be the minimum interest rate which, if borne by such Bonds, would enable the Remarketing Agent to sell such Bonds on the effective date of such Daily Interest Rate or Weekly Interest Rate, at a price equal to the principal amount thereof plus accrued interest; provided, however, that if for any reason such Variable Interest Rate cannot be determined, (a) the Daily Interest Rate for such Business Day and the Business Day thereafter shall remain at the then‑existing Daily Interest Rate, and thereafter (or, if the first Daily Interest Rate is not determined for a Daily Interest Rate Period), the Daily Interest Rate for such Bonds shall be the applicable Alternate Rate and (b) the Weekly Interest Rate for the next succeeding week shall remain at the then‑existing Weekly Interest Rate, and thereafter (or if for any reason the first Weekly Interest Rate is not determined for a Weekly Interest Rate Period) the Weekly Interest Rate for such Bonds shall be the applicable Alternate Rate. Each Daily Interest Rate shall apply to the period commencing on each Business Day and ending on the day before the next succeeding Business Day. The first Weekly Interest Rate determined for each Weekly Interest Rate Period shall apply to the period commencing on the first day of such Weekly Interest Rate Period and ending on the next succeeding Wednesday. Thereafter, each Weekly Interest Rate shall apply to the period commencing on Thursday and ending on the next succeeding Wednesday, unless such Weekly Interest Rate Period shall end on a day other than Wednesday, in which event the last Weekly Interest Rate for such Weekly Interest Rate Period shall apply to the period commencing on the Thursday preceding the last day of such Weekly Interest Rate Period and ending on such last day.

(2) Conversion to Daily Interest Rate Period or Weekly Interest Rate Period. The Borrower, by written direction to the Trustee and the Remarketing Agent, and accompanied by an Approving Opinion, may elect to convert the Interest Rate Period for Bonds (i) from a Weekly Interest Rate Period, an Index Interest Rate Period, a Bank Index Rate Period or a Term Interest Rate Period to a Daily Interest Rate Period or (ii) from a Daily Interest Rate Period, an Index Interest Rate Period, a Bank Index Rate Period or a Term Interest Rate Period to a Weekly Interest Rate Period; provided that no Approving Opinion shall be required in connection with a conversion from a Daily Interest Period to a Weekly Interest Period or vice versa. Such direction shall include the information set forth

in Section 2.3(B)(3), shall state whether such Bonds will be secured by a Letter of Credit and if so, the name of the Credit Provider, and shall specify the Conversion Date, which shall be the Business Day next succeeding the last day of any Daily Interest Rate Period, Weekly Interest Rate Period, Index Interest Rate Period, Bank Index Rate Period or Term Interest Rate Period, as applicable, but not less than 20 days following the date of receipt by the Trustee of such direction. If the Bonds are in an Index Interest Rate Period, a condition to conversion to a Daily Interest Rate Period or a Weekly Interest Rate Period is that all such Bonds are remarketed. If that or any other condition to conversion is not satisfied, the Bonds will not be subject to mandatory tender for purchase on the Conversion Date and will remain in the Index Interest Rate Period with the Index Interest Rate determined as if no conversion had been proposed.

(3) Notice of Conversion to Daily Interest Rate Period or Weekly Interest Rate Period. The Trustee shall give notice by mail of a conversion of Bonds to a Daily Interest Rate Period or a Weekly Interest Rate Period to the Bondholders, the Credit Provider, if any, the Remarketing Agent and the Borrower not less than 15 days prior to the Conversion Date of such Daily Interest Rate Period or Weekly Interest Rate Period. Such notice shall state (a) that the interest rate on such Bonds will be converted to a Daily Interest Rate or a Weekly Interest Rate, as applicable, (b) the effective date of such Daily Interest Rate Period or Weekly Interest Rate Period, as applicable, (c) that such Bonds will be purchased on such Conversion Date, pursuant to Section 4.6 hereof, (d) the procedures for the purchase described in (c) above, (e) the principal amount and the Interest Rate Period of the Bonds to be converted, including (if applicable) the CUSIP number or letter and numerical designator of such Bonds, and (f) if the change is from an Index Interest Rate Period, that the mandatory purchase on the Conversion Date and the conversion to a different Interest Rate Period is conditioned upon all such Bonds being remarketed on the Conversion Date.

(C) (1) Determination of Term Interest Rate. During each Term Interest Rate Period, the Bonds (or any portion thereof) shall bear interest at the Term Interest Rate, which shall be determined by the Remarketing Agent not later than 4:00 p.m. (New York City time) on the Business Day preceding the first day of such Term Interest Rate Period. The Term Interest Rate shall be the rate determined by the Remarketing Agent (on the basis of examination of obligations comparable to such Bonds known by the Remarketing Agent to have been priced or traded under then prevailing market conditions) to be the minimum interest rate which, if borne by such Bonds, would enable the Remarketing Agent to sell such Bonds on the first day of such Term Interest Rate Period at a price equal to the principal amount thereof; provided, however, that if for any reason the Term Interest Rate cannot be determined for any Term Interest Rate Period, the interest rate on such Bonds shall convert to a Weekly Interest Rate. Notwithstanding the foregoing, Bonds may be remarketed at a price other than par provided such Bonds are being remarketed for a Term Interest Rate Period to the maturity date, and the Remarketing Agent and the Trustee receive an Approving Opinion.

(2) Conversion to Term Interest Rate Period. The Borrower, by written direction to the Trustee and the Remarketing Agent, may elect that the Interest Rate Period for the Bonds (or any portion thereof) shall be a Term Interest Rate Period or, if such Bonds then bear interest at a Term Interest Rate, the Borrower may elect that such Bonds bear interest for a Term Interest Rate Period

of a different duration. Such direction (a) shall specify the Conversion Date on which such Bonds shall be purchased pursuant to Section 4.6 hereof, which date shall be (1) with respect to conversion from a Variable Interest Rate Period, the first Business Day of a month not less than 20 days following the date of receipt by the Trustee of such direction, (2) the Business Day next succeeding the last day of the then‑current Term Interest Rate Period and not less than 20 days following the date of receipt by the Trustee of such direction or (3) the Effective Date; (b) shall state whether a Letter of Credit shall secure such Bonds during the Term Interest Rate Period and, if so, state the name of the Credit Provider; (c) shall provide the information described in Section 2.3(C)(3) and (d) shall state that the Borrower will provide an Approving Opinion on the proposed Conversion Date unless such Term Interest Rate Period follows a Term Interest Rate Period of a similar duration. No later than the second Business Day prior to the proposed Conversion Date or at any earlier time as the Remarketing Agent or the Trustee may request from the Borrower, the Borrower shall provide to the Trustee and the Remarketing Agent the form of an Approving Opinion (if required) and, by written direction to the Trustee and the Remarketing Agent, shall determine the duration of the Term Interest Rate Period (which may be (i) any period of (a) three calendar months, or (b) any multiple of three calendar months, except that the duration of any such period may be adjusted to allow any subsequent Term Interest Rate Period to commence or terminate on a Business Day, or (ii) the period of time remaining to the Principal Payment Date). A conversion to the Term Interest Rate Period shall not occur unless the Borrower provides to the Trustee and the Remarking Agent an Approving Opinion on the Conversion Date. If, at least 20 days prior to the last day of any Term Interest Rate Period, the Borrower shall not have elected that the Bonds (or any portion thereof) bear interest at a Variable Interest Rate or a Term Interest Rate during the next succeeding Interest Rate Period, the next succeeding Interest Rate Period shall be a Term Interest Rate Period of the same duration as the Term Interest Rate Period currently in effect, or, if less, until the Principal Payment Date. If the Bonds are in an Index Interest Rate Period, a condition to conversion to a Term Interest Rate Period is that all such Bonds are remarketed. If that or any other condition to conversion is not satisfied, the Bonds will not be subject to mandatory tender for purchase on the Conversion Date and will remain in the Index Interest Rate Period with the Index Interest Rate determined as if no conversion had been proposed.

(3) Notice of Conversion to Term Interest Rate Period. Except upon the conversion to a Term Interest Rate Period on the Effective Date, the Trustee shall give notice by mail of each Term Interest Rate Period to the Bondholders, the Credit Provider, if any, the Remarketing Agent and the Borrower not less than 15 days prior to the effective date of such Term Interest Rate Period and, if the Bonds are then in a Term Interest Period, not less than 30 days prior to the effective date of such Term Interest Rate Period. Such notice shall state (a) that the interest rate on the Bonds will be converted to or continue to be a Term Interest Rate, (b) the Conversion Date to such Term Interest Rate Period, (c) that the Bonds will be purchased on such Conversion Date pursuant to Section 4.6 hereof, (d) the procedures for such purchase described in (c) above, (e) the principal amount and the Interest Rate Period of the Bonds to be converted, including (if applicable) the CUSIP numbers or letters and designation of such Bonds, and (f) if the Bonds are then in an Index Interest Rate Period, that the mandatory purchase on the Conversion Date and the conversion to the Term Interest Rate Period is conditioned upon all Bonds being remarketed on the Conversion Date.

(D) (1) Determination of Index Interest Rate. During each Index Interest Rate Period, the Bonds shall bear interest at the Index Interest Rate, which shall be determined by the Calculation Agent, not later than 4:00 p.m. (New York City time), on Wednesday of each week (or by 4:00 p.m. (New York City time) on the next succeeding Business Day if such Wednesday is not a Business Day), during such Index Interest Rate Period for the week commencing on the next succeeding Thursday (unless such Index Interest Rate is determined on the next succeeding Business Day if Wednesday is not a Business Day, in which case it shall be effective on the day of such determination); provided, however, that if the then current Interest Rate Period is a not an Index Interest Rate Period, the first Index Interest Rate shall be determined not later than the Business Day next preceding the effective date of such Index Interest Rate Period. The Calculation Agent shall calculate, and shall certify to the Remarketing Agent and the Borrower by Electronic Means, the Index Interest Rate applicable to the Bonds, which shall be the SIFMA Municipal Index, plus the number of basis points per annum determined by the Remarketing Agent pursuant to Section 2.3(D)(4) hereof. Such determination shall be conclusive and binding upon the Borrower, the Authority, the Trustee, the Remarketing Agent and the Holders. While the Bonds bear interest at an Index Interest Rate, at least one Business Day prior to each Interest Payment Date for the Bonds, the Trustee shall notify the Bondholders, via Electronic Means, of the effective interest rate of the Bonds during the corresponding Index Interest Rate Period. The first Index Interest Rate determined for each Index Interest Rate Period shall apply to the period commencing on the first day of such Index Interest Rate Period and ending on the next succeeding Wednesday. Thereafter, each Index Interest Rate shall apply to the period commencing on Thursday and ending on the next succeeding Wednesday, unless such Index Interest Rate Period shall end on a day other than Wednesday, in which event the last Index Interest Rate for such Index Interest Rate Period shall apply to the period commencing on the Thursday preceding the last day of such Index Interest Rate Period and ending on such last day.

(2) Conversion to Index Interest Rate Period. The Borrower, by written direction to the Trustee and the Remarketing Agent, and accompanied by an Approving Opinion, may elect to convert the Interest Rate Period for the Bonds to an Index Interest Rate Period. Such direction shall include the information set forth in Section 2.3(D)(3), including the duration of the Index Interest Rate Period, and shall specify the Conversion Date, which shall be the Business Day next succeeding the last day of any Daily Interest Rate Period, Weekly Interest Rate Period, Bank Index Rate Period or Term Interest Rate Period, as applicable, and not less than 20 days following the date of receipt by the Trustee of such direction.

(3) Notice of Conversion to Index Interest Rate Period. The Trustee shall give notice by mail of a conversion to an Index Interest Rate Period to the Bondholders, the Credit Provider, if any, the Remarketing Agent and the Borrower not less than 15 days prior to the Conversion Date of such Index Interest Rate Period. Such notice shall state (a) that the interest rate on the Bonds will be converted to an Index Interest Rate Period and the duration of such Index Interest Rate Period, (b) the effective date of such Index Interest Rate Period, (c) that the Bonds will be purchased on such Conversion Date, pursuant to Section 4.6 hereof, (d) the procedures for the purchase described in (c) above, and (e) the principal amount and the Interest Rate Period of the Bonds to be converted, including (if applicable) the CUSIP number or letter and numerical designator of such Bonds.

(4) Determination of Spread to SIFMA Municipal Index for Purposes of Determining the Index Interest Rate. For purposes of determining the Index Interest Rate pursuant to Section 2.3(D)(1) hereof, the Remarketing Agent shall, in connection with the conversion of the interest rate on the Bonds to an Index Interest Rate, determine the number of basis points which, when added to the SIFMA Municipal Index, will be the minimum interest rate which, if borne by the Bonds, would enable the Remarketing Agent to sell the Bonds on the first day of such Index Interest Rate Period at a price equal to the principal amount thereof, provided that such rate shall not exceed the Maximum Rate.

(E) Determination of Bank Index Rate.

(1) LIBOR Index Rate. During each LIBOR Index Rate Period, the Bonds shall bear interest at the LIBOR Index Rate, subject to adjustment as set forth in Section 2.3(E)(3). The Calculation Agent shall determine the LIBOR Index Rate on each Computation Date during the LIBOR Index Rate Period ( provided that the LIBOR Index Rate to be effective on the Effective Date shall be determined by the Calculation Agent on the Effective Date, based upon the LIBOR Index two London Banking Days prior to the Effective Date), and such rate shall become effective on the LIBOR Index Reset Date next succeeding the Computation Date and interest at such rate shall accrue each day during such LIBOR Index Rate Period. The LIBOR Index Rate shall be rounded upward to the fifth decimal place. Promptly following the determination of the LIBOR Index Rate, the Calculation Agent shall give notice thereof to the Trustee and the Borrower. If the LIBOR Index Rate cannot be determined by the Calculation Agent on the Computation Date, the rate of interest born on such LIBOR Index Rate Bonds shall be the rate in effect for the immediately preceding Interest Period until the Calculation Agent next determines the LIBOR Index Rate as required hereunder.

(2) Other Bank Index Rate. During any other Bank Index Rate Period, the Bonds shall bear interest at the Bank Index Rate as set forth and in accordance with the terms of the applicable Bank Index Rate Agreement.

(3) Adjustments to Bank Index Rates.

(a) Taxable Rate. From and after any Taxable Date, the interest rate on the Bonds in a Bank Index Rate Period, except as provided in Section 2.3(E)(3)(b), shall be established at a rate at all times equal to the Taxable Rate.

(b) Default Rate. Notwithstanding the foregoing provisions of this Section 2.3(E), upon the occurrence and during the continuation of an Event of Default, the interest rate for Bonds in a Bank Index Rate Period shall be established at a rate at all times equal to the greater of (a) the Default Rate and (b) the interest rate that otherwise would be applicable to the Bonds but for the provisions of this paragraph.

(c) Excess Interest. Notwithstanding anything in this Indenture to the contrary, if during a Bank Index Rate Period the rate of interest on the Bonds exceeds the Maximum Rate for such Bonds, then (a) such Bonds shall bear interest at the Maximum Rate and (b) interest at the rate equal to the difference between (i) the rate of interest for such Bonds as calculated pursuant to this Indenture and (ii) the Maximum Rate (the “Excess Interest” ) shall be deferred until such date as the rate of interest borne by such Bonds as calculated pursuant to this Section 2.3 is below the Maximum Rate, at which time Excess Interest shall be payable with respect to such Bonds in amounts that, when combined with the then‑current interest due on the Bonds, does not exceed payment at the Maximum Rate. Payments of deferred Excess Interest shall no longer be due and payable upon the earlier to occur of the date on which the Bonds are tendered for purchase in accordance with Section 4.6 hereof and are so paid or such Bonds are paid in full.

(4) Conversion to Bank Index Rate. The Borrower, by written direction to the Trustee, the Remarketing Agent and any Credit Provider, with a copy to the Authority, may elect that the Bonds shall bear interest at a Bank Index Rate. Such direction of the Borrower shall specify the proposed Conversion Date for such conversion to a Bank Index Rate Period, which shall be (i) a Business Day not earlier than the 20th day following receipt by the Trustee of such direction, (ii) in the case of conversion from a Term Interest Rate Period, the day immediately following the last day of the then‑current Term Interest Rate Period, and (iii) in the case of a conversion from a Daily Rate Period, a Weekly Rate Period, an Index Rate Period or a Bank Index Rate Period, the date immediately following an Interest Period during the Daily Rate Period, Weekly Rate Period, Index Rate Period or Bank Index Rate Period, respectively. Such direction shall be accompanied by a proposed form of an Approving Opinion. In addition, such direction shall confirm the appointment of a Calculation Agent and a Market Agent. Such direction shall also state whether such Bank Index Rate shall be a LIBOR Index Rate or such other Bank Index Rate, the new Bank Purchase Date and the new Applicable Factor (if such rate shall be a LIBOR Index Rate) and the new Applicable Spread. The new Applicable Spread shall be determined by the Market Agent such that the applicable Bank Index Rate shall be the interest rate per annum (based upon tax exempt obligations comparable, in the judgment of the Market Agent, to the Bonds and known to the Market Agent to have been priced or traded under then prevailing market conditions) to be the minimum interest rate at which a Person will agree to purchase the Bonds on the Conversion Date at a price (without regard to accrued interest) equal to the principal amount thereof. In addition, the Borrower shall provide a copy of such notice to the Calculation Agent contemporaneously with the Trustee. During each Bank Index Rate Period commencing on a date so specified and ending on the day immediately preceding the effective date of the next succeeding Interest Rate Period, the interest rate borne by the Bonds shall be a Bank Index Rate.

(5) Notice of Conversion to Bank Index Rate. The Trustee shall give notice by first‑class mail of a conversion to a Bank Index Rate Period to the Holders of the Bonds not less than 15 days prior to the proposed effective date of such Bank Index Rate Period. Such notice shall state: (i) that the interest rate on such Bonds will be adjusted to a Bank Index

Rate unless Bond Counsel fails to deliver an Approving Opinion to the Trustee, the Borrower, the Credit Provider, the Authority and the Remarketing Agent on the Conversion Date; (ii) the proposed Conversion Date for such Bank Index Rate Period; and (iii) that the Bonds are subject to mandatory tender for purchase on such proposed Conversion Date and setting forth the applicable Purchase Price and the place of delivery for purchase of the Bonds. A conversion to the Bank Index Rate shall not occur unless the Borrower provides to the Trustee an Approving Opinion on the Conversion Date.

(6) Certain Conversion between Direct Purchase Periods. Notwithstanding anything to the contrary in this Section 2.3, in the event that (i) a single Bank is the Holder of all of the Bank Index Rate Bonds of a series and (ii) such Bank and the Borrower wish to convert such Bonds to a new Bank Index Rate Period where such Bank shall repurchase all of the Bonds of such series, in such new Bank Index Rate Period, all in accordance with the terms of the applicable Bank Index Rate Agreement, such Bank and the Borrower may cause the Bonds of such series to be converted to such new Bank Index Rate Period by delivering a notice (a “Bank Index Rate Period Conversion Notice” ) in the form of Exhibit C properly completed and executed by the Borrower, the Bank and the Market Agent to the Trustee not less than 20 days prior to the Conversion Date on which the change in the Interest Rate Period is to be effective, as specified in such notice. The Bank Index Rate Period Conversion Notice shall contain that information described in paragraph (E)(4) of this Section 2.3 which relates to conversion of the Bonds to a Bank Index Rate Period. The conversion to the new Bank Index Rate Period shall not occur unless the Borrower provides to the Trustee an Approving Opinion on the Conversion Date.

(F) Determination of Interest Rate Conclusive. The determination of the interest rate on the Bonds by the Remarketing Agent, including the determination under Section 2.3(D)(4) hereof, or the Calculation Agent (in the case of Bonds in the Bank Index Rate Period) and of the SIFMA Municipal Index by the Calculation Agent, shall be conclusive and binding upon the Holders of the Bonds, the Borrower, the Authority, the Tender Agent, the Credit Provider, if any, the Bank, if any, and the Trustee. The Remarketing Agent shall furnish the interest rates that it determines to parties and in the manner specified in Section 4.7(B).

(G) Partial Conversions.

(1) General. Bonds of a series may be converted in whole or, subject to the last sentence of this paragraph, in part to any Interest Rate Period subject to the terms of this Indenture. In the event such Bonds are in (or are to be converted to) more than one Interest Rate Period, the provisions herein relating to Bonds in a particular Interest Rate Period (or to be converted to a particular Interest Rate Period) shall apply only to such Bonds in (or to be converted to) such Interest Rate Period and, where necessary or appropriate, any reference in this Indenture to the Bonds shall be construed to mean the Bonds in (or to be converted to) such Interest Rate Period. Notwithstanding anything in this Indenture to the contrary, Bonds of a series may only bear interest at a Bank Index Rate if all the Bonds of the series bear interest at such rate.

(2) Selection. In the event of any partial conversion of any series of the Bonds to a new Interest Rate Period, the Bonds or portions thereof to be converted shall be selected by the Trustee from the Bonds in the Interest Rate Period as directed by the Borrower. The particular Bonds (or portions thereof) in the Interest Rate Period to be converted shall be selected by lot by the Trustee from all the Bonds of such series in the Interest Rate Period from which Bonds are to be converted. The principal amount of Bonds to be converted shall be determined so that all of the Bonds shall be in Authorized Denominations. Bonds (or portions thereof) shall be selected by lot in any manner that the Trustee in its sole discretion shall deem appropriate and fair and such selection shall be conclusive and binding upon any affected Bondholder, the Borrower, the Remarketing Agent, the Authority and the Credit Provider, if any, and the selection of the Bonds to be converted shall occur prior to the date notice of mandatory tender is sent by the Trustee to the Bondholders pursuant to Section 4.6 hereof.

(3) Amendments. The provisions of this Indenture may be amended to permit or facilitate partial conversions of the Bonds without Bondholder consent in accordance with Section 9.1(B)(2) hereof.

Section 2.4. Demand Purchase of Bonds . (A) During any Daily Interest Rate Period or Weekly Interest Rate Period, the Bonds or portions thereof in Authorized Denominations shall be purchased at the option of the Bondholder thereof, or, with respect to Book‑Entry Bonds, at the option of the Direct Participant with an ownership interest in Book‑Entry Bonds, on any Business Day, at a price of 100% of the principal amount thereof, plus accrued interest to the Purchase Date, upon (i) delivery to the Trustee and the Tender Agent, at their respective Corporate Trust Offices, of an irrevocable notice in writing (a “Tender Notice” ) by 11:00 a.m. (New York City time) on any Business Day in the case of Bonds in a Daily Interest Rate Period, by 3:00 p.m. (New York City time) on any Business Day in the case of Bonds in a Weekly Interest Rate Period, which states the name of the registered Bondholder of such Bonds or the Direct Participant for such Bonds and such Direct Participant’s account number, as applicable, payment instructions with respect to the Purchase Price of such Bonds, the principal amount of such Bonds or portions thereof in Authorized Denominations being tendered for purchase, the CUSIP number of such Bonds and the date on which the same are to be purchased (which date, in the case of Bonds bearing interest at a Daily Interest Rate, shall be any Business Day; in the case of Bonds in a Weekly Interest Rate Period, shall be a Business Day not prior to the seventh day next succeeding the date of the delivery of such Tender Notice to the Trustee and the Tender Agent;), and (ii) (a) if the Bonds are not Book‑Entry Bonds, delivery of such Bonds to the Tender Agent at its Corporate Trust Office, accompanied by an instrument of transfer thereof in form satisfactory to the Tender Agent, executed in blank by the Bondholder thereof with the signature guaranteed in accordance with the guidelines set forth by one of the nationally recognized medallion signature programs, at or prior to 2:30 p.m. (New York City time) on the Purchase Date specified in the Tender Notice, or (b) if the Bonds are Book‑Entry Bonds, confirmation by DTC (obtained by the Direct Participant of the Book‑Entry Bonds being tendered for purchase pursuant to this Section 2.4) that such Direct Participant has an ownership interest in such Book‑Entry Bonds at least equal to the amount specified in such Tender Notice, and of the transfer on the registration books of DTC of the beneficial ownership interest in such

Book‑Entry Bonds to the account of the Trustee (or to the account of a Direct Participant acting on behalf of the Trustee).

(B) If moneys sufficient to pay the Purchase Price of the Bonds to be purchased pursuant to Section 2.4(A) hereof shall be held by the Trustee on the date such Bonds are to be purchased, any such Bonds to be so purchased which are not delivered by the Bondholders thereof to the Tender Agent or transferred on the registration books of DTC, as applicable, on the date specified for purchase thereof will be deemed to have been delivered for purchase, or transferred on the registration books of DTC, as applicable, on such date and to have been purchased. The former Holders of such Bonds, or Direct Participants with respect to Book‑Entry Bonds, will thereafter have no rights with respect to such Bonds except to receive payment of the Purchase Price therefor upon surrender of such Bonds to the Tender Agent or the transfer, on the registration books of DTC, of the beneficial interest in such Book‑Entry Bonds.

Section 2.5. Execution of Bonds . The Bonds shall be executed in the name of the Authority by the manual or facsimile signature of its Chairman, Chief Executive Officer, Chief Operating Officer, Director of Bonds and Incentives, Director of Closing Services, or any other Authority Officer of the Authority and its corporate seal shall be thereunto affixed, imprinted or otherwise reproduced and attested by the manual or facsimile signature of the Secretary or Assistant Secretary of the Authority. In case any officer who shall have signed, sealed or attested any of the Bonds shall cease to be such officer of the Authority before the Bonds so signed, sealed or attested shall have been authenticated and delivered by the Trustee, such Bonds may nevertheless be authenticated and delivered as herein provided as if the person who so signed, sealed or attested such Bonds had not ceased to be such officer. Any Bond may be signed, sealed or attested on behalf of the Authority by any person who, at the date of such act, shall hold the proper office, notwithstanding that at the date of such Bond such person may not have held such office.

Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit A, with the manual signature of the Trustee as authenticating agent, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture.

Section 2.6. Transfer of Bonds . Subject to the limitations set forth below with respect to Bank Index Rate Bonds, any Bond may, in accordance with its terms, be transferred, upon the books required to be kept pursuant to the provisions of Section 2.8 hereof, by the Person in whose name it is registered, in person or by its duly authorized attorney, upon surrender of such registered Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee. Transfer of any Bond shall not be permitted by the Trustee after the Record Date prior to the next succeeding Interest Payment Date or after notice calling such Bond (or portion thereof) for redemption has been given and prior to such redemption, except that (1) in the case of any Bond to be redeemed in part, the portion thereof not to be redeemed may be transferred and (2) transfers are permitted in connection with a tender of Bonds pursuant to Section 2.4, 4.6 or

4.8 hereof. In connection with any transfer pursuant to a tender of Bonds under Section 2.4, 4.6 or 4.8 hereof, the Trustee shall deliver to the transferee a copy of the applicable notice of redemption.

Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds of the same series and maturity for a like aggregate principal amount in Authorized Denominations. The Trustee shall require the Bondholder requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The costs of printing bonds and any services rendered or expenses incurred by the Authority or the Trustee in connection with such transfer shall be paid by the Borrower. Whenever any Outstanding Bond shall be delivered to the Trustee for transfer, exchange or cancellation pursuant to this Indenture, upon payment of the principal amount represented thereby, or for replacement, such Bond shall be promptly cancelled and cremated or otherwise destroyed by the Trustee.

During the Bank Index Rate Period, Bonds bearing interest at the Bank Index Rate may be transferred without limitation to any Affiliate of the Bank or to a trust or other custodial arrangement established by the Bank or an Affiliate of the Bank, the owners of any beneficial interest in which are limited to “qualified institutional buyers” as defined in Rule 144A promulgated under the Securities Act of 1933, as amended ( “Rule 144” ) and subject to the limitations, if any, set forth in the applicable Bank Index Rate Agreement. During the Bank Index Rate Period, Bonds bearing interest at the Bank Index Rate may be transferred to another purchaser with the prior written consent of the Borrower (other than an Affiliate of the Bank or a trust or custodial arrangement as described in the preceding sentence), which consent shall not be unreasonably withheld and shall only be required so long as no Default or Event of Default (as defined in the applicable Bank Index Rate Agreement) has occurred and is continuing, if (i) written notice of such transfer, together with addresses and related information with respect to such purchaser, is delivered to the Authority, the Borrower and the Trustee by such transferor and (ii) such purchaser shall have delivered to the Authority, the Borrower, the Trustee and the transferor an Investor Letter in the form attached hereto as Exhibit B executed by a duly authorized officer of such purchaser; provided that each such purchaser shall constitute a “qualified institutional buyer” as defined in Rule 144A, that is a commercial bank organized under the laws of the United States, or any state thereof, or any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and, in any such case, having a combined capital and surplus, determined as of the date of any transfer pursuant to this Section, of not less than $5,000,000,000 and subject to such other limitations, if any, set forth in the applicable Bank Index Rate Agreement.

Section 2.7. Exchange of Bonds . Bonds may be exchanged at the Corporate Trust Office of the Trustee for a like aggregate principal amount of Bonds of other Authorized Denominations of the same series and maturity. The Trustee shall require the Bondholder requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. The costs of printing bonds and any services rendered or expenses incurred by the Authority or the Trustee in connection with such exchange shall be paid by the Borrower.

Section 2.8. Bond Register . The Trustee, as Bond Registrar, will keep or cause to be kept at its Corporate Trust Office sufficient books for the registration and transfer of the Bonds, which shall at all times be open to inspection during regular business hours by the Authority upon reasonable notice; and, upon presentation for such purpose, the Trustee, as Bond Registrar, shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such books, Bonds as hereinbefore provided.

Section 2.9. Temporary Bonds . The Bonds may be issued in temporary form exchangeable for definitive Bonds when ready for delivery. Any temporary Bond may be printed, lithographed or typewritten, shall be in an Authorized Denomination, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds it will execute and deliver definitive Bonds as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, in exchange therefor at the Corporate Trust Office of the Trustee and the Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds in Authorized Denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder.

Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen . If any Bond shall become mutilated, the Authority, at the expense of the Holder of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and upon request delivered to the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to it and indemnity satisfactory to it shall be given, the Authority, at the expense of the Holder, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall be about to mature, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Holder of a sum not exceeding the actual cost of preparing each new Bond issued under this Section and of the expenses which may be incurred by the Authority and the Trustee in the premises. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds secured by this Indenture.

Section 2.11. Book‑Entry Only System . On the Effective Date, the Trustee shall authenticate and deliver to DTC the Bonds of the related series registered in the name of Cede & Co. in exchange for the outstanding Bonds held by DTC.

Except during a Bank Index Rate Period and unless otherwise directed by the Borrower, the Bonds will be, and the Authority hereby approves of the Bonds being, held as book-entry bonds through the facilities of DTC.

(A) Except as otherwise provided above and in subsections (B) and (C) of this Section 2.11 or as otherwise provided in a Supplemental Indenture, the Bonds may be registered in the name of Cede & Co., as nominee of DTC, New York, New York, or such other nominee as DTC shall request. Payments of interest on, principal of, any premium on, and the Purchase Price of, the Bonds shall be made to the account of Cede & Co. on each payment date for principal or interest or Purchase Price on the Bonds at the address indicated for Cede & Co. in the registration books maintained by the Bond Registrar by transfer of immediately available funds. DTC has represented to the Authority that it will maintain a book‑entry system in recording ownership interests of the Direct Participants and the ownership interests of Beneficial Owners will be recorded through book entries on the records of the Direct Participants.

(B) The Bonds shall be initially issued in the form of a single authenticated fully registered Bond for and in the amount of each series. With respect to Bonds so registered in the name of Cede & Co., the Authority, the Trustee and the Tender Agent shall have no responsibility or obligation to any Direct Participant (with the exception of the right of Direct Participants to demand purchase of Bonds pursuant to Section 2.4 hereof) or to any Beneficial Owner of such Bonds. Without limiting the immediately preceding sentence, the Authority, the Trustee, the Paying Agent, the Bond Registrar and the Tender Agent shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any Direct Participant with respect to any beneficial ownership interest in the Bonds, (ii) the delivery to any Direct Participant, Beneficial Owner or other person, other than DTC, of any notice with respect to the Bonds, including any notice of redemption, (iii) the payment to any Direct Participant, Beneficial Owner or other person, other than DTC, of any amount with respect to the principal or redemption price or Purchase Price of, or interest on, the Bonds or (iv) any consent given or other action taken by DTC as Holder of the Bonds. The Authority, the Trustee and the Tender Agent may treat DTC as, and deem DTC to be, the absolute Holder of each Bond for all purposes whatsoever (with the exception of the right of Direct Participants to demand purchase of Bonds pursuant to Section 2.4 hereof) including (but not limited to) (i) payment of the principal or redemption price or Purchase Price of, and interest on, each such Bond, (ii) giving notices of conversion or redemption and other matters with respect to such Bonds and (iii) registering transfers with respect to such Bonds. The Trustee shall pay the principal or Purchase Price or redemption price of, and interest on, all Bonds only to or upon the order of DTC, and all such payments shall be valid and effective to fully satisfy and discharge the Authority’s obligations with respect to such principal or redemption price or Purchase Price, and interest, to the extent of the sum or sums so paid. Except as provided in (C) and (D) below, no person other than DTC shall receive a Bond evidencing the obligation of the Authority to make payments of principal or redemption price or Purchase Price of, and interest on, the Bonds pursuant to this Indenture. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the transfer provisions hereof, the word “Cede & Co.” in this Indenture shall refer to such new nominee of DTC.

(C) (1) DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving reasonable written notice to the Authority or the Trustee (provided that whichever of such parties receives such notice shall promptly notify the other party if it is not clear from the notice received that such other party also was notified by DTC) and discharging its responsibilities with respect thereto under applicable law.

(2) The Authority, at the written direction of the Borrower, shall terminate, upon provision of notice to the Trustee, the Remarketing Agent and the Tender Agent, the services of DTC with respect to the Bonds.

(D) Upon the termination of the services of DTC with respect to the Bonds pursuant to subsection (C) hereof and after which no substitute Securities Depository is appointed by the Authority, at the written direction of the Borrower, the Bonds shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of Cede & Co. as nominee of DTC. In such event, the Authority shall issue and the Trustee shall authenticate, transfer and exchange Bond certificates as requested by DTC or Direct Participants of like principal amount and maturity, in Authorized Denominations to the identifiable Beneficial Owners in replacement of such Beneficial Owners’ beneficial interests in the Bonds.

(E) Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to the principal or redemption price or Purchase Price of, and interest on, such Bond and all notices with respect to such Bond shall be made and given, respectively, to DTC as provided in the letter of representations of the Authority, addressed to DTC.

(F) In connection with any notice or other communication to be provided to Bondholders pursuant to this Indenture by the Authority, the Tender Agent or the Trustee with respect to any consent or other action to be taken by Bondholders, the Authority, the Tender Agent or the Trustee, as the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible.

(G) Notwithstanding any provision herein to the contrary, the Authority and the Trustee may agree to allow DTC, or its nominee, Cede & Co., to make a notation on any Bond redeemed in part to reflect, for informational purposes only, the principal amount and date of any such redemption.

(H) Notwithstanding any provision herein to the contrary, so long as the Bonds are subject to a system of book‑entry only transfers pursuant to this Section, any requirement for the delivery of Bonds to the Tender Agent in connection with an optional or mandatory tender pursuant to Sections 2.4, 4.6 or 4.8 hereof shall be deemed satisfied upon the transfer, on the registration books of DTC, of the beneficial ownership interests in such Bonds tendered for purchase to the account of the Trustee, or a Direct Participant acting on behalf of the Trustee.

Section 2.12. Calculation Agent . (A) The Calculation Agent shall be such person as the Borrower may appoint meeting the requirements of Section 2.12(B) with the consent of the Bank. Any Calculation Agent which is not also the Bank shall designate its principal office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Borrower, the Trustee and the Bank in which the Calculation Agent will agree to perform all calculations and provide all notices required of the Calculation Agent under this Indenture.

(B) The Calculation Agent shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof and shall be authorized by law to perform all the duties imposed upon it by this Indenture and may be the Trustee, the Bank, the Credit Provider or any other Person, but may not be the Borrower or an Affiliate of the Borrower. The Calculation Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least 60 days’ notice to the Borrower, the Bank, the Trustee, the Tender Agent, the Remarketing Agent, the Credit Provider, if any. Upon receipt of such notice, during any Interest Rate Period in which the services of a Calculation Agent are required under this Indenture, the Borrower will diligently seek to appoint a successor Calculation Agent to assume the duties of the Calculation Agent on the effective date of the prior Calculation Agent’s resignation. In the event that the Borrower shall fail to appoint a successor Calculation Agent in a timely manner when required under this Indenture, the Trustee shall either (i) appoint a Calculation Agent to act as such, or (ii) petition any court of competent jurisdiction for the appointment of a successor Calculation Agent, and such court may thereupon, after such notice, if any, as it may deem proper, appoint such successor Calculation Agent; provided however, that during the pendency of any such petition the Trustee shall itself act as Calculation Agent, service in any such case shall commence on the effective date of the resignation of the prior Calculation Agent and to remain in effect until a successor Calculation Agent assumes such position in accordance with the provisions hereof. The Calculation Agent may be removed at any time with the consent of the Bank by written notice from the Borrower to the Trustee, the Tender Agent and the Credit Provider, if any, and the Remarketing Agent, provided that such removal shall not be effective until a successor Calculation Agent assumes such position in accordance with the provisions hereof.

(C) The Trustee shall, within three Business Days of the resignation or removal of the Calculation Agent or the appointment of a successor Calculation Agent, give notice thereof by Electronic Means, confirmed by first class mail, to the registered owners of the Bonds.

Article III

Issuance of Bonds; Application of Proceeds; Application of Funds

of the Borrower to Pay Costs of Issuance

Section 3.1. Issuance of the Bonds . On the Issuance Date, the Authority executed and the Prior Trustee authenticated and, at the request of the Authority, delivered the Bonds in a total aggregate principal amount not exceeding $35,800,000, consisting of the Series 2005A Bonds in an aggregate principal amount not exceeding $10,300,000, the Series 2005B Bonds in an aggregate

principal amount not exceeding $10,500,000 and the Series 2005C Bonds in an aggregate principal amount not exceeding $15,000,000.

Section 3.2. Application of Proceeds of Bonds . (a) Upon receipt of the proceeds from the sale of the Series 2005A Bonds by the Prior Trustee on behalf of the Authority in the amount of $10,300,000, the Prior Trustee transferred such proceeds on the Issuance Date to the Escrow Agent for deposit under the Escrow Deposit Agreement, which together with $119,952.08 provided by the Borrower pursuant to the Escrow Deposit Agreement, was used to pay the redemption price of the Series 1993A Bonds within 90 days of the Issuance Date.

(b) Upon receipt of the proceeds from the sale of the Series 2005B Bonds by the Prior Trustee on behalf of the Authority in the amount of $10,500,000, the Prior Trustee transferred such proceeds on the Issuance Date to the Escrow Agent for deposit under the Escrow Deposit Agreement, which together with $235,550 provided by the Borrower pursuant to the Escrow Deposit Agreement, was used to pay the redemption price of the Series 1994A Bonds within 90 days of the Issuance Date.

(c) Upon receipt of the proceeds from the sale of the Series 2005C Bonds by the Prior Trustee on behalf of the Authority in the amount of $15,000,000, the Prior Trustee transferred such proceeds on the Issuance Date to the trustee under the Original Indenture for deposit in the Construction Fund thereunder to pay for costs associated with the 2005C Project.

Article IV

Redemption and Purchase of Bonds

Section 4.1. Terms of Redemption of Bonds . The Bonds are subject to redemption if and to the extent the Borrower is entitled to make, or is required to make, a prepayment pursuant to Section 2.5 or Section 4.21 of the Loan Agreement. All such prepayments shall be deposited in the Redemption Account, which Redemption Account the Trustee shall establish and maintain within the Bond Fund as further provided in Section 5.2 hereof. The Authority shall not call the Bonds for optional redemption, and the Trustee shall not give notice of any such redemption, unless the Borrower has so directed in writing. The Bonds shall be subject to redemption upon the following terms:

(A) (i) Mandatory Redemption upon Invalidity or a Determination of Taxability. Except during a Bank Index Rate Period, if the Loan Agreement is determined to be invalid or a Determination of Taxability occurs, then Bonds Outstanding on the date of the determination of invalidity or the occurrence of such Determination of Taxability shall be redeemed in whole (or in part if the Borrower delivers an Approving Opinion addressed to the Trustee and the Authority) at any time within 60 days thereafter, at a redemption price of 100% of the principal amount thereof, without premium, plus accrued interest to the date of redemption.

(ii) Mandatory Redemption relating to First Mortgage Bonds. The Bonds of each series are subject to mandatory redemption in whole or in part on any date prior to maturity in the event the corresponding series of First Mortgage Bonds is called for redemption in the event of the sale and release, or the taking by eminent domain, of either the entire Trust Estate (as defined in the Mortgage Indenture) or all or substantially all of the portion thereof used in the Gas Business (as defined in the Mortgage Indenture) of the Borrower. Any such redemption of such Bonds shall be on the date fixed for redemption established for the First Mortgage Bonds in an aggregate principal amount equal to the principal amount of First Mortgage Bonds so called for redemption, and at a redemption price (expressed as a percentage of principal amount to be redeemed) equal to the redemption price for the First Mortgage Bonds plus accrued interest thereon to the date fixed for redemption, but only to the extent the Trustee has received funds from the Borrower in an amount sufficient to pay such redemption price.

(iii) Special Mandatory Redemption. The Bonds are also subject to mandatory redemption prior to maturity at any time if the Authority has notified the Trustee and the Borrower that (1) the Borrower has ceased to operate the Projects or has caused the Projects not to be operated as an authorized project under the Act for 12 consecutive months without first obtaining the written consent of the Authority, or (2) any representation or warranty of the Borrower in the Loan Agreement or in any other document furnished in connection with the Loan Agreement proves to have been false or misleading in any material respect when made. Any such redemption of such series of Bonds will be at a redemption price of 100% of the principal amount of the Bonds being redeemed plus interest, if any, accrued to the redemption date.

(B) Optional Redemption Upon Occurrence of Extraordinary Events. During any Term Interest Rate Period, the Bonds may be redeemed in whole or in part on any date (in such amounts and on such dates as shall be specified by the Borrower), from insurance and condemnation proceeds or other amounts that are deposited by the Borrower in the Redemption Account, at a redemption price equal to the principal amount thereof, without premium, plus accrued interest to the date of redemption, upon receipt by the Trustee of a specific written notice from the Borrower stating that any of the following events has occurred:

(1) all of the Projects are, or a portion thereof is, damaged, destroyed, condemned or taken by eminent domain to such extent that, in the opinion of the Borrower contained in a certificate provided to the Authority and the Trustee, which certificate may be conclusively relied upon by the Trustee and the Authority, (i) it is not practicable or desirable to rebuild, repair or restore the Projects or the portion thereof within a period of six consecutive months following such damage, destruction or condemnation, and the Borrower is or will be thereby prevented from carrying on its normal operations at the Projects or the portion thereof for a period of at least six consecutive months, or (ii) the cost of restoration of the Projects or the portion thereof would substantially exceed the Net Proceeds of insurance carried thereon; or

(2) the continued operation of the Projects is enjoined or prevented or is otherwise prohibited by, or conflicts with, any order, decree, rule or regulation of any court or federal, state or local regulatory body, administrative agency or other governmental body.

(C) Optional Redemption during Variable Interest Rate Period or on any Conversion Date. On any Business Day during a Variable Interest Rate Period (except a Bank Index Rate Period) and on any Conversion Date, the Bonds may be redeemed by the Trustee, at the option of the Authority upon written direction of the Borrower as provided in Section 2.5 of the Loan Agreement, in whole or in part, at a redemption price of 100% of the principal amount thereof, without premium, plus accrued interest to the date of redemption.

Subject to any limitations set forth in the applicable Bank Index Rate Agreement, during any Bank Index Rate Period, the Bonds are subject to redemption on any Interest Payment Date and on any Conversion Date at the direction of the Borrower as provided in Section 2.5 of the Loan Agreement, in whole or in part in such amounts as are designated by the Borrower at a redemption price equal to the principal amount of Bonds called for redemption, plus interest accrued thereon, if any, to the date fixed for redemption, without premium.

(D) Optional Redemption during Term Interest Rate Period. During any Term Interest Rate Period other than the Initial Period, the Bonds shall be subject to redemption prior to their stated maturity, in whole or in part, (i) on the final Interest Payment Date for such Term Interest Rate Period; and (ii) prior to the end of a Term Interest Rate Period which is longer than ten years, on any date immediately succeeding the tenth anniversary of the commencement of the Term Interest Rate Period, in each case at the option of the Authority upon written direction of the Borrower as provided in Section 2.5 of the Loan Agreement, at the redemption price of 100% of the principal amount thereof, plus accrued interest, if any, to the redemption date. During any Term Interest Rate Period of ten years or shorter, the Bonds shall not be subject to optional redemption under this Section 4.1(D) other than on the final Interest Payment Date for such Term Interest Rate Period. During the Initial Period, each of the Series 2005A Bonds and the Series 2005B Bonds shall be subject to redemption prior to their stated maturity in whole or in part on any date on or after April 1, 2024, in each case at the option of the Authority upon written direction of the Borrower as provided in Section 2.5 of the Loan Agreement, at the redemption price of 100% of the principal amount thereof, plus accrued interest, if any, to the redemption date.

Notwithstanding the optional redemption schedule set forth above, on or prior to the effective date of a Term Interest Rate Period, the Borrower can provide an alternate optional redemption schedule if it obtains an Approving Opinion addressed to the Authority and the Trustee.

Section 4.2. Selection of Bonds for Redemption . Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds or such given portion thereof not previously called for redemption by lot

provided that Bank Bonds shall be selected prior to any other Bonds. Redemption shall be made so that no Bond shall remain Outstanding in an amount that is not an Authorized Denomination.

Section 4.3. Notice of Redemption . (A) Notice of redemption shall be mailed by first class mail not less than 30 days (15 days in case of redemption under Section 4.1(C) hereof) nor more than 60 days before such redemption date, to the respective Holders of any Bonds designated for redemption at their addresses on the registration books maintained by the Bond Registrar. Each notice of redemption shall state the redemption date, the place or places of redemption, if less than all of the Bonds are to be redeemed, the series and distinctive number(s) of the Bonds to be redeemed, and in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Subject to the second succeeding sentence, each such notice shall also state that on said date there will become due and payable on each of said Bonds the principal thereof or of said specified portion of the principal thereof in the case of a Bond to be redeemed in part only, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Neither failure to receive such notice nor any defect therein shall affect the sufficiency of such redemption. With respect to any notice of optional redemption of Bonds at the specific written direction of the Borrower, unless upon the giving of such notice Bonds shall be deemed to have been paid within the meaning of Article X, such notice may state (if so directed by the Borrower in writing to the Trustee) that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys (or Available Moneys if a Letter of Credit is then in effect) sufficient to pay the principal of, and premium, if any, and interest on, such Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no further force and effect and the Authority shall not be required to redeem such Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made and the Trustee shall promptly thereafter give notice to such Holders, in the manner in which the notice of redemption was given, that such moneys were not so received.

(B) If the Bonds have a CUSIP number or CUSIP numbers assigned, then the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Bonds, and any such redemption shall not be affected by any defect in or omission of such numbers.

(C) Notice of redemption of the Bonds shall be given by the Trustee, at the expense of the Borrower, for and on behalf of the Authority.

(D) At the same time that it sends notice of redemption to Holders of the Bonds, the Trustee shall also send a copy of the notice by first class mail, by telecopy or by overnight delivery to the Remarketing Agent, to the Tender Agent, to the Credit Provider, if any, and to the Securities Depository, if the Bonds are then held by the Securities Depository. Failure to provide notice to the Remarketing Agent, to the Tender Agent, to the Credit Provider, if any, or to the Securities Depository shall not affect the validity of proceedings for the redemption of the Bonds.

Section 4.4. Partial Redemption of Bonds . Upon surrender of any Bond redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Borrower, a new Bond or Bonds of Authorized Denominations equal in aggregate principal amount to the unredeemed portion of the Bond surrendered.

Section 4.5. Effect of Redemption of Bonds . Notice of redemption having been duly given as aforesaid, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, the Bonds (or portions thereof) so called for redemption being held by the Trustee on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under this Indenture (except for payment of particular Bonds for which moneys are being held by the Trustee and which money shall be pledged to such payment), and the Holders of said Bonds shall have no rights in respect thereof except to receive payment of said principal, premium, if any, and interest accrued to the date fixed for redemption.

Section 4.6. Mandatory Tender for Purchase of Bonds . (A)(1) On any Conversion Date or Bank Purchase Date for the Bonds; provided that if the Conversion Date is from a Bank Index Rate Period to another Bank Index Rate Period, the Bondholder may repurchase the Bonds pursuant to Section 2.3(E)(6);

(2) On the last Business Day not less than five calendar days preceding the expiration date of any then current Letter of Credit if no Alternate Letter of Credit will be provided, except that if subparagraph (A)(1) or subparagraph (A)(3) will also apply, this subparagraph will not apply;

(3) On the effective date of any Letter of Credit or Alternate Letter of Credit complying with the requirements of Section 2.12 of the Loan Agreement (or if such date is not a Business Day on the next succeeding Business Day); and

(4) On the date set forth in a notice provided by the Credit Provider or the Borrower in accordance with Section 4.9 hereof that the Credit Provider or the Borrower, as applicable, has elected to purchase the Bonds in lieu of acceleration thereof.

The Holder or Direct Participant of each Bond shall tender such Bond for purchase as provided below and such Bond shall be purchased or deemed purchased as provided in Section 4.7(A)(3) hereof at a Purchase Price equal to the principal amount thereof plus accrued and unpaid interest thereon. Subject to Section 4.7(G) hereof, payment of the Purchase Price of such Bond shall be made by 3:00 p.m. (New York City time), in the same manner as payment of interest on the Bonds, to the Bondholders of record on the Record Date. If the Bonds are not Book‑Entry Bonds, the Holders shall deliver the Bonds no later than 2:30 p.m. (New York City time) on the Purchase Date to the Tender Agent at its Corporate Trust Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, with the signatures guaranteed in accordance with the guidelines set forth by one of the nationally recognized medallion signature programs. If the Bonds are Book‑Entry Bonds, on the Purchase Date, the tendering Direct Participants shall transfer, on the registration books of DTC, the beneficial ownership interests in

the Bonds tendered for purchase to the account of the Trustee or a Direct Participant acting on behalf of the Trustee.

(B) Any instrument delivered to the Trustee or Tender Agent in accordance with this Section shall be irrevocable with respect to the mandatory purchase for which such instrument was delivered and shall be binding upon any subsequent Bondholder or Direct Participant of the Bond to which it relates (including any Bond issued in exchange therefor or upon the registration of transfer thereof) and as of the date of such instrument.

(C) (1) Whenever the Borrower has delivered to the Trustee a notice of the delivery of a Letter of Credit or an Alternate Letter of Credit pursuant to Section 2.12 of the Loan Agreement, the Trustee shall mail by first class mail a notice to all Holders of the Bonds stating that the Bonds will be subject to mandatory tender for purchase on the effective date of the Letter of Credit or Alternate Letter of Credit (or if not a Business Day on the next succeeding Business Day) and information on where such Bonds are to be delivered. Such notice shall be mailed at least 10 days prior to the effective date of the Letter of Credit or Alternate Letter of Credit and a copy of such notice shall be provided to the Credit Provider, if any.

(2) The Trustee shall provide notice to the Authority, each Rating Agency then rating the Bonds, the Remarketing Agent and the Borrower upon the receipt of any Letter of Credit or Alternate Letter of Credit.

(3) In the event of a mandatory tender pursuant to Section 4.6(A)(2) hereof, the Trustee shall mail by first class mail a notice to all Holders of the Bonds stating that the Bonds will be subject to mandatory tender on the last Business Day not less than five calendar days preceding the expiration date of the Letter of Credit. Such notice shall be mailed at least 30 days prior to the expiration date of the Letter of Credit and a copy of such notice shall be provided to the Remarketing Agent and the Credit Provider, if any.

Section 4.7. Purchase and Remarketing of Bonds.

(A) Purchase of Bonds. Whenever the Bonds are Book‑Entry Bonds, all references in this Section 4.7 to the Tender Agent shall instead mean the Trustee, as the context may require.

(1) As soon as practicable but in any event no later than (a) 11:00 a.m. (New York City time) on the Business Day after a Tender Notice is received during a Weekly Interest Rate Period or (b) 11:15 a.m. (New York City time) on the same Business Day that a Tender Notice is received during a Daily Interest Rate Period, the Tender Agent shall give telephonic, electronic, or telecopier notice, promptly confirmed in writing, to the Trustee, the Borrower and the Remarketing Agent, specifying the principal amount of Bonds tendered pursuant to Section 2.4(A) hereof. The Trustee shall promptly supply the same notice to the Credit Provider.

(2) The Tender Agent shall purchase, but only from the sources listed below, Bonds required to be purchased in accordance with Section 4.6, 4.8 or 4.9 or tendered

pursuant to Section 2.4(A) hereof from the Holders thereof by 3:00 p.m. (New York City time) on the date such Bonds are required to be purchased at the Purchase Price provided in Section 4.6 or Section 2.4(A) hereof. Funds for the payment of such Purchase Price shall be derived from the following sources in the order of priority indicated:

(a) the proceeds of the sale of the Bonds (but only such remarketing proceeds as are received from purchasers of the Bonds pursuant to Section 4.7(B) hereof) furnished to the Tender Agent by the Trustee, which shall have received such funds from the Remarketing Agent against delivery of the remarketed Bonds to the Remarketing Agent; provided, however, that while a Letter of Credit is then in effect such proceeds shall not have been derived from the Authority or the Borrower unless subparagraph (c) below applies;

(b) moneys furnished to the Tender Agent representing the proceeds of a draw under the Letter of Credit; and

(c) (i) if the Bonds are subject to an Interest Rate Period that is not a Bank Index Rate Period, only if the Credit Provider has failed to pay a drawing on the Letter of Credit, if the Letter of Credit has been repudiated or if there is no Letter of Credit, and the sources in subparagraphs (a) and (b) above are insufficient, from Purchase Price Payments furnished by the Borrower to the Tender Agent; and (ii) if the Bonds are subject to a Bank Index Rate Period and the source in subparagraph (a) above is insufficient, from Purchase Price Payments furnished by the Borrower to the Tender Agent.

(3) The provisions of this Section 4.7(A)(3) shall not apply at any time that the Bonds are Book‑Entry Bonds. With respect to any Bonds tendered for purchase or required to be tendered for purchase, for which sufficient funds to accomplish such purchase are available to the Tender Agent at the respective times at which payment of the Purchase Price is to be made as provided herein:

(a) Such Bonds shall be deemed purchased for all purposes of this Indenture, irrespective of whether or not such Bonds shall have been presented to the Tender Agent, and the former Holder or Holders of such Bonds shall have no claim thereon, under this Indenture or otherwise, for any amount other than the Purchase Price thereof and such Bonds shall no longer be deemed to be Outstanding for purposes of this Indenture and the Bond Registrar shall so note on the Bond Register for the Bonds.

(b) Subject to Section 4.7(G) hereof, in the event that any Bonds shall not be presented to the Tender Agent, the Tender Agent shall segregate and hold the moneys for the Purchase Price of such Bonds in trust, uninvested, as provided in Section 5.5 hereof for the benefit of the former Holders of such Bonds, who shall thereafter be restricted exclusively to such moneys for the satisfaction of any claim for the Purchase Price of such Bonds.

(c) In the event that any Bonds shall not be presented to the Tender Agent at the time specified in Section 2.4, 4.6 or 4.8 hereof (each, an “Undelivered Bond” ), then the Authority shall execute and deliver to the Tender Agent, and the Tender Agent shall deliver to the Trustee for authentication, a new Bond or Bonds, as the case may be, in an aggregate principal amount equal to the principal amount of the Undelivered Bonds bearing a number or numbers not contemporaneously outstanding. Every Bond authenticated and delivered as provided in the preceding sentence shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder. The Tender Agent shall maintain a record of any Undelivered Bonds, together with the names and addresses of the former Holders thereof.

(d) In case any Bonds which have been deemed purchased as provided in Section 4.7(A)(3)(a) hereof are delivered to the Tender Agent subsequent to the date and time specified for such delivery for payment of the Purchase Price thereof at its Corporate Trust Office, accompanied by an instrument of transfer thereof, in form satisfactory to the Tender Agent, executed in blank by the Holder thereof with the signature guaranteed in accordance with the guidelines set forth by one of the nationally recognized medallion signature programs on any Business Day, the Tender Agent shall (subject to Section 4.7(G) hereof) pay the Purchase Price of such Bond to the Holder no later than 12:30 p.m. (New York City time) on the next succeeding Business Day. Any such Bond so delivered to the Tender Agent shall be canceled and delivered to the Trustee.

(B) Notice of Interest Rates; Remarketing of Bonds; Restrictions on Remarketing.

(1) The Remarketing Agent or the Calculation Agent, as the case may be, shall determine the rate of interest to be borne by the Bonds as provided in Section 2.3 hereof and shall furnish to the Remarketing Agent, the Trustee, the Credit Provider and the Tender Agent in a timely manner all information necessary for the Tender Agent and the Trustee to carry out their respective duties hereunder, including, but not limited to, the interest rates applicable to all Bonds.

(2) The Remarketing Agent or the Calculation Agent, as the case may be, shall periodically inform the Trustee, the Credit Provider, and DTC pursuant to the letter of representations described in Section 2.11(E) hereof, if so requested, of the rate of interest borne by the Bonds from time to time.

(3) The Remarketing Agent shall, pursuant to and subject to the Remarketing Agreement, use its best efforts to sell any Bonds tendered for purchase to new purchasers, and shall arrange for the Purchase Price of remarketed Bonds to be deposited with the Trustee against the delivery of remarketed tendered Bonds. Not later than 12:00 noon (New York City time) or, if later, one hour before the time by which the Trustee would be required to draw on the Letter of Credit pursuant to Section 4.7(D)(1) below, or, if no Letter of Credit is in effect, not later than 11:30 a.m. (New York City time) on the Purchase Date, the

Remarketing Agent shall notify the Tender Agent of (i) the amount of Bonds which have been remarketed and for which remarketing proceeds will be deposited with the Trustee (against delivery of the remarketed Bonds) and the name, address and taxpayer identification number of the new purchasers and the denominations with respect to which such remarketed Bonds are to be registered and (ii) if applicable, the amount required to be drawn under the Letter of Credit or, if no Letter of Credit is in effect, the amount required to be provided by the Borrower to provide sufficient funds to purchase the Bonds actually tendered or deemed tendered for which no remarketing proceeds are available as of the time of such notice. Not later than 12:00 p.m. (New York City time) on the Purchase Date, the Tender Agent shall notify the Trustee, the Borrower and the Credit Provider, if any, of the same. Notwithstanding the above, the Trustee will draw by the time required under the Letter of Credit an amount equal to the amount required to pay the tendering Bondholders minus the proceeds it has on hand prior to the required draw time. Notwithstanding anything in this Indenture to the contrary, Bonds may be remarketed only at a price of par (except with an Approving Opinion, for a Term Interest Rate Period which has a term to the maturity date of such Bonds), plus accrued interest, if any.

(4) While a Letter of Credit is in effect, the Remarketing Agent shall not sell any Bonds to the Authority, the Borrower or any affiliate of the Authority or the Borrower, except under the circumstances described in Section 4.7(D)(2).

(5) Notwithstanding the foregoing Section 4.7(B)(3), the Remarketing Agent shall not offer any tendered Bonds for sale upon written instructions from the Borrower to suspend remarketing efforts. In such event, provided sufficient funds are available, the Trustee shall purchase tendered Bonds from the other sources described in Section 4.7(B)(3).

(1) The Tender Agent and the Trustee shall each hold all Bonds delivered to them respectively in trust for the benefit of the respective Holders which shall have so delivered such Bonds or for the Direct Participants who have transferred their interests in the Book‑Entry Bonds until moneys representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Holders or Direct Participants. The Trustee, for Book‑Entry Bonds, or the Tender Agent (or after five days, as provided in Section 4.7(G), the Trustee) for non‑Book‑Entry Bonds, shall each hold all moneys for the purchase of Bonds in trust in non‑commingled funds, uninvested, for the benefit of the person or entity which shall have so delivered such moneys until Bonds purchased with such moneys shall have been delivered to or for the account of such person or entity. Neither the Authority nor the Borrower shall have any right, title, or interest in or to any moneys held by the Trustee, the Tender Agent or the Remarketing Agent or pursuant to Section 4.7(G) hereof. Bonds purchased with moneys described in Section 4.7(A)(2)(a) hereof, including without limitation Bonds issued in place of such Bonds pursuant to Section 4.7(A)(3)(c) hereof, shall be registered as directed by the Trustee (based on specific written instructions received from the Remarketing Agent) and made available to the Remarketing Agent by

2:00 p.m. (New York City time) on the date of such purchase or transferred on the registration books of DTC on the date of such purchase or the date the ownership interest shall be transferred to the new Direct Participants on the books of DTC, against payment in immediately available funds or evidence of immediately available funds in the form of a federal reserve wire number.

(2) (a) Bonds purchased with moneys obtained by a drawing on a Letter of Credit (the “Bank Bonds” ), including without limitation Bonds issued in place of such Bonds pursuant to Section 4.7(A)(3)(c) hereof, shall be registered in the name of the Credit Provider on the registration books of DTC in accordance with DTC’s rules with respect to Book‑Entry Bonds, or, if not Book‑Entry Bonds, shall be registered in the name of the Credit Provider and delivered to the Credit Provider or the Trustee or Tender Agent, as agent for the Credit Provider. The Remarketing Agent shall seek to remarket any such Bank Bonds prior to remarketing any other Bonds tendered for purchase. The proceeds of any remarketing of Bank Bonds shall, except as provided in Section 4.7(D)(1), be delivered to the Credit Provider. Upon receipt by the Credit Provider of funds representing the proceeds of the remarketing of Bank Bonds, the Credit Provider shall notify the Trustee of the receipt and amount of such funds and the Trustee shall cause Bonds in place of such Bank Bonds to be made available for pick‑up by the Remarketing Agent for subsequent delivery to the purchasers thereof and shall cause such Bank Bonds to be canceled, or the ownership interest shall be transferred to the new Direct Participants on the books of DTC. Prior to such delivery, the Trustee or the Tender Agent shall have received written confirmation from the Credit Provider of the reinstatement of the Letter of Credit.

(b) Bonds purchased with moneys provided by the Borrower as Purchase Price Payments ( “Borrower Bonds” ), including without limitation Bonds issued in place of such Bonds pursuant to Section 4.7(A)(3)(c) hereof, shall be registered as follows: (A) if the Bonds are Book‑Entry Bonds, in the name of the Borrower on the registration books of DTC in accordance with DTC’s rules, or (B) if not Book‑Entry Bonds, in the name of the Borrower and delivered to the Borrower or to the Trustee or Tender Agent, as agent for the Borrower for this purpose. The Remarketing Agent shall seek to remarket any such Borrower Bonds prior to remarketing any other Bonds tendered for purchase except Bank Bonds. The proceeds of any remarketing of Borrower Bonds shall be delivered to the Borrower. Upon receipt by the Borrower of funds representing the proceeds of the remarketing of Borrower Bonds, the Borrower shall notify the Trustee of the receipt and amount of such funds and the Trustee shall cause Bonds in place of such Borrower Bonds to be made available for pick‑up by the Remarketing Agent for subsequent delivery to the purchasers thereof and shall cause such Borrower Bonds to be canceled, or the ownership interest shall be transferred to the new Direct Participants on the books of DTC.

(3) In the event that the Remarketing Agent is able to remarket any Bonds required to be purchased pursuant to Section 2.4, 4.6 or 4.8 hereof after the time on which the Remarketing Agent is required to provide notice to the Trustee as specified in Section 4.7(B)(3), or after the Trustee has given notice to the Borrower pursuant to Section 4.7(D)(2) if no Letter of Credit is then in effect, the Remarketing Agent shall give

notice in the manner and containing the details set forth in said Section 4.7(B)(3), as soon as practicable after such remarketing, and the Bonds shall be registered in the names of the purchasers thereof and made available to the Remarketing Agent as soon as practicable thereafter on such date or the next succeeding Business Day or transferred on the registration books of DTC to the account of Direct Participants furnished to the Trustee or Tender Agent, as applicable, by the Remarketing Agent.

(4) If any Bond is tendered after a notice of redemption for such Bond has been given, the Remarketing Agent will give the redemption notice to any purchaser of such Bond or to DTC if a Book‑Entry Bond and the purchaser (or the Direct Participant in the case of a Book‑Entry Bond) shall be required to acknowledge receipt of such redemption notice as a condition to such remarketing.

(D) Draws Upon the Letter of Credit; Payments of Purchase Price by Borrower.

(1) While a Letter of Credit is in effect, the Trustee shall draw on the Letter of Credit in an amount necessary and in sufficient time (as set forth by the terms of the Letter of Credit) so as to provide to the Trustee or Tender Agent, as applicable, the balance of the funds needed to purchase tendered Bonds under Sections 2.4, 4.6 or 4.8 hereof by 2:30 p.m. (New York City time) on the Purchase Date, in an amount equal to the difference between the Purchase Price of the Bonds tendered and the remarketing proceeds received by the Trustee in conformance with the Remarketing Agent’s notice pursuant to Section 4.7(B)(3) hereof prior to the draw time. If the Remarketing Agent remarkets Bonds after giving the notice pursuant to Section 4.7(B)(3) hereof prior to the time required to draw on the Letter of Credit, the Remarketing Agent or the Trustee (i) if a Letter of Credit is in effect and the Credit Provider has honored the drawing for the Purchase Price, shall deliver such remarketing proceeds to the Credit Provider as provided in Section 4.7(C)(2) against delivery of Bank Bonds or (ii) if a Letter of Credit has been dishonored or is not in effect, deliver such proceeds to the Trustee against delivery of remarketed tendered Bonds, which will use the remarketing proceeds to pay the Purchase Price if the same has not been paid or will transfer the remarketing proceeds to the Borrower to reimburse the Borrower for its payment of the Purchase Price. The Trustee shall transfer to the Credit Provider any excess moneys received from a draw on the Letter of Credit that are not needed to pay the Purchase Price of the Bonds on the Purchase Date. If the Trustee submits a draw request on the Letter of Credit by facsimile, the Trustee shall endeavor to telephonically confirm with the Credit Provider the terms of such draw request.

(2) If the Trustee has made a drawing on the Letter of Credit and the Credit Provider fails to make a payment for the Purchase Price of tendered Bonds by 2:30 p.m. (New York City time) on the Purchase Date or the Letter of Credit has been repudiated, or if there is no Letter of Credit and the Trustee does not have sufficient funds from remarketing of the Bonds by 12:00 noon (New York City time), the Trustee shall promptly notify the Borrower by telephone promptly confirmed in writing and request payment from the Borrower in accordance with the provisions of Section 4.7(A)(2)(c) hereof of the applicable Purchase Price in immediately available funds by 2:45 p.m. (New York City time) on the

Purchase Date, and in the event the Bonds are not Book‑Entry Bonds, the Trustee will direct the Borrower to transfer the funds to the Tender Agent.

(E) Delivery of Proceeds of Sale. Upon receipt, the proceeds of the remarketing by the Remarketing Agent of any Bonds shall be immediately applied by the Trustee or the Tender Agent, as applicable, to the payment of the Purchase Price of Bonds to the Holders or Beneficial Owners thereof pursuant to Section 4.7(A)(2)(a) hereof or to the reimbursement of the Credit Provider or the Borrower for such payment pursuant to Section 4.7(D)(1). The Trustee or Tender Agent, as applicable, will make the Bonds available for delivery against receipt of proceeds of the remarketing to the Remarketing Agent and will register such Bonds pursuant to the instructions of the Remarketing Agent or will direct the transfer on the registration books of DTC pursuant to the instructions of the Remarketing Agent or (1) in the case of the remarketing of Bonds which constitute Bank Bonds, as provided in Section 4.7(C)(2)(a) hereof and (2) in the case of the remarketing of Bonds which constitute Borrower Bonds, as provided in Section 4.7(C)(2)(b) hereof. In making payments to the Credit Provider or the Borrower, as applicable, the Trustee may conclusively assume that the Credit Provider or the Borrower, as applicable, has not been repaid from any other sources. To the extent that the Credit Provider is repaid with proceeds of the sale of Bank Bonds by the Remarketing Agent, or the Borrower is repaid with proceeds of the sale of Borrower Bonds, new Bonds shall be registered and delivered (or ownership interests transferred) as provided in Section 4.7(C)(1) hereof.

(F) No Remarketing During Default. Notwithstanding any other provision of this Indenture, there shall be no remarketing of Bonds under Section 4.7(B)(3) hereof during an Event of Default under Article VII hereof and the rate of interest borne by the Bonds shall be as set forth in Section 2.2 of this Indenture.

(G) Unclaimed Moneys. The Tender Agent shall, at the end of the fifth Business Day after a Purchase Date, transfer to the Trustee all funds then held on hand by virtue of the fact that Bonds deemed tendered on such date were not presented for purchase to the Tender Agent in accordance with the provisions of Sections 4.7(A)(3) or 4.7(C) hereof, such funds to be held by the Trustee in trust, in a segregated account for the benefit of the Bondholders (the “Unclaimed Moneys Fund” ), for the payment of the Purchase Price thereof to the former Holders of such Bonds as required by the provisions of Sections 4.7(A)(3) or 4.7(C) hereof. The Trustee shall pay such Purchase Price from such amounts by check or draft of the Trustee made payable to the party entitled to such payment as soon as practicable after such party surrenders the Bond or Bonds so deemed purchased to the Trustee. Any such moneys so held in trust by the Trustee shall be held uninvested until paid to the person entitled thereto or disposed of as provided by law.

(H) Purchase of Tendered Bonds with Purchase Price Payments Not to be Deemed a Redemption of Bonds. Anything herein to the contrary notwithstanding, in no event shall the purchase of Bonds with Purchase Price Payments pursuant to this Section 4.7 be deemed to constitute a redemption of such Bonds, and the Borrower Bonds shall be and remain outstanding until they are remarketed in accordance with the provisions of Section 4.7, except upon the written notice by the Borrower to the Trustee and the Tender Agent that the Borrower has elected to treat the Borrower Bonds as paid and retired in full, accompanied by the surrender of said Borrower Bonds to the

Trustee for cancellation, in the event that the Bonds are not Book‑Entry Bonds at the time of said notice.

Section 4.8. Purchase in Lieu of Optional Redemption. The Borrower shall have the option to cause the Bonds to be purchased in lieu of redemption pursuant to Section 4.1(C) or (D) hereof. Such option shall be exercised by the Borrower by delivering to the Trustee on or prior to the Business Day preceding the redemption date a written direction of the Borrower specifying that the Bonds shall not be redeemed, but instead shall be subject to purchase pursuant to this Section. The Trustee shall send a copy of such written direction of the Borrower as soon as practicable to the Credit Provider, if any. Upon delivery of such notice, the Bonds shall not be redeemed but shall instead be subject to mandatory tender for purchase at a Purchase Price equal to the redemption price at which the Bonds would have been redeemed hereunder on a Purchase Date (the date that would have been the redemption date); provided that funds in an amount equal to the Purchase Price shall be made available to the Trustee on or prior to the Purchase Date. The applicable provisions of Section 4.7 shall govern such purchase.

Section 4.9. Purchase in Lieu of Acceleration. When Bonds are subject to acceleration as a result of an Event of Default under Section 7.1(E) or Section 7.1(F) hereof, all (but not less than all) of the Bonds are also subject to mandatory purchase as set forth in Section 4.6(A)(4) hereof at the prior written direction of the Credit Provider or the Borrower, as applicable, on the date designated by the Credit Provider or the Borrower, as applicable, as the date of purchase in lieu of acceleration of such Bonds. In each case, the Purchase Price shall equal to 100% of the principal amount thereof plus all accrued and unpaid interest to the date of purchase in lieu of acceleration of such Bonds. In the event of such purchase by the Credit Provider, the Trustee shall give notice to the holders of the Bonds at least one Business Day prior to such Purchase Date of such purchase in lieu of acceleration as described herein, and the Bonds will be purchased in lieu of acceleration only from amounts provided by the Credit Provider.

In the event of such purchase by the Credit Provider, the date of purchase shall be no more than ten days after receipt by the Trustee (x) of written notice from the Credit Provider that a “default” or an “event of default” has occurred and is continuing under the Reimbursement Agreement or (y) of written notice from the Credit Provider that the Borrower has failed to reimburse the Credit Provider for an interest drawing under the Letter of Credit in accordance with its terms and/or the terms of the Reimbursement Agreement and the Credit Provider notifies the Trustee that the amount of such interest drawing will not be reinstated by the Credit Provider, if the Credit Provider gives notice to the Trustee and the Borrower at least two Business Days prior to the Purchase Date that it elects to have the Bonds purchased in lieu of acceleration.

In the event of such purchase by the Borrower during a Bank Index Rate Period, the date of purchase by the Borrower shall be the date which is seven calendar days (or if such seventh calendar day is not a Business Day, the next Business Day) after the date on which the Trustee receives written notice from the Bank under a Bank Index Rate Agreement which (x) advises the Trustee of the occurrence and continuance of an “Event of Default” under and as defined in such Bank Index Rate Agreement and (y) directs the Trustee to cause a mandatory tender of the Bonds by reason of such “Event of Default.”

Article V

Revenues; Funds and Accounts;

Payment of Principal and Interest

Section 5.1. Pledge and Assignment; Bond Fund . (A) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Revenues and any other amounts held in the Bond Fund are hereby pledged to secure the full payment of the principal of, and premium, if any, and interest on, the Bonds in accordance with their terms and the provisions of this Indenture and thereafter to secure any amounts due from the Borrower to the Credit Provider pursuant to the Reimbursement Agreement with respect to any Letter of Credit. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all proceeds of the remarketing of Bonds pursuant to Section 4.7(B) hereof, all proceeds of draws under the Letter of Credit pursuant to Section 4.7(D) hereof, and all Purchase Price Payments pursuant to Section 2.3(a) of the Loan Agreement are hereby pledged to secure the full payment of the Purchase Price of the Bonds in accordance with their terms and the provisions of this Indenture. Notwithstanding any other provision of this Indenture, moneys in the account created by Section 4.7(G) hereof shall be held solely for the benefit of the former holders of Bonds as provided in Section 4.7(G), and the Series WW First Mortgage Bonds are security for the Series 2005A Bonds, the Series XX First Mortgage Bonds are security for the Series 2005B Bonds and the Series YY First Mortgage Bonds are security for the Series 2005C Bonds. Said pledge shall constitute a lien on and security interest in such assets and shall attach and be valid and binding from and after delivery by the Trustee of the Bonds, without any physical delivery thereof or further act.

(B) The Authority hereby transfers in trust, and assigns to the Trustee, for the benefit of the Holders from time to time of the Bonds, and thereafter any Credit Provider, all of the Revenues and other assets pledged in subsection (A) of this Section and all of the right, title and interest of the Authority in the Loan Agreement, including the First Mortgage Bonds, except for the Reserved Rights of the Authority which have been assigned to the Trustee, but are also held and retained by the Authority concurrently with the Trustee and may be exercised and enforced by the Authority whether or not the Trustee shall exercise or shall have purported to exercise such rights and remedies, without limiting the obligation of the Trustee to do so. The Trustee shall be entitled to and shall collect and receive all of the Revenues, and any such Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee as assignee of the Authority (but not in the name of the Authority) shall be entitled to and shall take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the Borrower under the Loan Agreement and the First Mortgage Bonds.

(C) All Revenues shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the Bond Fund which the Trustee shall establish, maintain and hold in trust. Except as otherwise provided in Section 5.2 hereof, all moneys received by the Trustee and required to be deposited in the Redemption Account shall be promptly deposited in the Redemption

Account, which the Trustee shall establish, maintain and hold in trust as provided in Section 5.2 hereof. All Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in this Indenture. Payments on account of the First Mortgage Bonds shall be deposited into the Bond Fund and applied to the payment of the related series of Bonds.

(D) Any amount held by the Trustee in the Bond Fund on the due date for a Loan Payment under the Loan Agreement shall be credited against the installment due on such date to the extent available for such purpose under the terms of this Indenture and the Loan Agreement.

Section 5.2. Allocation of Revenues . On or before any date on which interest or principal (whether at maturity, or by redemption or acceleration) is due, the Trustee shall transfer funds from the Bond Fund and deposit into the following respective accounts (each of which the Trustee is hereby directed and agrees to establish and maintain within the Bond Fund), the following amounts, in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

First: to the Interest Account, the aggregate amount of interest becoming due and payable on the next succeeding Interest Payment Date or date of redemption of all Bonds then Outstanding, until the balance in said account is equal to said aggregate amount of interest.

Second: to the Principal Account, the amount paid by the Borrower and designated as or attributable to principal on the Bonds in the most recent Loan Payment equal to the aggregate amount of principal due on the next succeeding Interest Payment Date.

Third: to the Redemption Account, the aggregate amount of principal and premium next coming due by acceleration under Article VII or by redemption permitted or required under Article IV hereof, or any portion thereof paid by the Borrower.

Section 5.3. Priority of Moneys in Bond Fund; Letter of Credit Account . (A) Except for the payment of the Purchase Price which shall be made in the priority set forth in Section 4.7(A)(2) hereof, funds for the payment of the principal or redemption price of and interest on the Bonds shall be derived from the following sources in the order of priority indicated in each of the accounts in the Bond Fund; provided however, that amounts in the respective accounts in the Bond Fund shall be used to pay when due (whether upon redemption, acceleration, Interest Payment Date, maturity or otherwise) the principal or redemption price of and interest on the Bonds held by Holders other than the Credit Provider, the Authority or the Borrower prior to the payment of the principal and interest on the Bonds held by the Credit Provider, the Authority or the Borrower:

(1) moneys paid into the Letter of Credit Account of the Bond Fund from a draw by the Trustee under the Letter of Credit;

(2) moneys paid into the Interest Account, if any, representing accrued interest received at the initial sale of the Bonds and proceeds from the investment thereof which shall be applied to the payment of interest on such Bonds;

(3) moneys paid into the Bond Fund pursuant to Section 10.1(B) hereof and proceeds from the investment thereof which, while a Letter of Credit is then in effect, constitute Available Moneys;

(4) any other moneys (other than from draws on the Letter of Credit) paid into and deposited in the Bond Fund and proceeds from the investment thereof, which, while a Letter of Credit is then in effect, constitute Available Moneys;

(5) any other moneys paid into and deposited in the Bond Fund by the Borrower and proceeds from the investment thereof, which are not Available Moneys; and

(6) any other moneys paid into and deposited in the Bond Fund and proceeds from the investment thereof, which are not Available Moneys.

The Trustee shall create within the Bond Fund a separate account called the “Letter of Credit Account,” into which all moneys drawn under the Letter of Credit (other than moneys drawn pursuant to Section 4.7(D) hereof to pay the Purchase Price of tendered Bonds, which shall be held as provided in Section 4.7(C)(1) hereof) shall be deposited and disbursed. Neither the Borrower nor the Authority shall have any rights to or interest in the Letter of Credit Account. The Letter of Credit Account shall be established and maintained by the Trustee and held in trust apart from all other moneys and securities held under this Indenture or otherwise, and over which the Trustee shall have the exclusive and sole right of withdrawal for the exclusive benefit of the Holders of the Bonds with respect to which such drawing was made. No moneys from the Letter of Credit Account may in any circumstance be used to pay principal or interest on any Bank Bonds or Borrower Bonds.

When notified by the Borrower in writing of the intent to create Available Moneys, the Trustee shall establish within the Interest Account, Principal Account or Redemption Account one or more subaccounts to facilitate the calculation of the aging of moneys deposited with the Trustee until they become Available Moneys.

(B) (1) The Trustee shall draw moneys under the Letter of Credit, if any, in accordance with the terms thereof in an amount necessary to make timely payments of principal of, and premium, if any, and interest on, the Bonds, other than Bank Bonds or Borrower Bonds, on each Interest Payment Date and when due whether at maturity, redemption, acceleration or otherwise. In addition, the Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof to the extent necessary to make timely payments of the Purchase Price required to be made pursuant to, and in accordance with, Section 4.7(D) hereof.

(2) Immediately after making a drawing under the Letter of Credit which has been honored, the Trustee shall reimburse the Credit Provider for the amount of the drawing using moneys, if any, contained in:

(a) the Interest Account, if the drawing was to pay interest on the Bonds;

(b) the Principal Account, if the drawing was to pay principal on the Bonds; and

(C) If at any time there shall have been delivered to the Trustee an Alternate Letter of Credit pursuant to Section 2.12 of the Loan Agreement, then the Trustee shall accept such Alternate Letter of Credit and promptly surrender the then held Letter of Credit to the Credit Provider, in accordance with the terms of such Letter of Credit, for cancellation. If at any time there shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly surrender the Letter of Credit to the Credit Provider, in accordance with the terms of the Letter of Credit, for cancellation. The Trustee shall comply with the procedures set forth in the Letter of Credit relating to the termination thereof.

(D) If at any time the Trustee has made a drawing on the Letter of Credit for principal of, or premium, if any, or interest due on the Bonds, and the Credit Provider has failed to make payment within the time specified in the Letter of Credit or the Letter of Credit has been repudiated, the Trustee shall immediately notify the Borrower by telephone promptly confirmed in writing and request payment of the amount due pursuant to the Loan Agreement and under the First Mortgage Bonds, in immediately available funds by 2:45 p.m. (New York City time) on the Bond Payment Date. The Trustee agrees to give a similar notice with respect to a drawing on the Letter of Credit for the applicable Purchase Price pursuant to Section 4.7(D)(2) hereof.

Section 5.4. Letter of Credit . The Trustee shall hold and maintain any Letter of Credit for the benefit of the Bondholders until such Letter of Credit expires in accordance with its terms or is replaced by an Alternate Letter of Credit. The Trustee shall enforce all terms, covenants and conditions of any Letter of Credit, including payment when due of any draws on the Letter of Credit, and the provisions relating to the payment of draws on, and reinstatement of amounts that may be drawn under, the Letter of Credit, and will not consent to, agree to or permit any amendment or modification of the Letter of Credit that would materially adversely affect the rights or security of the Holders of the Bonds. If at any time during the term of a Letter of Credit any successor Trustee shall be appointed and qualified under this Indenture, the resigning or removed Trustee shall request that the Credit Provider transfer the Letter of Credit to the successor Trustee. If the resigning or removed Trustee fails to make this request, the successor Trustee shall do so before accepting the appointment. When a Letter of Credit expires in accordance with its terms or is replaced by an Alternate Letter of Credit, the Trustee shall immediately surrender the Letter of Credit to the Credit Provider.

To the extent that any payment has been made to a Bondholder with funds provided by a draw upon a Letter of Credit for which the Credit Provider has not been reimbursed pursuant to the

Reimbursement Agreement, the following provisions shall apply notwithstanding any other provision of this Indenture to the contrary. The Credit Provider shall be subrogated to the rights of such Bondholder. Any such payment shall not extinguish any payment obligation to the Bondholder, but shall effect a purchase by the Credit Provider of the payment right of the Bondholder, and the Credit Provider shall be considered a Bondholder with respect thereto. To the extent that any such payment is made to pay principal on a Bond, such Bond shall be registered in the name of the Credit Provider on the registration books of DTC, with respect to Book‑Entry Bonds, or shall be registered in the name of the Credit Provider and delivered to the Credit Provider or an agent designated by the Credit Provider, and shall be given all of the rights accorded a Bank Bond hereunder.

Section 5.5. Investment of Moneys . All moneys in any of the funds or accounts established pursuant to this Indenture shall be invested by the Trustee as specifically directed in writing by the Borrower or its agent, solely in Investment Securities. Notwithstanding any other provision herein, in the absence of specific written investment instructions directing the Trustee by noon of the second Business Day preceding the day when investments are to be made, the Trustee is directed to invest available funds in the money market mutual fund to be designated in writing by the Borrower to the Trustee prior to the Effective Date, or should such designation not have been made or such designated fund be unavailable, in an Investment Security rated in the highest rating category by any Rating Agency. The Trustee shall not be liable for any consequences resulting from any investments made pursuant to the preceding sentence. The Trustee shall be entitled to rely conclusively upon the Borrower’s specific written investment directions as to the fact that each such investment meets the criteria of this Indenture.

Investment Securities may be purchased at such prices as the Trustee may be directed by the Borrower or its agent. All Investment Securities shall be acquired subject to the limitations set forth in Section 6.5 hereof, the limitations as to maturities hereinafter in this Section set forth and such additional limitations or requirements consistent with the foregoing as may be established by request of the Borrower.

Except as otherwise provided in this paragraph, moneys in all funds and accounts shall be invested in Investment Securities maturing not later than the date on which such moneys will be required for the purposes specified in this Indenture. Notwithstanding anything else in this Section 5.5, any moneys in the Interest Account, the Principal Account or the Redemption Account held for the payment of particular Bonds (prior to the payment or redemption date thereof) shall be invested at the specific written direction of the Borrower solely in direct obligations of the United States or bonds or other obligations guaranteed by the United States government or for which the full faith and credit of the United States is pledged for the full and timely payment of principal and interest thereof (or mutual funds consisting of such obligations which are rated in the highest rating category by each Rating Agency), rated in the highest rating category applicable to such investments which mature not later than the date on which it is estimated that such moneys will be required to pay such Bonds (but in any event maturing in not more than 30 days). Investments of moneys in the Rebate Fund are also subject to the provisions of the Tax Agreement. Moneys in the Letter of Credit Account created in Section 5.3 and moneys held for non‑presented Bonds in accordance with Sections 4.7(G), 4.8 and 11.11 hereof shall be held uninvested.

All interest, profits and other income received from the investment of moneys in any fund established pursuant to this Indenture and allowed to be invested in accordance herewith shall be deposited in the fund from which such investment was made. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any Investment Security equal to the amount of accrued interest, if any, paid as part of the purchase price of such Investment Security shall be credited to the fund from which such accrued interest was paid. To the extent that any Investment Securities are registrable, such Investment Securities shall be registered in the name of the Trustee or its nominee.

For the purpose of determining the amount in any fund, all Investment Securities credited to such fund shall be valued at the lesser of cost or par value plus, prior to the first payment of interest following purchase, the amount of accrued interest, if any, paid as a part of the purchase price.

Subject to Section 6.6 hereof, investments in any and all funds and accounts (other than moneys representing the proceeds of a draw on a Letter of Credit or held in the Letter of Credit Account, remarketing proceeds, Available Moneys, moneys being aged to become Available Moneys, moneys in the Rebate Fund or moneys held for the payment of particular Bonds (including moneys held for non‑presented Bonds or held under Section 10.3 hereof)) may be commingled for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in particular funds and accounts amounts received or held by the Trustee hereunder, provided that the Trustee shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in this Indenture. Subject to Section 6.5 hereof, any moneys invested in accordance with this Section may be invested in a pooled investment account consisting solely of funds held by the Trustee as a fiduciary. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur, the Authority specifically waives receipt of such confirmations to the extent permitted by law. The Trustee may act as principal or agent in the making or disposing of any investment. The Trustee may sell or present for redemption any Investment Securities so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Investment Security is credited, and the Trustee shall not be liable or responsible for any loss or tax resulting from such investment.

Section 5.6. Rebate Fund . At the specific request of the Borrower, the Trustee shall establish and maintain the Rebate Fund separate from any other fund established and maintained hereunder. The Trustee shall deposit funds into and disburse funds from the Rebate Fund as directed in writing by the Borrower in accordance with the terms hereof and the Tax Agreement. The Trustee shall deposit into the Rebate Fund any payments received from the Borrower for purposes of ultimate rebate to the United States in respect of the Bonds. The amount required to be held in the Rebate Fund in respect of the Bonds at any point in time is determined pursuant to the requirements of the Code, including particularly Section 148(f) of the Code. Moneys in the Rebate Fund neither will be pledged to nor are expected to be used to pay debt service on the Bonds. Amounts in the Rebate Fund may be invested without regard to yield.

Section 5.7. Transfer of Additional Payments . The Trustee shall transfer the Additional Payments to or at the direction of the Authority when due, to the extent of amounts received from the Borrower therefor.

Section 5.8. Indemnification . (a) Pursuant to Section 4.07 of the Loan Agreement, the Borrower shall indemnify the Authority, the Trustee and the State, any person who “controls” the Authority, the Trustee or the State, within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended, and any member, director, officer, official, agent, attorney and employee of the Authority, the Trustee or the State (herein the “Indemnified Parties” ).

(b) Except as described in Section 7.3 hereof, to secure the Borrower’s indemnification payment obligation to the Authority and the State, the Authority shall have a lien prior to the lien created by this Indenture for the benefit of the Owners of the Bonds on all money or property held or collected by the Trustee or money held for the payment of the principal of, redemption price of, or interest on any Bonds previously matured or called for redemption in accordance with this Indenture. Such obligations shall survive the satisfaction and discharge of this Indenture.

(c) When an Indemnified Party incurs expenses or renders services after an Event of Default, the expenses and compensation for the services are intended to constitute expenses of administration under any applicable bankruptcy law.

Section 5.9. Voting of First Mortgage Bonds Held by the Trustee. The Trustee, as a registered owner of First Mortgage Bonds, may attend any meeting of bondholders under the Mortgage Indenture. Either at such meeting, or otherwise where consent of registered owners of First Mortgage Bonds is sought without a meeting, the Trustee may vote the First Mortgage Bonds held by it, or may consent with respect thereto, as directed by a majority of the registered owners of the Bonds.

Notwithstanding the foregoing, the Trustee may not vote any of the First Mortgage Bonds held by it in favor of, or give its consent to, any action which, in the Trustee’s opinion, would materially adversely affect the interests of the Bondholders, except upon notification by the Trustee to the Bondholders of such proposal and consent thereto of at least a majority in aggregate principal amount of all the Outstanding Bonds; and the Trustee may not, without the unanimous consent of the registered owners of all Bonds then Outstanding, vote any of the First Mortgage Bonds held by it in favor, or give its consent to, any action which would (1) decrease the amounts payable on the First Mortgage Bonds held by the Trustee or (2) change the maturity date or the date of payment of any installment of interest, or change the redemption provisions of, the First Mortgage Bonds held by the Trustee, except as described in Section 9.6 hereof.

Section 5.10. [Reserved.]

Section 5.11. No Transfer of First Mortgage Bonds Held by the Trustee; Exception. Except as required to effect an assignment to a successor Trustee, and except to effect an exchange in connection with a bankruptcy, reorganization, insolvency, or similar proceeding involving the

Borrower, the Trustee shall not sell, assign or transfer First Mortgage Bonds held by it, and the Trustee is authorized to enter into an agreement with the Borrower to such effect, including a consent to the issuance of stop transfer instructions to the Mortgage Trustee. No liability shall attach to the Mortgage Trustee for any action taken by it in good faith in reliance upon such instructions.

Section 5.12. Credits on First Mortgage Bonds . In addition to any credit, payment or satisfaction expressly provided for under the provisions of this Indenture in respect of any series of First Mortgage Bonds, the Trustee shall make credits against amounts otherwise payable in respect of that series of First Mortgage Bonds in an amount corresponding to (a) the principal amount of any Bond to which that series of First Mortgage Bonds relates surrendered to the Trustee by the Borrower or the Authority, or purchased by the Trustee, for cancellation and (b) the amount of money held by the Trustee and available and designated for the payment of principal or premium, if any, or interest on, the Bonds to which that series of First Mortgage Bonds relates, regardless of the source of payment to the Trustee of such moneys.

Article VI

Particular Covenants

Section 6.1. Punctual Payment . The Authority shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets specifically pledged for such payment as provided in this Indenture, and nothing in this Indenture or the Bonds shall otherwise be considered as assigning or pledging any funds or assets of the Authority. When and as paid in full, all Bonds, if any, shall be delivered to the Trustee, shall forthwith be canceled and disposed of, and a certificate of such disposal shall thereafter be delivered to the Authority upon its request therefor.

Section 6.2. Extension of Payment of Bonds . The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase or funding of such Bonds or claims for interest or by any other arrangement and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the Authority to issue bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of Bonds. The provisions of this Section shall not apply if the maturity of all of the Bonds is extended in accordance with the provisions of Section 9.1(A) hereof.

Section 6.3. Against Encumbrances . The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets specifically pledged or assigned under this Indenture while any of the Bonds are Outstanding, except the pledge

and assignment created by this Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, and reserves the right to issue other obligations for such purposes.

Section 6.4. Power to Issue Bonds and Make Pledge and Assignment; Limited Obligations . The Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues and other assets purposed to be pledged and assigned, respectively, under this Indenture in the manner and to the extent provided in this Indenture. The Authority has duly authorized the execution and delivery of the Bonds and this Indenture under the terms and provisions of the Act and a resolution adopted by the Authority and further represents, covenants and warrants that all requirements have been met and procedures have occurred in order to ensure the enforceability against the Authority of the Bonds and this Indenture. The Authority has taken all necessary action and has complied with all provisions of the Act required to make the Bonds and this Indenture the valid, legal and binding special and limited obligations of the Authority.

Section 6.5. Accounting Records and Reports . The Trustee shall keep or cause to be kept books of record and account in its customary fashion in which entries shall be made of all transactions relating to the receipt, investment, disbursement, allocation and application of the Revenues and the proceeds of the Bonds. Such records shall specify the account or fund to which each investment (or portion thereof) held by the Trustee is to be allocated and shall set forth, in the case of each Investment Security, (a) its purchase price, (b) identifying information, including principal amount, interest rate, and payment dates, (c) the amount received at maturity or its sale price, as the case may be, (d) the amounts and dates of any payments made with respect thereto, and (e) such documentation as is required to be retained by the Trustee as evidence to establish that any requirements set forth in the Tax Agreement or with respect to establishing market price, to the extent provided to it. Such records shall be open to inspection by any Holder, the Borrower, the Authority and the Credit Provider at any reasonable time during regular business hours on reasonable notice.

Section 6.6. Arbitrage Covenants . (A) The Authority covenants and agrees that it will not take any action, or fail to take any action, if such action or failure to take such action on a matter of which the Authority has actual knowledge would adversely affect the exclusion from gross income of the interest payable on the Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, the Authority covenants and agrees that it will comply with the requirements of the Tax Agreement. The covenants of Authority in this Section are made solely in reliance on the representations and the covenants of the Borrower set forth in the Loan Agreement and the Tax Agreement.

(B) The Borrower has covenanted to pay or cause to be paid to the United States rebate payments with respect to the Bonds as provided in the Tax Agreement. The Trustee agrees to comply with all specific written instructions of the Borrower given pursuant to the Tax Agreement; provided, however, that the Borrower shall be responsible for such instructions complying with the Tax Agreement, and the Trustee shall not be responsible in any way for any rebate or other arbitrage calculations.

The Trustee conclusively shall be deemed to have complied with the provisions of this Section 6.6(B) if it follows the directions of the Borrower set forth in the instructions required by the Tax Agreement and shall not be required to take any action under this Section 6.6(B) in the absence of such directions from the Borrower. The Trustee shall not be liable for any consequences resulting from its failure to act if no instructions from the Borrower (or in the absence of Borrower instructions, instructions from the Authority) are delivered to it.

(C) Notwithstanding any provision of this Section, if the Borrower shall provide to the Trustee and the Authority an Approving Opinion addressed to the Authority and the Trustee that any action required under Section 5.6 or this Section 6.6 is no longer required, or that some further action is required to maintain the Tax‑exempt status of interest on the Bonds, the Trustee and the Authority may rely conclusively on such opinion in complying with the requirements of this Section, and the covenants contained herein shall be deemed to be modified to that extent.

Section 6.7. Other Covenants . (A) The Trustee shall promptly collect all amounts due from the Borrower pursuant to the Loan Agreement, and from the Credit Provider pursuant to the Letter of Credit (if any), shall perform all duties imposed upon it pursuant to the Loan Agreement and shall diligently enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority (other than the Authority’s Reserved Rights) and all of the obligations of the Borrower pursuant to the Loan Agreement.

(B) The Authority shall not purchase Bonds from the Remarketing Agent.

Section 6.8. Further Assurances . The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Holders of the Bonds of the rights and benefits provided in this Indenture.

Section 6.9. Continuing Disclosure . Pursuant to Section 4.17 of the Loan Agreement, the Borrower has covenanted and agreed to undertake all responsibility for compliance, or to cause compliance with, continuing disclosure requirements, when and if applicable. The Authority shall have no liability to the Holders of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of this Indenture, failure of the Borrower to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default hereunder or a Loan Default Event under the Loan Agreement and may not result in the acceleration of the maturity of the Bonds; provided that the Trustee may (and, at the request of any Holder of Outstanding Bonds and upon being indemnified to its satisfaction therefor shall) or any Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Borrower to comply with its obligations under Section 4.17 of the Loan Agreement or the Continuing Disclosure Agreement. For purposes of this Section, “Beneficial Owner” shall mean any person which has the power, directly or indirectly, to vote or give consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through any nominees, depositories or other intermediaries).

Article VII

Events of Default and Remedies of Bondholders

Section 7.1. Events of Default; Acceleration; Waiver of Default . Each of the following events which has occurred and is continuing shall constitute an “Event of Default” hereunder:

(A) default in the due and punctual payment of the principal of, redemption price or premium (if any) on, any Bond, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise;

(B) default in the due and punctual payment of (i) any installment of interest on any Bond and such default shall continue for a period of five Business Days thereafter, or (ii) the Purchase Price of, any Bond;

(C) failure by the Authority to perform or observe any other of the covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, and the continuation of such failure for a period of 60 days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority, any Credit Provider, and the Borrower by the Trustee, or to the Authority, the Borrower and the Trustee by the Holders of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding;

(D) the occurrence and continuance of a Loan Default Event;

(E) if applicable, receipt by the Trustee of written notice from any Credit Provider stating that either (i) an Event of Default (as defined in the Reimbursement Agreement) has occurred under the Reimbursement Agreement and directing the Trustee to accelerate the Bonds or (ii) the interest component of a Letter of Credit will not be reinstated by the Credit Provider; or

(F) during a Bank Index Rate Period, the Trustee shall receive a written notice from the Bank that an Event of Default (as defined in the applicable Bank Index Rate Agreement) has occurred under the Bank Index Rate Agreement.

No default specified in (C) above shall constitute an Event of Default unless the Authority and the Borrower shall have failed to correct such default within the applicable period; provided, however, that if the default shall be such that it cannot be corrected within such period, it shall not constitute an Event of Default if corrective action is instituted by the Authority or the Borrower within the applicable period and diligently pursued. With regard to any alleged default concerning which notice is given to the Borrower under the provisions of this Section, the Authority hereby grants the Borrower full authority for the account of the Authority to perform any covenant or obligation the non‑performance of which is alleged in said notice to constitute a default in the name and stead of the Authority with full power to do any and all things and acts to the same extent that the Authority could do and perform any such things and acts and with power of substitution.

During the continuance of an Event of Default described in (A), (B), (C) or (D) above, and, in the case of an Event of Default described in (F) above, receipt by the Trustee of a written direction from the Bank to declare the principal of the Bonds to be due and payable, unless the principal of all the Bonds shall have already become due and payable, the Trustee may (but shall be under no obligation to), with the consent of the Bank, if any, and upon the written request of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding or upon the occurrence of an Event of Default described in (E) or (F) above, the Trustee shall, promptly upon such occurrence, by notice in writing to the Authority, the Borrower, any Bank and any Credit Provider, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, subject to Section 4.9 hereof, anything in this Indenture or in the Bonds contained to the contrary notwithstanding. Upon any such declaration, the Trustee shall promptly draw upon any then existing Letter of Credit in accordance with the terms thereof and apply the amount so drawn to pay the principal of and interest on the Bonds declared to be due and payable and shall take such enforcement action under the Loan Agreement as the Trustee shall deem appropriate. Interest on the Bonds shall cease to accrue as of the date of the declaration of acceleration, subject to Section 4.9 hereof. The Trustee shall promptly notify the Bondholders of the date of acceleration and the cessation of accrual of interest on the Bonds in the same manner as for a notice of redemption.

The preceding paragraph, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been declared due and payable because of the occurrence of a default specified in (A), (B), (C), or (D) above, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, and before the Letter of Credit has been drawn upon in accordance with its terms and honored, there shall have been deposited with the Trustee a sum sufficient to pay (with Available Moneys if a Letter of Credit is in effect) all the principal of the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal at the rate of interest then borne by the Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee and the Authority or provision deemed by the Trustee and the Authority to be adequate shall have been made therefor, then, and in every such case, the Holders of at least a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority and to the Trustee, may, on behalf of the Holders of all the Bonds, rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Notwithstanding any other provision of this Indenture, but subject to Section 8.1(A), the Trustee may not exercise any remedy in the event of an Event of Default under Section 7.1(A) through (D) hereof without the written consent of the Credit Provider, so long as a Letter of Credit is in effect and the Credit Provider has not wrongfully failed to make a payment thereunder, or without the written consent of the Bank, if the Bank is the sole Holder of all of the Bonds; except that the Trustee may exercise any and all remedies under this Indenture and the Loan Agreement to collect any fees, expenses and indemnification, in a form and content acceptable to the Trustee, from the Borrower without obtaining the consent of the Credit Provider or the Bank.

Written notice of such waiver, and the cancellation of any notice to redeem a corresponding amount of First Mortgage Bonds, shall be provided by the Trustee to the Mortgage Trustee.

Section 7.2. Institution of Legal Proceedings by Trustee . Subject to Section 7.1 hereof, if one or more of the Events of Default shall happen and be continuing, the Trustee in its discretion may, but shall be under no such obligation to, and upon the written request of the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or, if not all Bonds Outstanding are affected, the Holders of not less than a majority in aggregate principal amount of the Outstanding Bonds of the related series) and in all such cases whether the Trustee has elected voluntarily to proceed or by the direction of the Holders upon being indemnified to its satisfaction therefor pursuant to Sections 8.1(A), 8.3(D) and 8.6(B) hereof shall, proceed to protect or enforce its rights or the rights of the Holders of such Bonds under the Act or under this Indenture, the Loan Agreement, the First Mortgage Bonds or the Letter of Credit, if any, by exercise of such rights as it may have as holder of First Mortgage Bonds, including the right to demand redemption of First Mortgage Bonds held by it, by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained herein or therein, or in aid of the execution of any power herein or therein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee may deem necessary in support of any of its rights or duties hereunder or thereunder.

Section 7.3. Application of Revenues and Other Funds After Default . If an Event of Default shall occur and be continuing, all Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of this Indenture (subject to Sections 5.6, 6.6 and 11.11 hereof) shall be promptly applied by the Trustee as follows and in the following order:

(A) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Holders of the Bonds and payment of reasonable fees, charges and expenses of the Trustee and the Authority (including reasonable fees and disbursements of its legal counsel) incurred in and about the performance of its powers and duties under this Indenture; and

(B) To the payment of the principal of and interest then due on the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of this Indenture (including Section 6.2 hereof), as follows:

(1) Unless the principal of all of the Bonds shall have become or have been declared due and payable,

First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the Bonds, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and

(2) If the principal of all of the Bonds shall have become or have been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds, with interest on the overdue principal at the rate borne by the Bonds, and, if the amount available shall not be sufficient to pay in full the whole amount so due and unpaid, then to the payment thereof ratably, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference;

provided, however, that (i) in no event shall moneys derived from drawings under a Letter of Credit, moneys set aside to pay principal or interest on any particular Bonds (including moneys held for non‑presented Bonds or held under Section 10.3 hereof), or the proceeds from remarketing of the Bonds be used to pay any of the items listed in clause (A) of this Section or the costs described in Section 5.8(b), and (ii) Available Moneys and moneys being aged to become Available Moneys, if applicable, shall not be used to pay any of the items listed in clause (A) of this Section or the costs described in Section 5.8(b), until all amounts have been paid under clause (B) of this Section.

Whenever the principal of, and premium, if any, and interest on, all Bonds have been paid under the provisions of this Indenture and all fees, expenses and charges of the Trustee have been paid, any balance remaining hereunder shall be paid in the order of priority as provided in Section 10.1.

Section 7.4. Trustee to Represent Bondholders . The Trustee is hereby irrevocably appointed (and the successive respective Holders of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney‑in‑fact of the Holders of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Holders under the provisions of the Bonds, this Indenture, the Loan Agreement, the Letter of Credit, the Act and applicable provisions of any other law. Subject to Section 7.1 hereof, upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Bondholders, the Trustee in its discretion may (but shall be under no obligation to), and upon the written request of the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of the Holders by such appropriate action, suit, mandamus or other proceedings as it may deem necessary to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power

herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in the Holders under this Indenture, the Loan Agreement, the Letter of Credit, the Act or any other law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under this Indenture, pending such proceedings. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Holders of the Bonds, subject to the provisions of this Indenture (including Section 6.2 hereof).

Section 7.5. Bondholders’ Direction of Proceedings . Anything in this Indenture to the contrary notwithstanding, but subject to Sections 8.1(A), 8.3(A), 8.3(D), 8.6(B) and 11.13, the Holders of 25% in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method of conducting all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bondholders not parties to such direction or for which it has not been provided indemnity reasonably satisfactory to it.

Section 7.6. Limitation on Bondholders’ Right to Sue . Subject to Section 7.7 hereof, no Holder of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Loan Agreement, any Letter of Credit, the Act or any other applicable law with respect to such Bond, unless (1) such Holder shall have given to the Trustee written notice of the occurrence of an Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Bonds then Outstanding (or, if not all Bonds are affected, of the Bonds of the related series then Outstanding) shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (3) subject to Sections 8.1(A), 8.3(D) and 8.6(B) hereof, such Holder or said Holders shall have tendered to the Trustee indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; and (4) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Holder of Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Holders of Bonds shall have any right in any manner whatever by such Holders’ action to affect, disturb or prejudice the security of this Indenture or the rights of any other Holders of Bonds, or to enforce any right under this Indenture, the Loan Agreement, any Letter of Credit, the Act or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided

and for the benefit and protection of all Holders of the Outstanding Bonds, subject to the provisions of this Indenture (including Section 6.2 hereof).

Section 7.7. Obligation of Authority . Subject to Section 11.1 hereof, nothing in Section 7.6 or in any other provision of this Indenture (except the requirement for authentication by the Trustee in Section 2.5 hereof), or in the Bonds, shall affect or impair the obligation of the Authority to pay or cause to be paid through the Trustee the principal of, and the premium, if any, and interest on, the Bonds to the respective Holders of the Bonds at their date of maturity, or upon call for redemption, as herein provided, but only out of the Revenues and other assets herein pledged therefor, or affect or impair the right of such Holders to enforce such payment by virtue of the contract embodied in the Bonds.

Section 7.8. Termination of Proceedings . In case any proceedings taken by the Trustee, the Credit Provider, if any, or any one or more Bondholders on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Bondholders, then in every such case the Authority, the Trustee, the Credit Provider, if any, the Bank, if any, and the Bondholders, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Trustee, the Credit Provider, if any, and the Bondholders shall continue as though no such proceedings had been taken.

Section 7.9. Remedies Not Exclusive . No remedy herein conferred upon or reserved to the Trustee, the Credit Provider, if any, the Bank, if any, or to the Holders of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise.

Section 7.10. No Waiver of Default . No delay or omission of the Trustee, the Credit Provider, if any, the Bank, if any, or of any Holder of the Bonds to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by this Indenture to the Trustee, the Credit Provider, if any, the Bank, if any, or to the Holders of the Bonds may be exercised from time to time and as often as may be deemed expedient.

Section 7.11. Consent of Credit Provider and Bank to Defaults and Waivers . This Section shall apply only if (i) a Letter of Credit is in effect or (ii) during a Bank Index Rate Period. Notwithstanding any other provision of this Article VII, and subject to Section 8.1(A) and Section 8.6(B) hereof, so long as the Credit Provider is not continuing wrongfully to dishonor drawings under the Letter of Credit, no Event of Default shall be declared pursuant to Section 7.1(C) or (D) hereof (except in a case resulting from the failure of the Borrower to pay the Trustee’s and the Authority’s fees and expenses or to indemnify the Trustee and the Authority), nor any remedies exercised with respect to any Event of Default (other than acceleration pursuant to Section 7.1 upon an Event of Default described in Section 7.1(E)(ii) hereof) by the Trustee or by the Bondholders (except in a case resulting from the failure of the Borrower to pay the Trustee’s fees and expenses or to indemnify the Trustee or failure of the Borrower to redeem the Bonds upon an Extraordinary

Mandatory Redemption pursuant to Section 4.1(A)(iii) hereof) and no Event of Default under this Indenture shall be waived by the Trustee or the Bondholders to the extent it may otherwise be permitted hereunder, without, in any case, the prior written consent of the Credit Provider (or, during a Bank Index Rate Period, and with respect to the related series of Bonds, the Bank) and, in the case of a waiver of an Event of Default under Section 7.1(E), rescission in writing by the Credit Provider of any notice of an event of default under the Reimbursement Agreement and (if applicable) reinstatement of the interest component of the Letter of Credit. No Event of Default can be waived, in any circumstance, unless the Trustee has received written notice from the Credit Provider that the Letter of Credit, if any, has been fully reinstated and is in full force and effect.

Section 7.12. Authority’s Rights . Notwithstanding anything in this Indenture or in the Loan Agreement or in any of the other Loan Documents to the contrary, neither the Trustee nor the registered owners shall have the right to waive an Event of Default under any of the Loan Documents which arises out of a violation of a Reserved Right without the prior written consent of the Authority, which the Authority may give in its sole and complete discretion. Notwithstanding any other provision contained in this Indenture or any other Loan Document to the contrary, nothing herein or therein shall affect the Authority’s unconditional right to enforce its Reserved Rights.

Section 7.13. Right of Sole Holder or Beneficial Owner to Require Assignment by Trustee . At any time during a Bank Index Rate Period, upon the occurrence and during the continuance of an Event of Default, the Bank, if it is then the sole Holder or Beneficial Owner of all of the Bonds then Outstanding, shall have the right, at its option, exercised by delivery of a written instrument to the Trustee with a copy to the Borrower, to require the Trustee to assign to such Holder or Beneficial Owner or, in either case, its designee all of the rights, powers, and prerogatives of the Trustee under this Indenture to enforce the provisions of this Indenture, exercise any remedies and otherwise take actions and institute proceedings for the benefit of and on behalf of the Holders and the Beneficial Owners, and the Trustee covenants and agrees that upon its release and indemnification with respect to any action or failure to act of such Holder or Beneficial Owner subsequent to the aforesaid assignment, it shall execute and deliver all such documents as are necessary to accomplish the foregoing and vest such rights, remedies and title in such Holder or Beneficial Owner or, in either case, its designee.

Article VIII

The Trustee, the Paying Agent, the Bond Registrar,

the Tender Agent, and the Remarketing Agent

Section 8.1. Duties, Immunities and Liabilities of Trustee and Bond Registrar . (A) The Trustee and the Bond Registrar shall, prior to an Event of Default, and after the curing of all Events of Default which shall have occurred, perform such duties and only such duties as are specifically set forth in this Indenture and shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee and the Bond Registrar, as the case may be. The Trustee shall, during the existence of any Event of Default (which has not been cured), exercise

such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as prudent persons would exercise or use under the circumstances in the conduct of their own affairs. Notwithstanding any other provision of this Indenture, the Trustee shall perform all duties required of it hereunder.

No provision of this Indenture shall be construed to relieve the Trustee or the Bond Registrar from liability for its own negligent action or its own negligence in any failure to act, except that:

(1) Prior to such an Event of Default hereunder and after the curing of all Events of Default which may have occurred,

(a) the duties and obligations of the Trustee and the Bond Registrar, as the case may be, shall be determined solely by the express provisions of this Indenture, the Trustee and Bond Registrar, as the case may be, shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee and the Bond Registrar, as the case may be; and

(b) in the absence of bad faith on the part of the Trustee or the Bond Registrar, as the case may be, the Trustee or the Bond Registrar, as the case may be, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificate or opinion furnished to the Trustee or the Bond Registrar, as the case may be, conforming to the requirements of this Indenture, but in the case of any such certificate or opinion which by any provision hereof is specifically required to be furnished to the Trustee or the Bond Registrar, as the case may be, the Trustee or the Bond Registrar, as the case may be, shall be under a duty to examine the same to determine whether or not it conforms to the requirements of this Indenture (but need not confirm or investigate the legal sufficiency of such certificate or opinion, accuracy of mathematical calculations or other facts stated therein); and

(2) At all times, regardless of whether or not any Event of Default shall exist,

(a) the Trustee and the Bond Registrar shall not be liable for any error of judgment made in good faith by a responsible officer, director or employee of the Trustee or the Bond Registrar unless it shall be proved that the Trustee or the Bond Registrar, as the case may be, was negligent in ascertaining the pertinent facts;

(b) neither the Trustee nor the Bond Registrar shall be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority, or such smaller or larger percentage as may be required hereunder, in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee or the Bond Registrar, or

exercising any trust or power conferred upon the Trustee or the Bond Registrar under this Indenture.

None of the provisions contained in this Indenture shall require the Trustee or the Bond Registrar to expend or risk its own funds or otherwise incur individual financial liability in the performance of any of its duties or in the exercise of any of its rights or powers other than to notify the Authority in writing that it intends to take no particular action or to notify the Bondholders that it will take no action, if it has reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it. All indemnifications and releases from liability granted herein to the Trustee or the Bond Registrar shall extend to the directors, officers, employees and agents of the Trustee or the Bond Registrar. The rights of the Trustee to such indemnification shall survive the termination of this Indenture.

(B) The Authority shall remove the Trustee at any time upon written request of the Borrower (provided there is no Loan Default Event existing under the Loan Agreement), or if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Authority shall receive notice from the Trustee or the Borrower that the Trustee shall have ceased to be eligible in accordance with subsection (E) of this Section, or shall have become incapable of acting, or shall have been adjudged bankrupt or insolvent, or a receiver of the Trustee or its property shall have been appointed, or any public officer shall have taken control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee, and thereupon the Authority shall appoint, at the written direction of the Borrower, a successor Trustee by an instrument in writing.

(C) The Trustee may at any time resign by giving 60 days written notice of such resignation to the Borrower, the Bank, if any, and the Authority. Upon receiving such notice of resignation, the Authority shall promptly appoint, at the written direction of the Borrower (provided there is no Loan Default Event existing under the Loan Agreement), a successor Trustee by an instrument in writing. The successor Trustee shall provide the Bondholders notice of the Trustee’s resignation by mail at the addresses shown on the registration books maintained by DTC or, if there are some Bonds that are not Book‑Entry Bonds, maintained by the Trustee. If the Trustee has given such notice of resignation the Trustee may petition any court of competent jurisdiction for the appointment of a temporary successor Trustee to serve as Trustee until a successor Trustee has been duly appointed. The Trustee shall not be relieved of its duties until such successor Trustee has accepted appointment. The Trustee’s rights to indemnity and reimbursement of outstanding fees and expenses survive the Trustee’s resignation.

(D) Any removal or resignation of the Trustee pursuant to (B) or (C) above and appointment of a successor Trustee shall become effective only upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within 90 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Bondholder (on behalf of itself and all other Bondholders) may, at the expense of the Borrower, petition any court of competent jurisdiction for the appointment of a

successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing and delivering to the Borrower, the Authority, the Bank, if any, and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the written request of the Authority, the Borrower, the Bank, if any, or the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth upon payment of the predecessor Trustee’s fees and expenses (including its counsel fees and expenses). Upon the written request of the Borrower, the Bank, if any, or the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, such successor Trustee shall mail a notice of the succession of such Trustee to the trusts hereunder to each Rating Agency which is then rating the Bonds, to the Bondholders at the addresses shown on the registration books maintained by the Trustee, and to any Credit Provider.

(E) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company, bank or corporation having the powers of a trust company which either (i) has a combined capital and surplus of at least $50,000,000, and is subject to supervision or examination by federal or state authority or (ii) is a wholly owned subsidiary of a bank, trust company or bank holding company meeting, on an aggregate basis, the tests set out in clause (i). If such bank, trust company or corporation publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such bank, trust company or corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (E), the Trustee shall resign immediately in the manner and with the effect specified in this Section and a successor Trustee shall be appointed and accept such appointment within 30 days.

(F) The Trustee is not responsible for effecting, maintaining or renewing any policies of insurance or for any representations regarding the sufficiency of any policy of insurance.

(G) The Trustee, at the direction of the Borrower or the Authority, shall be responsible for filing financing or continuation statements prepared and provided to the Trustee by or on behalf of the Borrower or the Authority, all at the Borrower’s expense.

(H) Subject to the provisions of Sections 5.6 and 10.3 hereof, all moneys received by the Trustee and the Tender Agent shall, until used or applied as herein provided, be held in trust for the purposes for which they were received and, except as provided below, need not be segregated from other funds. Moneys representing the proceeds of draws on the Letter of Credit or held in the Letter of Credit Account, all Available Moneys, all remarketing proceeds, all moneys being aged to become Available Moneys, all moneys held for the payment of particular Bonds and otherwise to the extent required by law or by this Indenture shall be held by the Trustee and the Tender Agent in separate and segregated accounts as provided herein. The Trustee and the Tender Agent shall be under no liability for interest on any moneys received by them hereunder except as provided in Section 5.5 hereof. Any moneys held by the Trustee or the Tender Agent shall be invested as provided in Section 5.5 hereof.

(I) The Trustee shall not be responsible for monitoring or reviewing the Borrower’s insurance or be obligated to file claims or proofs of loss in the case of insurance, or to pay taxes or assessments.

Section 8.2. Merger or Consolidation . Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under subsection (E) of Section 8.1, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. The Trustee shall provide written notice to the Authority and the Borrower and an accompanying certificate reflecting such eligibility and such merger.

Section 8.3. Liability of Trustee . (A) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority, and the Trustee shall assume no responsibility for the correctness of the same, or make any representations of the validity or sufficiency of this Indenture or of the Bonds. In addition, the Trustee shall assume no responsibility with respect to this Indenture or the Bonds other than in connection with the duties or obligations assigned to or imposed upon the Trustee herein or in the Bonds. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee may become the Holder of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depositary for and permit any of their officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondholders, whether or not such committee shall represent the Holders of a majority in aggregate principal amount of the Bonds then Outstanding.

The Trustee may execute any of the trusts or powers set forth herein and perform the duties required of it hereunder by or through attorneys, agents, or receivers, and shall be entitled to the advice of counsel selected by it concerning all matters of trusts and its duties herein.

(B) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, director or employee unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.

(C) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture.

(D) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Bondholders pursuant to the provisions of this Indenture unless such Bondholders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses, including but not limited to attorneys and expert fees, and liabilities which may be incurred therein or thereby.

(E) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.

(F) Except for Events of Default under Sections 7.1(A), (B), (E) and (F), the Trustee shall not be deemed to have knowledge of any default or Event of Default hereunder unless and until a responsible officer of the Trustee has actual knowledge thereof, or shall have received written notice thereof, at its Corporate Trust Office. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Bonds, or of the existence of a default or Event of Default thereunder. The Trustee shall not be responsible for the validity or effectiveness of any security interest in collateral given to or held by it.

(G) The Trustee shall have no responsibility, opinion or liability with respect to any information statement or recital found in any official statement or other disclosure material, prepared or distributed with respect to the issuance of the Bonds, except for information provided by the Trustee.

(H) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty.

(I) It is the purpose of this Section 8.3(I) that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Loan Agreement, and in particular in case of the enforcement thereof in an Event of Default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise or hold any of the powers, rights, remedies, duties, obligations, claims, demands, causes of action, immunities, estates, titles, interests, or liens herein or therein granted to or vested in the Trustee or hold title to the properties, in trust,

as herein granted, or take any other action which may be desirable or necessary in connection therewith (collectively, the “powers, duties, and interests of the Trustee” ), the Trustee may appoint an additional institution as a separate or co‑Trustee, in which event all of such powers, duties, and interests expressed or intended by this Indenture or the Loan Agreement to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co‑Trustee, but only the extent necessary to enable such separate or co‑Trustee to exercise such powers, duties, and interests and every covenant and obligation necessary to the exercise thereof by such separate or co‑Trustee shall run to and be enforceable by either of them.

Should any deed, conveyance, or instrument in writing from the Authority be required by the separate or co‑Trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to it such powers, duties, and interests of the Trustee, any and all such deeds, conveyances, and instruments in writing shall, on request, be executed, acknowledged, and delivered by the Authority. In case any separate or co‑Trustee, or a successor to either, shall become incapable of acting, resign, or be removed, all the powers, duties, and interests of such separate or co‑Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new Trustee or successor to such separate or co‑Trustee. Any co‑Trustee appointed by the Trustee pursuant to this Section may be removed by the Trustee, in which case all powers, duties, and interests vested in such co‑Trustee shall again vest in the Trustee as if no such appointment of a co‑Trustee had been made.

Notwithstanding any provision to the contrary in this Indenture, the Borrower shall not be liable to any Trustee or successor Trustee for any costs, fees or expenses incurred in connection with the appointment of any separate or co‑Trustee or, without the express prior written approval of the Borrower, in connection with any duties or actions undertaken by such appointed separate or co‑Trustee, and such appointed separate or co‑Trustee shall be subject to the same terms and conditions, and entitled to the same benefits, of this Indenture as applicable to any Trustee or successor Trustee.

Section 8.4. Right of Trustee to Rely on Documents . Subject to the standard of care stated herein, the Trustee shall be fully protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Authority, personally or by agent or attorney, at the sole cost of the Borrower and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. The Trustee may consult with counsel of its selection, who may be counsel of or to the Authority or the Borrower, with regard to legal questions, and the opinion or advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith.

Whenever in the administration of the trusts imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Certificate of the Authority, and such Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable.

Section 8.5. Preservation and Inspection of Documents . All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject at all reasonable times to the inspection of the Authority, the Borrower and any Bondholder and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. The Trustee shall retain possession of the First Mortgage Bonds until the Bonds have been paid or the Authority’s obligation with respect to the Bonds have been otherwise terminated.

Section 8.6. Compensation and Indemnification . (A) The Trustee, the Tender Agent, the Paying Agent and the Bond Registrar shall be entitled to compensation as agreed to in writing from time to time between the Trustee (or the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be) and the Borrower for all services rendered by them in the execution of the trusts created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be, which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust, and the Borrower shall pay or reimburse the Trustee, the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be, upon its request for reasonable out‑of‑pocket expenses, disbursements and advances incurred or made by the Trustee, the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be, in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance determined to have been caused by its own negligence or willful misconduct. If any property, other than cash, shall at any time be held by the Trustee, the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be, subject to this Indenture, or any Supplemental Indenture, as security for the Bonds, the Trustee, the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be, if and to the extent authorized by a receivership, bankruptcy or other court of competent jurisdiction or by the instrument subjecting such property to the provisions of this Indenture as such security for the Bonds shall be entitled to make advances for the purpose of preserving such property or of discharging tax liens or other prior liens or encumbrances thereon. The Borrower has also agreed in the Loan Agreement to indemnify the Trustee, the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be, for, and to hold it harmless against, any loss, liability, claim, damage, judgments or expense incurred or made without negligence or willful misconduct on the part of the Trustee, the Tender Agent, the Paying Agent or the Bond Registrar, as the case may be, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises (including reasonable attorneys’ fees and expenses). Notwithstanding the foregoing, the Trustee shall make timely payments of principal of and interest on the Bonds with moneys on deposit in the Bond Fund as

provided herein, shall make timely draws on a Letter of Credit as provided herein and shall accelerate the payment of principal on the Bonds when required by this Indenture without seeking any prior indemnification from the Borrower or any Bondholder. The rights of the Trustee, the Tender Agent, the Paying Agent and the Bond Registrar to compensation for their services and to payment or reimbursement for expenses, disbursements, liabilities and advances shall have priority over the Bonds in respect of all property and funds held or collected by the Trustee as such, except for moneys held in the Rebate Fund, proceeds of a drawing under the Letter of Credit or held in the Letter of Credit Account, Available Moneys, moneys being aged to become Available Moneys, remarketing proceeds, and other funds held in trust by the Trustee or the Tender Agent, as the case may be, for the benefit of the Holders of particular Bonds, including, without limitation, (i) moneys or securities held pursuant to Article X hereof; and (ii) moneys or securities held for the payment of Bonds upon maturity or redemption and prior to the presentation of such Bonds.

(B) The Trustee shall be under no obligation to institute any suit or take any remedial proceeding under this Indenture, or to enter any appearance in or in any way defend any suit in which it may be made defendant, or to take any steps in the execution of the trusts hereby created or in the exercise of any rights or powers hereunder at the request, order or direction of any Holders of Bonds or otherwise (except declaring the principal of and interest on the Bonds to be due immediately under Section 7.1, drawing on a Letter of Credit, or making payment when due on the Bonds) until it shall be indemnified to its satisfaction against any and all reasonable costs and expenses, outlays, and counsel fees and other disbursements and against all liability not determined to have been caused by its own negligence or willful misconduct, provided, however, that if the Trustee intends to seek indemnification pursuant to this Section 8.6 prior to instituting any such action it shall so inform the Holders (as appropriate), the Authority and any Credit Provider in writing as soon as possible and provided further that the Borrower shall not be liable for any settlement of any such action without its consent, which consent shall not be unreasonably withheld.

Section 8.7. Paying Agent . The Authority, at the expense and written direction of the Borrower and with the written approval of the Trustee, shall appoint and at all times have a Paying Agent in such cities as the Borrower deems desirable, for the payment of the principal of, and the interest (and premium, if any) on, the Bonds. It shall be the duty of the Trustee to make such credit arrangements with such Paying Agent as may be necessary to assure, to the extent of the moneys held by the Trustee for such payment, the prompt payment of the principal of, and interest (and premium, if any) on, the Bonds presented at either place of payment. The Trustee will not be responsible for the failure of any Credit Provider or any other party to make funds available to the Trustee or Paying Agent. The Trustee is the initial Paying Agent. If the Paying Agent is any entity other than the Trustee, it shall be subject to the same standards applicable to the Trustee as set forth in this Indenture.

Section 8.8. Trustee and Authority Required to Accept Directions and Actions of Borrower . Whenever after a reasonable, specific written request by the Borrower, and if the Borrower is not in default under the Loan Agreement, the Authority shall fail, refuse or neglect to give any specific written direction to the Trustee or to require the Trustee to take any action which the Authority is required to have the Trustee take pursuant to the provisions of the Loan Agreement or this Indenture, the Borrower may give any such specific written direction to the Trustee or require

the Trustee to take any such action (so long as such action does not adversely impair the rights of the Authority, the Trustee and the Bondholders hereunder or conflict with the terms of this Indenture), and the Trustee is hereby irrevocably empowered and directed to accept such specific written direction from the Borrower as sufficient for all purposes of this Indenture, provided the Trustee receives indemnity satisfactory to it. The Borrower shall have the right, on behalf of the Authority, to cause the Trustee to comply with any of the Trustee’s obligations under this Indenture to the same extent that the Authority is empowered so to do.

Certain actions or failures to act by the Authority under this Indenture may create or result in an Event of Default under this Indenture, and the Borrower, on behalf of the Authority, may, to the extent permitted by law, perform any and all acts or take such action (so long as such action does not adversely impair the rights of the Authority, the Trustee and the Bondholders hereunder or conflict with the terms of this Indenture) as may be necessary for and on behalf of the Authority to prevent or correct said Event of Default, and the Trustee shall take or accept such performance by the Borrower as performance by the Authority in such event provided the Trustee receives indemnity satisfactory to it; provided, however, that the foregoing shall not extend the time for performance required hereby.

The Authority hereby authorizes the Borrower to give all directions, do all things and perform all acts provided, and to the extent so provided, by this Section. The Borrower shall act reasonably pursuant to such authorization, and no action of the Borrower thereunder shall create any liability of the Authority, including any liability with respect to payment of the Bonds (except as otherwise provided in this Indenture).

Section 8.9. Independent Counsel . The Trustee may consult with independent counsel, chosen by it with reasonable care, and shall not be liable for action taken or not taken in good faith in reliance upon the written advice or opinion of such counsel.

Section 8.10. Limitation on Trustee’s Liability . Nothing in this Indenture shall be construed to impose any duties upon the Trustee beyond those set forth in this Indenture.

Section 8.11. Notices to Rating Agency and Credit Provider . The Trustee shall provide each Rating Agency and any Credit Provider with prior written notice (to the extent the Trustee has received prior notice) upon the occurrence of: (i) the provision, expiration, termination or extension of a Letter of Credit; (ii) the discharge of liability on the Bonds pursuant to Section 10.2 hereof; (iii) the resignation or removal of the Trustee, Tender Agent, or Remarketing Agent; (iv) acceptance of appointment as successor Trustee, Tender Agent, or Remarketing Agent hereunder; (v) the redemption of all or any portion of the Bonds; (vi) conversion to a new Interest Rate Period; (vii) a change in this Indenture, the Loan Agreement, the First Mortgage Bonds or a Letter of Credit; and (viii) when the Bonds are no longer Outstanding. The Trustee shall also notify any Rating Agency of any changes to any of the documents to which the Trustee is a party, upon its receipt of notification of any such changes. The Trustee shall not be liable to any party for failure to give notice as provided in this Section.

Section 8.12. Duties of Remarketing Agent . The Borrower shall appoint the Remarketing Agent for the Bonds, all subject to the conditions set forth in Section 8.13 hereof and in the Remarketing Agreement. The Remarketing Agent shall designate to the Trustee its principal office and signify its acceptance of the duties and obligations imposed on it hereunder by a written instrument of acceptance delivered to the Borrower, the Authority and the Trustee under which the Remarketing Agent will agree to perform the obligations of the Remarketing Agent set forth herein and under which the Remarketing Agent will agree to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Authority, the Trustee and the Borrower at all reasonable times upon reasonable notice. The Remarketing Agent shall determine the interest rates on the Bonds and perform the other duties provided for in Section 2.3 and shall remarket Bonds as provided in Section 4.7 hereof. The Remarketing Agent shall hold all moneys delivered to it for the benefit of the person or entity which shall have so delivered such moneys until such moneys are delivered to the Trustee as provided herein. The Remarketing Agent may for its own account or as broker or agent for others deal in Bonds and may do anything any other Holder may do to the same extent as if the Remarketing Agent were not serving as such.

Section 8.13. Eligibility of Remarketing Agent; Replacement . (A) Any Remarketing Agent shall be (i) an investment bank that is a member of the Financial Industry Regulatory Authority having a capitalization of at least $20,000,000 as shown in the most recent annual report of the Remarketing Agent or its parent or (ii) a commercial bank or trust company having a capitalization of at least $100,000,000 as shown in its (or its parent’s) most recent published annual report, organized and doing business under the laws of the United States or any state or the District of Columbia. The initial Remarketing Agent shall be U.S. Bancorp Investments, Inc.

(B) The Remarketing Agent may resign by notifying the Authority, the Trustee, the Tender Agent, the Borrower and any Credit Provider in writing at least 30 days before the effective date of such resignation. The Borrower may remove the Remarketing Agent at any time on 30 days notice at its own discretion and appoint a successor by notifying the Remarketing Agent, the Credit Provider, the Authority and the Trustee. No removal shall become effective until the successor has delivered an acceptance of its appointment to the Trustee.

(C) The Borrower, at its option, may appoint to serve with the Remarketing Agent, one or more co‑Remarketing Agents; provided that all interest rate determinations shall be made by the Remarketing Agent and not a co‑Remarketing Agent. In the event of appointment of a co‑Remarketing Agent, any such co‑Remarketing Agent shall be subject to this Section and Sections 8.12, 8.14 and 8.22 hereof.

Section 8.14. Compensation of Remarketing Agent . The Remarketing Agent shall not be entitled to any compensation from the Authority or the Trustee but, rather, shall make separate arrangements with the Borrower for its compensation.

Section 8.15. Appointment and Duties of Tender Agent . The Authority, at the direction of the Borrower, hereby appoints the Trustee as initial Tender Agent. The Tender Agent shall designate its principal office and signify its acceptance of all of the duties and obligations imposed upon it

hereunder by a written instrument of acceptance delivered to the Authority, the Trustee, any Credit Provider and the Remarketing Agent. The Tender Agent shall perform the duties provided for in this Indenture and in exercising such duties shall be entitled to the same rights and immunities and indemnities applicable to the Trustee as set forth in this Indenture and shall not be liable for any action or omission to act except for its own negligence or willful misconduct. Notwithstanding any provision in this Indenture to the contrary, the Tender Agent shall not be responsible for any misconduct or negligence on the part of any agent, correspondent, attorney or receiver appointed with due care by it hereunder.

Section 8.16. Eligibility of Tender Agent; Replacement . The Tender Agent and any successor to the Tender Agent shall be a corporation, bank or trust company organized and doing business under the laws of the United States, any state or the District of Columbia and shall either (i) have a combined capital and surplus of at least $50,000,000, and be subject to supervision or examination by federal or state authority or (ii) be a wholly owned subsidiary of a bank, trust company or bank holding company meeting, on an aggregate basis, the tests set out in clause (i). If such corporation, bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such corporation, bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. At all times when the Bonds are not Book‑Entry Bonds the Tender Agent shall have an office or agency for servicing the Bonds in New York, New York. In case at any time the Tender Agent shall cease to be eligible in accordance with the provisions of this Section 8.16, the Tender Agent shall resign immediately in the manner and with the effect specified in this Section, and a new Tender Agent shall be appointed and accept such appointment within 30 days.

The Tender Agent may resign by notifying the Authority, the Borrower, the Trustee, any Credit Provider, the Remarketing Agent and the Bondholders in writing at least 30 days before the effective date of such resignation. The Trustee, at the written direction of the Borrower, may remove the Tender Agent and appoint a successor by notifying the Tender Agent, the Remarketing Agent, any Credit Provider and the Authority in writing. No resignation or removal shall be effective until the successor has delivered an acceptance of its appointment to the Trustee and the predecessor Tender Agent.

In the event of the resignation or removal of the Tender Agent, such Tender Agent shall pay over, assign and deliver any moneys held by it as Tender Agent to its successor, or if there is no successor, to the Trustee. In the event that for any reason there shall be a vacancy in the office of Tender Agent, the Trustee shall act as such Tender Agent to the extent it has operational capacity to perform such tasks.

Section 8.17. Compensation of Tender Agent . The Tender Agent shall not be entitled to any compensation from the Authority, the Remarketing Agent or the Trustee, but rather shall only be entitled to compensation from the Borrower.

Section 8.18. Appointment and Duties of Bond Registrar . The Authority, at the direction of the Borrower, hereby designates the Trustee as initial Bond Registrar, provided that the Tender

Agent shall act as co‑Bond Registrar with respect to Bonds tendered pursuant to Sections 2.4, 4.6 and 4.8 hereof.

The Bond Registrar shall not be entitled to any compensation from the Authority, the Remarketing Agent, or the Trustee but, rather, shall only be entitled to compensation from the Borrower.

Section 8.19. Eligibility of Bond Registrar . A Bond Registrar appointed pursuant to this Indenture shall be a corporation organized and doing business under the laws of the United States or any state or the District of Columbia, subject to supervision or examination by federal or state authorities and shall either (i) have a combined capital and surplus of at least $50,000,000, and be subject to supervision or examination by federal or state authority or (ii) be a wholly owned subsidiary of a bank, trust company or bank holding company meeting, on an aggregate basis, the tests set out in clause (i). If such corporation, bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such corporation, bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

Section 8.20. Bond Registrar’s Performance of Duties . The Bond Registrar shall perform the duties provided for in this Indenture and in exercising such duties shall be entitled to the same rights and immunities and indemnities applicable to the Trustee as set forth in this Indenture and shall not be liable for any action or omission to act except for negligence or willful misconduct.

Section 8.21. Replacement of Bond Registrar . The Bond Registrar may resign by notifying the Authority, the Trustee, any Credit Provider and the Borrower in writing at least 30 days before the effective date of such resignation. The Authority, at the written direction of the Borrower, may remove the Bond Registrar and appoint a successor by notifying the Bond Registrar, the Remarketing Agent, any Credit Provider and the Trustee. No resignation or removal shall be effective until the successor has delivered an acceptance of its appointment to the Trustee and the predecessor Bond Registrar.

In the event of the resignation or removal of the Bond Registrar, such Bond Registrar shall pay over, assign and deliver any moneys held by it as Bond Registrar to its successor, or if there is no successor, to the Trustee. In the event that for any reason there shall be a vacancy in the office of Bond Registrar, the Trustee shall act as such Bond Registrar to the extent it has operational capacity to perform such tasks.

Section 8.22. Successor Remarketing Agent by Merger . If the Remarketing Agent consolidates with, merges or converts into, or transfers all or substantially all its underwriting business to, another entity, the resulting, surviving or transferee entity shall, if otherwise eligible to serve hereunder, be the successor Remarketing Agent without any further act. The Remarketing Agent shall provide written notice to the Trustee and the Borrower and an accompanying certificate reflecting such eligibility and such merger.

Section 8.23. P.L. 2005 c. 92 Compliance . In accordance with P.L. 2005 c. 92, the Trustee agrees that all services performed by it under this Indenture and any subcontract hereunder shall be performed within the United States of America.

Section 8.24. Compliance With L. 2005, c. 271 Reporting Requirements . The Trustee hereby acknowledges that it has been advised of its responsibility to file an annual disclosure statement on political contributions with the New Jersey Election Law Enforcement Commission ( “ELEC” ) pursuant to N.J.S.A. 19:44A‑20.27 (L. 2005, c. 271, section 3) if the Trustee enters into agreements or contracts such as this Indenture, with a State public entity (including the Authority), and receives compensation or fees of $50,000 or more in the aggregate from State public entities, in a calendar year. It is the Trustee’s responsibility to determine if filing is necessary. Failure to so file can result in the imposition of financial penalties by ELEC. Additional information about this requirement is available from ELEC at 888‑313‑3532 or at www.elec.state.nj.us.

Section 8.25. Compliance With L. 2005, c. 51 . The Trustee represents and warrants that all information, certifications and disclosure statements previously provided in connection with L. 2005, c. 51, which codified Executive Order No. 134 (McGreevey 2004), are true and correct as of the date hereof and all such statements have been made with full knowledge that the Authority and the State will rely upon the truth of the statements contained herein and therein in engaging the Trustee, as trustee in connection with the Bonds. The Trustee agrees that it shall maintain continued compliance with L. 2005, c. 51 and regulations promulgated thereunder while the Bonds are Outstanding. The Trustee acknowledges that upon its failure to make required filings thereunder or the making of a contribution prohibited thereunder the Trustee may be removed as Trustee under this Indenture and any remedies available may be exercised against the Trustee at law or in equity.

Section 8.26. Compliance With Executive Order 117 . The Trustee represents and warrants that all information, certifications and disclosure statements previously provided in connection with Executive Order No. 117 (Corzine 2008), are true and correct as of the date hereof and all such statements have been made with full knowledge that the Authority and the State will rely upon the truth of the statements contained herein and therein in engaging the Trustee, as trustee in connection with the Bonds. The Trustee agrees that it shall maintain continued compliance with Executive Order 117 (Corzine 2008) and regulations promulgated thereunder while the Indentured Bonds are Outstanding. The Trustee acknowledges that upon its failure to make required filings thereunder or the making of a contribution prohibited thereunder the Trustee may be removed as Trustee under this Indenture and any remedies available may be exercised against the Trustee at law or in equity.

Section 8.27. [Reserved.]

Section 8.28. Rule G‑34. After the execution and delivery of any Rule G‑34 Document in connection with any amendment, extension, renewal, replacement or termination thereof, the Trustee shall within one (1) Business Day of receiving a written request from the Remarketing Agent provide to the Remarketing Agent, by electronic delivery, a word‑searchable PDF file containing an executed copy of the relevant Rule G‑34 Document. If any Non‑Public Information has been redacted, the Trustee shall also provide to the Remarketing Agent a complete copy of the Rule G‑34 Document including such Non‑Public Information.

Article IX

Modification or Amendment of the Indenture, the Loan Agreement and

the First Mortgage Bonds

Section 9.1. Amendments Permitted . (A) Except as provided in subsection (B), this Indenture and the rights and obligations of the Authority and of the Holders of the Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental hereto, which the Authority and the Trustee may enter into when the written consent of the Holders of a majority in aggregate principal amount of all Bonds then Outstanding (or, if such amendment only applies to a particular series of Bonds, the consent of the Holders of a majority in aggregate principal amount of all Bonds of such series then Outstanding or, in lieu thereof, of any Credit Provider as provided in Section 11.13 hereof) and an Approving Opinion shall have been filed with the Trustee. No such modification or amendment shall (1) extend the fixed maturity of any Bond, or reduce the amount of principal thereof, or change the rights of optional and mandatory tender or extend the time of payment, or change the method of computing the rate of interest thereon or create a privilege or priority of any Bond over any other Bond, or extend the time of payment of interest thereon, without the consent of the Holder of each Bond so affected, or (2) reduce the aforesaid percentage of Bonds the consent of the Holders of which is required to effect any such modification or amendment, or (3) permit the creation of any lien on the Revenues and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture, or (4) deprive the Holders of the Bonds of the lien created by this Indenture on such Revenues, the First Mortgage Bonds and other assets (except as expressly provided in this Indenture), without the consent of the Holders of all of the Bonds then Outstanding and receipt by the Trustee of an Approving Opinion. It shall not be necessary for the consent of the Bondholders to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture pursuant to this subsection (A), the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency then rating the Bonds, the Remarketing Agent and the Holders of the Bonds at the addresses shown on the registration books of the Trustee. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture.

(B) This Indenture and the rights and obligations of the Authority, of the Trustee and of the Holders of the Bonds may also be modified or amended from time to time and at any time by an indenture or indentures supplemental hereto, which the Authority and the Trustee may enter into without the consent of any Bondholders, but with the consent of the Credit Provider (if a Letter of Credit is in effect) and the Bank (but only to the extent provided in the applicable Bank Index Rate Agreement), and only to the extent permitted by law, including, without limitation, for any one or more of the following purposes:

(1) to add to the covenants and agreements of the Authority in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds, or to surrender any right or power herein reserved to or conferred upon the Authority;

(2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in this Indenture, or in regard to matters or questions arising under this Indenture, as the Authority, at the direction of the Borrower, may deem necessary or desirable and not inconsistent with this Indenture, including amendments pursuant to Section 2.3(G)(3) hereof;

(3) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute;

(4) to conform to the terms and provisions of any Letter of Credit or Alternate Letter of Credit or to obtain or maintain a rating on the Bonds;

(5) to modify, alter, amend or supplement this Indenture in any other respect, including amendments which would otherwise be described in Section 9.1(A) hereof and including, but not limited to, amendments to permit one or more series of the Bonds to be secured by a separate indenture and no longer be secured hereunder, if (i) the effective date of such Supplemental Indenture is a date on which all Bonds affected thereby are subject to mandatory tender for purchase pursuant to Section 4.6 or 4.8 or (ii) notice of the proposed Supplemental Indenture is mailed to Holders of the affected Bonds at least 30 days before the effective date thereof and, on or before such effective date, such Bondholders have the right to demand purchase of their Bonds pursuant to Section 2.4(A) hereof; or

(6) to make any other changes to this Indenture that do not materially adversely affect the rights of any Bondholder.

(C) The Trustee and the Authority may in their discretion, but shall not be obligated to, enter into any such Supplemental Indenture authorized by subsections (A) and (B) of this Section which materially adversely affects the Trustee’s or the Authority’s own rights, duties or immunities, respectively, under this Indenture or otherwise.

(D) Anything herein to the contrary notwithstanding, a Supplemental Indenture under this Section shall not become effective unless and until the Borrower shall have consented thereto in writing.

Section 9.2. Effect of Supplemental Indenture . Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the Trustee, the Credit Provider, if any, and all Holders of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes.

Any such Supplemental Indenture shall comply with the terms of this Article IX, and the Trustee shall be entitled to receive and may conclusively rely on an Approving Opinion addressed to the Trustee that the Supplemental Indenture complies with the provisions therein.

Section 9.3. Endorsement of Bonds; Preparation of New Bonds . Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of the Holder of any Bond Outstanding at the time of such execution and presentation of such Holder’s Bond for the purpose at the office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such Bond. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee, and upon demand of the Holders of any Bonds then Outstanding shall be exchanged at the Corporate Trust Office of the Trustee without cost to any Bondholder, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amounts.

Section 9.4. Amendment of Particular Bonds . The provisions of this Article shall not prevent any Bondholder from accepting any amendment as to the particular Bonds held by it, provided that due notation thereof is made on such Bonds.

Section 9.5. Amendment of Loan Agreement . As provided in Section 7.2 of the Loan Agreement, the Authority shall not amend, modify or terminate any of the terms of the Loan Agreement, or consent to any such amendment, modification or termination, without the prior written consent of the Trustee. The Trustee shall give such written consent only if (1) the Trustee first obtains the written consent of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding (or, if such amendment applies only to a particular series of Bonds, the consent of the Holders of a majority in aggregate principal amount of all Bonds of such series then Outstanding or, in lieu thereof, of any Credit Provider as provided in Section 11.13 hereof) to such amendment, modification or termination, (2) such amendment, modification or termination is made in connection with the amendment of this Indenture pursuant to Section 9.1(B) or (3) such amendment, modification or termination is made (a) to add to the covenants and agreements of the Authority and/or the Borrower in the Loan Agreement other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds, or to surrender any right or power herein reserved to or conferred upon the Authority or the Borrower, (b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Loan Agreement, or in regard to matters or questions arising under the Loan Agreement, as the Authority, at the direction of the Borrower, may deem necessary or desirable and not inconsistent with this Indenture and the Loan Agreement, (c) to conform to the terms and provisions of any Letter of Credit or Alternate Letter of Credit or to obtain or maintain a rating on the Bonds, or (d) to make any other changes to the Loan Agreement that do not materially adversely affect the rights of any Bondholder; provided that no amendment, modification or termination shall reduce the amount of Loan Payments or Purchase Price Payments

to be made by the Borrower pursuant to the Loan Agreement, or extend the time for making such payments, without the written consent of all of the Holders of the Bonds then Outstanding. The Trustee shall be entitled to receive and may conclusively rely upon an Approving Opinion addressed to the Trustee with respect to the effect of any amendments hereto or to the Loan Agreement.

Section 9.6. Amendment of First Mortgage Bonds or the Mortgage Indenture. The Trustee shall, without the consent of or notice to the registered owners of the Bonds, consent to any amendment, change or modification of the First Mortgage Bonds or the Mortgage Indenture as may be required or permitted (i) by the provisions of the Loan Agreement, the First Mortgage Bonds, the Mortgage Indenture or this Indenture, (ii) for the purpose of curing any formal ambiguity, inconsistency, defect or omission, (iii) in connection with any other change therein which is not materially adverse to the registered owners of the Bonds, (iv) to secure or maintain ratings on the Bonds from each Rating Agency, which changes will not restrict, limit or reduce the obligation of the Authority to pay the principal of and premium, if any, and interest on the Bonds as provided herein, or otherwise materially adversely affect the owners hereunder, (v) to add to the covenants and agreements of the Borrower contained in any document, other covenants or agreements thereafter to be observed, or to assign or pledge additional security for any of the Bonds, or to surrender any right or power reserved or conferred upon the Authority or the Borrower, and (vi) to provide for any additional procedures, covenants or agreements necessary to maintain the Tax‑exempt status of the interest on the Bonds, (vii) to modify, alter, amend or supplement the First Mortgage Bonds or the Mortgage Indenture in any other respect, if the effective date of such supplement or amendment is a date on which all of the Bonds affected thereby are subject to mandatory purchase and are so purchased.

Notwithstanding the foregoing and without limiting the generality of the foregoing, the Trustee shall, without the consent of or notice to the Authority or the Bondholders, consent to any and all amendments, changes and modifications of the Mortgage Indenture requested in writing by the Borrower that affect any provision of the Mortgage Indenture that by its terms is effective only so long as certain series of bonds thereunder heretofore or hereafter issued (other than any series of bonds thereunder delivered to the Authority or Trustee pursuant to the Loan Agreement) are outstanding under the Mortgage Indenture.

Except as described in the immediately two preceding paragraphs, the Trustee shall not consent to any other amendment, change or modification of the First Mortgage Bonds or the Mortgage Indenture without notice to and the consent of the registered owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or, if such amendment applies only to a particular series of Bonds, the consent of the registered owners of a majority in aggregate principal amount of all Bonds of such series then Outstanding); provided that the Trustee shall not, without the unanimous consent of the registered owners of all Bonds then Outstanding, consent to any amendment which would change the maturity date or the date of payment of principal (including redemption price) or any installment of interest of the First Mortgage Bonds.

Before the Trustee consents to any amendment, change or modification of the First Mortgage Bonds, (a) the Trustee shall have caused notice of such proposed amendment, change or modification

to be provided to each Rating Agency and stating that a copy thereof is on file at the office of the Trustee and (b) there must have been delivered to the Trustee an Approving Opinion.

Article X

Defeasance

Section 10.1. Discharge of Indenture . Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable hereunder by the Authority:

(A) by paying or causing to be paid (with Available Moneys when a Letter of Credit is then in effect) the principal of, and interest and premium, if any, on, the Bonds then Outstanding as and when the same become due and payable;

(B) by depositing with the Trustee, in trust, at or before maturity or the redemption date thereof, money or securities in the necessary amount (as provided in Section 10.3 hereof) to pay or redeem (with Available Moneys when a Letter of Credit is then in effect) all Bonds then Outstanding; or

If the Authority shall also pay or cause to be paid all other sums payable hereunder by the Authority, then and in that case, at the election of the Authority (evidenced by a Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and this Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, this Indenture and the pledge of Revenues and other assets made under this Indenture and all covenants, agreements and other obligations of the Authority under this Indenture shall cease, terminate, become void and be completely discharged and satisfied except only as provided in Section 10.2 hereof. In such event, upon specific written request of the Authority, the Trustee shall cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction (provided satisfactory indemnity is provided to it) and the Trustee shall pay over, transfer, assign or deliver all moneys or securities (including surrendering the First Mortgage Bonds to the Borrower for cancellation by the Mortgage Trustee) or other property held by it pursuant to this Indenture (other than the Rebate Fund) which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption and which are otherwise not amounts owed to the Trustee hereunder in the following order (1) first, to the Bank, to the extent amounts are owed to the Bank pursuant to the applicable Bank Index Rate Agreement; (2) second, to any Credit Provider to the extent of any amounts due to the Credit Provider pursuant to the Reimbursement Agreement with respect to the Letter of Credit and (3) third, to the Authority, to pay any Administrative Fees and Expenses or any other amounts due and owing to the Authority and (4) fourth, to the Borrower,

provided, however, that the Borrower may not receive any funds derived from a draw on a Letter of Credit, remarketing proceeds, or moneys held for the payment of particular Bonds (including moneys held for non‑presented Bonds).

Section 10.2. Discharge of Liability on Bonds . Upon the deposit with the Trustee pursuant to Section 10.1, in trust, at or before maturity or redemption, as the case may be, of money or securities in the necessary amount (as provided in Section 10.3 hereof) to pay or redeem any Outstanding Bond (whether upon or prior to its maturity or the redemption date of such Bond), provided that, if such Bond is to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bond shall cease, terminate and be completely discharged, except only that the Holder thereof shall thereafter be entitled to payment of the principal of, and premium, if any, and interest on, such Bond by the Authority, and the Authority shall remain liable for such payment, but only out of such money or securities deposited with the Trustee as aforesaid for their payment and such money or securities shall be pledged to such payment; provided further, however, that the provisions of Sections 5.4 and 10.4 hereof shall apply in all events.

The Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the Authority may have acquired in any lawful manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.

Section 10.3. Deposit of Money or Securities with Trustee . Whenever in this Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to this Indenture (exclusive of the Rebate Fund, the Letter of Credit Account, and the account described in Section 4.7(G) hereof) and shall be any combination of:

(A) moneys (Available Moneys when a Letter of Credit is then in effect) in an equal amount to the principal amount of such Bonds, and all unpaid interest thereon to maturity except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount or redemption price of such Bonds and all unpaid interest thereon to the redemption date; or

(B) Government Obligations or bonds, notes or other obligations of any state of the United States or any political subdivision of any state, which are rated by S&P as “AAA” or its equivalent, and, when a Letter of Credit is then in effect, which are purchased with Available Moneys, the principal of and interest on which when due and without reinvestment will provide money sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity or to the redemption date on the Bonds to be paid or redeemed, as such principal and interest become due, with maturities no longer than 30 days or as may be necessary to

make the required payment on the Bonds, provided that, in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice;

provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of this Indenture or by written request of the Authority) to apply such money or securities to the payment of such principal, premium, if any, and interest with respect to such Bonds and provided further that each Rating Agency then rating such Bonds and the Trustee shall have received a report of an Accountant that the moneys or Investment Securities on deposit are sufficient to pay the principal, premium, if any, and interest on the Bonds to maturity or the redemption date, and, if a Letter of Credit is then in effect, a legal opinion from a nationally recognized firm in bankruptcy law that payment of the Bonds from such moneys will not be a voidable preference in the event of the bankruptcy of the Borrower or the Authority.

Section 10.4. Payment of Bonds After Discharge of Indenture Obligation . Notwithstanding any provisions of this Indenture, any moneys deposited with the Trustee in trust for the payment of the principal of, or interest or premium on, any Bonds remaining unclaimed after the principal of any Bond has become due and payable (whether at maturity or upon call for redemption or by declaration as provided in this Indenture), shall be disposed of as provided by law and the Holders of such Bonds shall thereafter be entitled to look only to the transferee of such moneys for payment thereof, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, that before the disposition of such moneys as aforesaid, the Trustee may (at the cost of the Borrower) first publish at least once in a Qualified Newspaper a notice, in such form as may be deemed appropriate by the Trustee, in respect of the Bonds so payable and not presented and in respect of the provisions relating to the disposition of the moneys held for the payment thereof.

Article XI

Miscellaneous

Section 11.1. Liability of Authority Limited to Revenues . None of the Authority, the Trustee, any Authority or Trustee member or representative or any person executing the Bonds is liable personally on the Bonds or subject to any personal liability or accountability by reason of their issuance. The Bonds are special and limited obligations of the Authority, payable solely from and secured by the pledge of the Revenues and other amounts payable under the Loan Agreement (except for Authority’s Reserved Rights and except to the extent paid out of moneys attributable to Bond proceeds or the income from the temporary investment thereof and under certain circumstances proceeds from insurance and condemnation awards) and shall be a valid claim of the respective holders thereof only against the funds established under this Indenture which constitute a part of the “trust estate” and other moneys held by the Trustee for the benefit of the Bonds and the payments due or to become due upon or under the Loan Agreement (except for Authority’s Reserved Rights), all of which are hereby assigned and pledged hereunder for the equal and ratable payment of the Bonds and shall be used for no other purpose than to pay the principal of and interest on the Bonds, except as may be otherwise expressly authorized in this Indenture.

The Bonds do not constitute a debt, or liability of the State or of any agency or political subdivision thereof, other than a special and limited obligation of the Authority, or a pledge of the faith and credit of the State or any agency or political subdivision thereof, other than a special and limited obligation of the Authority, but shall be payable solely from the funds pledged therefor in accordance with this Indenture. The issuance of the Bonds under the provisions of the Act does not directly, indirectly or contingently obligate the State or any agency or political subdivision thereof to levy any form of taxation for the payment thereof or to make any appropriation for their payment, and the Bonds and the interest payable thereon do not now and shall never constitute a debt of the State or any agency or political subdivision thereof within the meaning of the Constitution or the statutes of the State and do not now and shall never constitute a charge against the credit or taxing power of the State or any agency or political subdivision thereof. The State shall not in any event be liable for the payment of the principal of, purchase price or interest on the Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever which may be undertaken by the Authority. No breach by the Authority of any such pledge, mortgage, obligation or agreement may impose any liability, pecuniary or otherwise, upon the State or any charge upon its general credit or against its taxing power. The Authority has no power to levy taxes for any purposes whatsoever.

In the exercise of the powers of the Authority and its members, directors, officers, employees, attorneys or agents under this Indenture and the Loan Agreement, and including without limitation the application of moneys, the investment of funds, and the assignment or other disposition of the Trust Estate in the event of default by the Borrower, neither the Authority nor its members, directors, officers, employees, attorneys or agents shall be accountable to the registered or beneficial owners of the Bonds, the Trustee or the Borrower for any action taken or omitted by it or them in good faith and believed by it or them to be authorized or within the discretion or rights or powers conferred. The Authority and its members, directors, officers, employees, attorneys and agents shall be protected in its or their acting upon any paper or document believed by it or them to be genuine, and it and they may conclusively rely upon the advice of counsel and may (but need not) require further evidence of any fact or matter before taking any action. No covenant or agreement contained in the Bonds or in this Indenture shall be deemed to be the covenant or agreement of any member, director, officer, agent, attorneys, or employee of the Authority in his individual capacity, and neither the members of the Authority nor any official or attorney executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof.

Section 11.2. Successor Is Deemed Included in All References to Predecessor . Whenever in this Indenture either the Authority, any Credit Provider or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Authority, any Credit Provider or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. All the covenants, stipulations, promises and agreements in this Indenture contained, by or on behalf of the Authority, shall bind and inure to the benefit of its successors and assigns, whether so expressed or not. If any of the powers or duties of the Authority shall hereafter be transferred by any law of the State, and if such transfer shall relate to any matter or thing permitted or required to be done under this Indenture by the Authority, then the body or

official of the State who shall succeed to such powers or duties shall act and be obligated in the place and stead of the Authority as in this Indenture provided.

The Holder owning a majority of the aggregate principal amount of the Bonds the Outstanding may designate an alternate Person to serve as the Bank under this Indenture by delivery of a written notice to the Borrower and the Trustee, and such Person accepts and agrees to act as the Bank hereunder and as “Purchaser” under the applicable Bank Index Rate Agreement. Upon acceptance and notification thereof to the Borrower and the Trustee, the successor to the Bank for such purposes shall thereupon succeed to and become vested with all of the rights, powers, privileges and responsibilities of the Bank, and any Person being replaced as the Bank shall be discharged from its duties and obligations as the Bank under this Indenture.

Section 11.3. Limitation of Rights to Parties and Bondholders . Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the Authority, the Trustee, the Borrower, any Credit Provider, the Remarketing Agent, the Direct Participants (as provided in Section 2.4 hereof) and the Holders and Beneficial Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Authority, the Trustee, the Borrower, any Credit Provider, the Remarketing Agent, the Direct Participants (as provided in Section 2.4 hereof) and the Holders and Beneficial Owners of the Bonds.

Section 11.4. Waiver of Notice . Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice. In any such case the giving of a notice, or lack of giving notice to such entitled person who has waived such right shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

Section 11.5. Disposal of Bonds . Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee may, in lieu of such cancellation and delivery, dispose of such Bonds in its customary manner, and deliver a certificate of such disposal to the Authority if so requested.

Section 11.6. Severability of Invalid Provisions . If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority and the Trustee each hereby declares that it would have entered into this Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable.

Section 11.7. Governing Law; Venue . This Indenture shall be governed by and construed in accordance with the laws of the State of New Jersey (without regard to the State's conflicts of laws principles).

Section 11.8. Notices . Notices shall be delivered to each Bondholder by first‑class mail, postage prepaid, at the address set forth for such Bondholder on the registration books of the Trustee. Any notice to or demand upon the Trustee may be served or presented by first‑class mail, postage prepaid and such demand may be made, at the Corporate Trust Office of the Trustee, which, as of the date of adoption of this Indenture, is located as the following address:

U.S. Bank National Association

333 Thornall Street, 4th Floor

Edison, New Jersey 08837

Attention: Corporate Trust Dept.

or at such other address as may have been filed in writing by the Trustee with the Authority and the Borrower. Any notice to or demand upon the Authority, the Borrower, the Credit Provider or the Remarketing Agent shall be deemed to have been sufficiently given or served for all purposes by being mailed by first‑class mail, postage prepaid, addressed as follows:

To the Authority: New Jersey Economic Development Authority

PO Box 990

Trenton, New Jersey 08625‑0990

Attention: Director of Bonds and Incentives

To the Borrower: New Jersey Natural Gas Company

1415 Wyckoff Road

P.O. Box 1464

Wall, New Jersey 07719

Attention: Treasurer

(with a concurrent copy to the General Counsel)

To the Remarketing Agent: U.S. Bancorp Investments, Inc.

214 North Tryon Street, 30th Floor

Charlotte, North Carolina 28202

Attention: Hector Hernandez


To the Bank:	When applicable, at the address the Bank designates to the Authority, the Trustee and the Borrower.

or such other addresses as may have been filed in writing with the Trustee.

Section 11.9. Evidence of Rights of Bondholders . (A) Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Bondholders may be in any number of concurrent instruments of substantially similar tenor and shall be signed or

executed by such Bondholders in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in this Section.

(B) The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to such notary public or other officer the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer.

(C) The ownership of registered Bonds shall be proved by the bond registration books held by the Trustee. The Trustee and the Authority may conclusively assume that such ownership continues until written notice to the contrary is served upon the Trustee. The fact and the date of execution of any request, consent or other instrument and the amount and distinguishing numbers of Bonds held by the person so executing such request, consent or other instrument may also be proved in any other manner which the Trustee may deem sufficient. The Trustee may nevertheless, in its discretion, require further proof in cases where it may deem further proof desirable.

Any request, consent, or other instrument or writing of the Holder of any Bond shall bind every future Holder of the same Bond and the Holder of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon.

Section 11.10. Disqualified Bonds . In determining whether the Holders of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are owned or held by or for the account of the Authority or the Borrower, or by any other obligor on the Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the Borrower or any other obligor on the Bonds, shall (unless all of the Bonds are so owned) be disregarded and deemed not to be Outstanding for the purpose of any such determination; provided that, for the purpose of determining whether the Trustee shall be protected in relying on any such demand, request, direction, consent or waiver, only Bonds which the Trustee knows to be so owned shall be disregarded.

Section 11.11. Money Held for Particular Bonds . (a) The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of registered Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held uninvested in trust by it for the Holders of the Bonds entitled thereto, subject, however, to the provisions of Section 10.4 hereof.

(b) If the Authority deposits with the Trustee funds sufficient to pay the principal or Redemption Price of any Bonds becoming due, either at maturity or by call for redemption or

otherwise, together with all interest accruing thereon to the due date, all interest on such Bonds shall cease to accrue on the due date and all liability of the Authority with respect to such Bonds shall likewise cease, except as hereinafter provided. Thereafter the Holders of such Bonds shall be restricted exclusively to the funds so deposited for any claim of whatsoever nature with respect to such Bonds, provided that such restriction shall not affect the obligations of the Borrower to make payments for the benefit of the Holders of the Bonds pursuant to this Indenture or the Loan Agreement, and the Trustee shall hold such funds in trust for such Holders.

(c) If any Bond or evidence of beneficial ownership of such Bond shall not be presented for payment when the principal thereof becomes due (whether at maturity, by acceleration, upon call for redemption, upon purchase or otherwise), all liability of the Authority to the registered owner thereof for the payment of such Bond, shall forthwith cease, terminate and be completely discharged if funds sufficient to pay such Bond and interest due thereon, if any, are held by the Trustee uninvested for the benefit of the registered owner thereof. Thereupon it shall be the duty of the Trustee to comply with the Uniform Unclaimed Property Act, N.J.S.A. 46:30B‑1 et seq., with respect to such funds. The registered owner shall thereafter be restricted exclusively to such funds for any claim of whatever nature on his part under this Indenture or on, or with respect to, such Bond.

Section 11.12. Funds and Accounts . Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards and with due regard for the requirements of Section 6.5 hereof and for the protection of the security of the Bonds and the rights of every Holder thereof. The Trustee may establish and maintain for so long as is necessary one or more temporary funds and accounts under this Indenture, including but not limited to a temporary fund for holding the proceeds of the Bonds.

Section 11.13. Rights of Credit Provider . Notwithstanding anything in this Indenture to the contrary, so long as a Letter of Credit is then in effect and the Credit Provider has not failed or refused to honor a properly presented and conforming draw under the Letter of Credit, the Credit Provider, and not the Owners of the Bonds, shall be deemed to be the Owner of 100% of the Outstanding Bonds at all times for the purpose of giving any approval, request, consent, direction (other than pursuant to Sections 2.3(A), 2.4, 2.6, 2.7, 7.6, 9.4 and 11.9 hereof), declaration, rescission or amendment which under this Indenture is to be given by the Owners of the Bonds at the time Outstanding; provided, however, that the Credit Provider shall not consent to any modification or amendment of this Indenture or the Loan Agreement requiring the consent of the Owners of 100% in aggregate principal amount of the Bonds Outstanding or which would cause the interest on the Bonds to be no longer excluded from gross income for federal income tax purposes unless the actual Owners of 100% in aggregate principal amount of the Bonds Outstanding shall have also consented thereto or unless the Credit Provider is also the registered owner of 100% of the Bonds Outstanding; and provided further, that the Credit Provider shall have no right to deprive any Owner of the Bonds

of the benefit of the Letter of Credit under the circumstances and in the manner contemplated as set forth herein.

Section 11.14. Waiver of Personal Liability . No recourse shall be had for the payment of the principal of or interest on any of the Bonds issued under this Indenture or for any claim based thereon or upon any obligation, covenant or agreement contained in this Indenture or the Loan Agreement or any agreement supplemental thereto, against any past, present or future officer, director, employee, member or agent of the Authority, or any incorporator, officer, director, employee, trustee, member or agent of any successor corporation or body politic, as such, either directly or through the Authority or any successor corporation or body politic, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such incorporator, officer, director, employee, member, trustee or agent as such, is hereby expressly waived and released as a condition of and consideration for the execution of this Indenture or the Loan Agreement and the issuance of any of the Bonds.

Section 11.15. Authority May Rely On Certificates . The Authority shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith and in accordance with the terms of this Indenture, upon any resolution, order, notice, request, consent, waiver, certificate, statement, affidavit, requisition, bond or other paper or document which it shall in good faith believe to be genuine and to have been adopted or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of the Loan Agreement or this Indenture, or upon the written opinion of any attorney, engineer, accountant or other expert believed by it to be qualified in relation to the subject matter, and the Authority shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument.

Section 11.16. Authority Not Responsible . (a) The Authority is not under any obligation to effect or maintain insurance or to renew any policies of insurance or to inquire as to the sufficiency of any policies of insurance carried by the Borrower, or to report, or make or file claims or proof of loss for, any loss or damage insured against or which may occur, or to keep itself informed or advised as to the payment of any taxes or assessments, or to require any such payment to be made. The Authority shall have no responsibility in respect of the sufficiency of the security provided by this Indenture. The Authority shall not be under any obligation to see that any duties herein imposed upon any party other than itself, or any covenants herein contained on the part of any party other than itself to be performed, shall be done or performed, and the Authority shall not be under any liability for failure to see that any such duties or covenants are so done or performed.

(b) The immunities and exemptions from liability of the Authority hereunder shall extend to its directors, members, attorneys, officers, employees and agents.

Section 11.17. Business Day . If any payment is to be made hereunder or any action is to be taken hereunder on any date that is not a Business Day, such payment or action otherwise required to be made or taken on such date shall be made or taken on the immediately succeeding Business Day with the same force and effect as if made or taken on such scheduled date.

Section 11.18. Complete Agreement . This Indenture represents the complete agreement between the parties with respect to the Bonds and related matters. There are no oral agreements between the parties hereto.

Section 11.19. Execution in Several Counterparts . This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the Authority and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument.

Section 11.20. Application of New Jersey Contractual Liability Act . Notwithstanding anything to the contrary contained herein, the foregoing is subject to the limitations of the provisions of the New Jersey Contractual Liability Act, N.J.S.A. 59:13‑1, et seq. and the New Jersey Tort Claims Act, N.J.S.A. 59:2‑1, et seq. While the New Jersey Contractual Liability Act, N.J.S.A. 59:13‑1, et seq. is not applicable by its terms to claims arising under contracts with the Authority, the Trustee hereby agrees that such statute (except N.J.S.A. 59:13‑9) shall be applicable to all claims arising against the Authority under the Indenture.

In Witness Whereof, the Authority has caused this Indenture to be executed on its behalf and attested by its duly authorized officers, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name and attested by its duly authorized officers, all as of the day and year first above written but effective on the Effective Date.


Attest:	New Jersey Economic Development Authority


/s/ Richard T. LoCascio	By: /s/ Daniel T. Weick‑‑‑‑‑‑‑‑‑‑‑‑


Richard T. LoCascio	Daniel T. Weick


Assistant Secretary	Managing Director - Post Closing

Financial Services

[Authority Signature Page to Amended and Restated Indenture]


Attest:	U.S. Bank National Association,

as Trustee


/s/ Stephanie Roche	By: /s/ Christopher E. Golabek


Stephanie Roche	Christopher E. Golabek


Vice President	Vice President

[Trustee Signature Page to Amended and Restated Indenture]

Consent of the Borrower

New Jersey Natural Gas Company, as the Borrower under the Indenture of Trust dated as of October 1, 2005, between the New Jersey Economic Development Authority (the “Authority” ) and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as trustee (the “Prior Trustee” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, the Prior Trustee and the Borrower, hereby consents to the execution and delivery of the Amended and Restated Indenture between the Authority and U.S. Bank National Association, as successor trustee to the Prior Trustee, in the form attached hereto.

New Jersey Natural Gas Company

By: /s/ Mark G. Kahrer

Name: Mark G. Kahrer

Title: Vice President - Regulatory Affairs

Date: April 18, 2019

[Borrower Signature Page to Amended and Restated Indenture Consent]

Consent of the Bondholder

Pursuant to Section 902 of the Indenture of Trust dated as of October 1, 2005 between the New Jersey Economic Development Authority (the “Authority” ) and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as trustee (the “Prior Trustee” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, New Jersey Natural Gas Company, as borrower, and the Prior Trustee, the undersigned, New Jersey Natural Gas Company (the “Bondholder” ), as owner of all of the Authority’s (i) $10,300,000 in aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project), (ii) $10,500,000 in aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project) and (iii) $15,000,000 in aggregate principal amount of Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project), hereby consents to the execution and delivery of the Amended and Restated Indenture dated as of April 1, 2019 between the Authority and U.S. Bank National Association, as successor trustee to the Prior Trustee, in the form attached hereto.

New Jersey Natural Gas Company

By: /s/ Mark G. Kahrer

Name: Mark G. Kahrer

Title: Vice President - Regulatory Affairs

Date: April 18, 2019

[Bondholder Signature Page to Amended and Restated Indenture Consent]

Consent of the Bond Insurer

National Public Finance Guarantee Corporation


By:	/s/ Daniel E. McManus Jr.

Name: Daniel E. McManus Jr.

Title: General Counsel

Date: April 18, 2019

[Bond Insurer Signature Page to Amended and Restated Indenture Consent]

Exhibit A

Form of Bonds

The Transferability of this Bond is Restricted as Described in

Section 2.6 of the Indenture

THE STATE OF NEW JERSEY IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE STATE OF NEW JERSEY IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL, PURCHASE PRICE OR PREMIUM, IF ANY, OF OR INTEREST ON THIS BOND. THIS BOND IS A SPECIAL, LIMITED OBLIGATION OF THE AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS OF THE AUTHORITY PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS OTHERWISE AVAILABLE UNDER THE INDENTURE FOR THE PAYMENT OF THE BOND. THE BOND DOES NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY HAS NO TAXING POWER.



No. R‑__		$ [ Amount ]

New Jersey Economic Development Authority

Natural Gas Facilities [Refunding] Revenue Bond

Series 2005[A][B][C]

(New Jersey Natural Gas Company Project)



Dated:	Maturity Date:	[ CUSIP: ]

Registered Owner:	____________________
Principal Amount:	____________________________ Dollars

The New Jersey Economic Development Authority (the “Authority a public body corporate and politic constituting an instrumentality of the State of New Jersey (the “State”), for value received, hereby promises to pay (but only out of Revenues as hereinafter provided) to the registered owner identified above or registered assigns, on the maturity date set forth above (the “Maturity Date” ), the principal sum set forth above and to pay (but only out of Revenues as hereinafter provided) interest on the balance of said principal amount from time to time remaining unpaid from and including the date hereof until payment of said principal amount has been made or duly provided for, at the rates and on the dates determined as described herein and in the Indenture (as hereinafter defined), and to pay (but only out of Revenues as hereinafter provided) interest on overdue principal at the rate borne by this Bond commencing on the initial date of such delinquency until such amount has been paid, except as the provisions hereinafter set forth with respect to acceleration of maturity, redemption prior to maturity or purchase may become applicable hereto; provided, however, that in no event shall the rate of interest on this Bond exceed at any time the Maximum Rate. If an Event of Default shall have occurred and be continuing under the Indenture, then all Bonds bearing interest at (i) a Daily Interest Rate, a Weekly Interest Rate or an Index Interest Rate shall bear interest at

the Alternate Rate, (ii) a Term Index Rate shall bear interest at the rate on the Bonds on the day before the Event of Default occurred, or (iii) a Bank Index Rate shall bear interest at the Default Rate, in each case from the date of such Event of Default until such Event of Default shall be cured or waived. The principal of and premium, if any, on this Bond are payable at final maturity, acceleration or redemption in lawful money of the United States of America upon surrender hereof at the Corporate Trust Office of U.S. Bank National Association, as trustee, or its successor in trust (the “Trustee” ). Interest payments on this Bond shall be made on each Interest Payment Date (as defined below) commencing August 1, 2019, to the person appearing on the bond registration books of the Bond Registrar as the Bondholder thereof on the Record Date (as hereinafter defined), such interest to be paid by the Paying Agent to such Bondholder (i) by check mailed on the Interest Payment Date to such Bondholder’s address as it appears on the registration books or at such other address as has been furnished to the Bond Registrar as provided below, in writing by such Bondholder not later than the Record Date, (ii) for any Bondholder holding Bonds of such series accruing interest at the Daily Interest Rate, the Weekly Interest Rate, the Index Interest Rate or the Bank Index Rate by wire transfer in immediately available funds at an account maintained in the United States at such wire address as such Bondholder shall specify in its written request (any such written request shall remain in effect until rescinded in writing by such Bondholder), or (iii) during a Term Interest Rate Period upon written request, at least three Business Days prior to the applicable Record Date of the Bondholder of Bonds aggregating not less than $1,000,000 in principal amount of a series, by wire transfer in immediately available funds at an account maintained in the United States at such wire address as such Bondholder shall specify in its written notice (any such written request shall remain in effect until rescinded in writing by such Bondholder); except, in each case, that, if and to the extent that there shall be a default in the payment of the interest due on such Interest Payment Date, such defaulted interest shall be paid to the Bondholder in whose name any such Bonds are registered at the close of business on the fifth Business Day next preceding the date of payment of such defaulted interest. Both the principal of and premium, if any, on the Bonds shall be payable upon surrender thereof in lawful money of the United States of America at the Corporate Trust Office of the Trustee.

The principal of, premium, if any, and interest on the Bonds are payable by the Authority solely from Revenues, as defined in the Indenture hereinafter referred to, including all proceeds derived pursuant to a Letter of Credit, if a Letter of Credit is in effect.

This Bond is one of a duly authorized issue of bonds designated as “Natural Gas Facilities [Refunding] Revenue Bonds (New Jersey Natural Gas Company Project)” (the “Bonds” ), limited in total aggregate principal amount to $35,800,000. This Bond is one of a duly authorized series of the Bonds with the further designation “Series 2005[A][B][C],” limited in aggregate principal amount to [$10,300,000][$10,500,000][$15,000,000]. The Bonds, including two other series with the further designations “2005[A][B][C] and 2005[A][B][C]” are all issued under and secured by and entitled to the benefits of an Amended and Restated Indenture, dated as of April 1, 2019 (as it may be amended, restated and supplemented from time to time, the “Indenture” ), between the Authority and the Trustee. Proceeds from the sale of the Bonds were used to refund certain outstanding bonds of the Authority, the proceeds of which were used to finance the Projects, and to finance the 2005C Project under the terms of a Loan Agreement, dated as of October 1, 2005, as supplemented and amended by the Supplement and Amendment, as further supplemented and

amended by the Second Amendment to Loan Agreement dated as of April 1, 2019 (as it may be further amended, restated and supplemented from time to time, the “Loan Agreement” ), between the Authority and New Jersey Natural Gas Company (the “Borrower” ). Capitalized terms not defined herein shall have the meanings ascribed thereto in the Indenture.

The Loan Agreement is secured by the Borrower’s First Mortgage Bonds, [Series WW due 2042] [Series XX due 2038] [Series YY due 2059]. The First Mortgage Bonds are issued under and secured by the Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement by and between the Borrower and U.S. Bank National Association, as trustee, dated as of September 1, 2014, as supplemented and amended. The Bonds are issued pursuant to and in full compliance with the Constitution and laws of the State, particularly the Act, and pursuant to a resolution adopted by the Authority on September 13, 2005, which resolution authorizes the execution and delivery of the Loan Agreement and the Indenture and a resolution adopted by the Authority on November 9, 2018, which resolution authorized, among other matters, an amendment and restatement of the Indenture and the issuance of the Bonds in replacement of the Bonds originally issued. The Bonds are special limited obligations of the Authority and, as provided in the Indenture, are payable solely from payments to be made by the Borrower under the Loan Agreement and the First Mortgage Bonds, from a Letter of Credit as described below (but only so long as a Letter of Credit is in effect) and from any other moneys held by the Trustee under the Indenture for such purpose, and other than as provided in the Loan Agreement, there shall be no recourse against the Authority or any other property now or hereafter owned by it. The principal, purchase price or premium, if any, of the Bonds and the interest thereon do not constitute an indebtedness, a general obligation or a pledge of the faith and credit or the taxing power of the State or any agency or political subdivision of the State, including the Authority, within the purview of any constitutional or statutory limitation or provision, and shall not constitute or give rise to a charge against the general credit or taxing powers of the State or any agency or political subdivision thereof, including the Authority, but shall be a special and limited obligation of the Authority, payable solely from the revenues and income derived from the Borrower under the Loan Agreement, including the First Mortgage Bonds, and from certain moneys and investments held by the Trustee under the Indenture. The Authority has no taxing power. Neither the State nor the Authority shall be liable for the payment of the principal of or interest on the Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever which may be undertaken by the Authority, except from the sources described above in this paragraph. No breach by the Authority of any such pledge, obligation or agreement may impose any liability, pecuniary or otherwise, upon the State or any agency or political subdivision thereof or any charge upon its or their general credit or against its or their taxing power.

The Bonds shall be secured under the Indenture by payments received by the Trustee under the Loan Agreement, including the First Mortgage Bonds, with certain exceptions set forth in the Indenture; moneys drawn by the Trustee under any irrevocable letter of credit that may be issued under the Loan Agreement (together with any Alternate Letter of Credit (as that term is defined in the Indenture) issued in substitution therefor in accordance with the Loan Agreement, the “Letter of Credit” ) in favor of the Trustee, issued at the request and for the account of the Borrower, subject, however, to termination as provided therein and in the Indenture; and by other moneys held by the

Trustee under the Indenture for such purpose (all of the foregoing, the “Revenues” ), and there shall be no other recourse against the Authority or any property now or hereafter owned by it.

Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the registered Bondholders of the Bonds, of the nature and extent of the security, of the rights, duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder, to all of the provisions of which Indenture and of the Loan Agreement, the First Mortgage Bonds, any Letter of Credit, the Holder of this Bond, by acceptance hereof, assents and agrees.

The Bonds are issuable as fully registered bonds without coupons in Authorized Denominations.

This Bond is transferable by the Bondholder hereof, in person, or by its attorney duly authorized in writing, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Bond or Bonds, in an Authorized Denomination or Denominations, for the same aggregate principal amount, will be issued to the transferee in exchange therefor. The Authority and the Trustee may treat the Bondholder hereof as the absolute Bondholder hereof for all purposes, and the Authority and the Trustee shall not be affected by any notice to the contrary.

The term of the Bonds will be divided into consecutive Interest Rate Periods, as provided in the Indenture, during each of which the Bonds shall bear interest at Daily Interest Rates, Weekly Interest Rates, Index Interest Rates, Bank Index Rates or a Term Interest Rate. The Interest Rate Period for the Bonds commencing on the Effective Date shall be a Term Interest Rate Period. The interest rate determination method for the Bonds (in whole or in part) may be subsequently changed from time to time by the Borrower, without the consent of the Holders of the Bonds, as provided in the Indenture. The Trustee shall give notice to Holders of the Bonds, as provided in the Indenture, prior to any change in the interest rate determination method.

Interest on the Bonds with respect to each Interest Period will be paid on the immediately succeeding Interest Payment Date provided that if any Interest Payment Date is not a Business Day, such interest shall be mailed or wired as provided above on the next succeeding Business Day with the same effect as if made on the day such payment was due. During a Variable Interest Rate Period or a Term Interest Rate Period of six calendar months or less, interest on the Bonds shall be computed upon the basis of a 365‑day year or 366‑day year, as applicable, for the number of days actually elapsed. During any other Term Interest Rate Period, interest on the Bonds shall be computed upon the basis of a 360‑day year, consisting of twelve 30‑day months. During any LIBOR Index Rate Period, interest on the Bonds shall be computed on the basis of a 360‑day year for the actual number of days elapsed. Interest on the Bonds accruing at the Default Rate shall be computed upon the basis of a 365‑day year or a 366‑day year, as applicable, for the number of days actually elapsed. During any Bank Index Rate Period, other than a LIBOR Index Rate Period, interest on the Bonds shall be computed as set forth and in accordance with the terms of the applicable Bank Index Rate Agreement.

Interest on the Bonds shall bear interest from and including the Issuance Date (as defined in the Indenture) until payment of the principal or redemption price thereof has been made or provided for, whether at maturity, upon redemption or otherwise, or until the Bonds have been accelerated.

The Bonds shall bear interest at a Daily Interest Rate, a Weekly Interest Rate, an Index Interest Rate, a Bank Index Rate or a Term Interest Rate as provided in the Indenture.

U.S. Bancorp Investments, Inc. (the “Remarketing Agent” ), was appointed as the Remarketing Agent. The Remarketing Agent may be removed or replaced in accordance with the provisions of the Remarketing Agreement and the Indenture.

Determination of the interest rate by the Remarketing Agent and the Calculation Agent, as applicable, shall be conclusive and binding upon the registered Bondholders of the Bonds, the Authority, the Borrower and the Trustee.

The Bonds are subject to redemption as provided in the Indenture.

The Bonds are subject to mandatory and optional tender for purchase as provided in the Indenture.

The Holder of this Bond shall have no right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture or to enforce a drawing on the Letter of Credit, except as provided in the Indenture.

The Indenture may be supplemented or amended as provided in the Indenture.

The Indenture prescribes the manner in which it may be discharged and after which the Bonds shall no longer be secured by or entitled to the benefits of the Indenture, except for the purposes of transfer and exchange of Bonds and of payment of the principal of and premium, if any, and interest on the Bonds as the same become due and payable, including a provision that under certain circumstances the Bonds shall be deemed to be paid if certain securities, as defined in the Indenture, maturing as to principal and interest in such amounts and at such times as to insure the availability of sufficient moneys to pay the principal of, and premium, if any, and interest on, such Bonds and all necessary and proper fees, compensation and expenses of the Trustee shall have been deposited with the Trustee. So long as a Letter of Credit is then in effect and the Credit Provider has not failed or refused to honor a properly presented and conforming draw under the Letter of Credit, the Credit Provider, and not the registered owners of the Bonds, shall be deemed to be the Owner of 100% of the Outstanding Bonds at all times for the purpose of giving any approval, request, consent, direction (other than related to a demand purchase by the Owner of this Bond and as otherwise provided in the Indenture), declaration, rescission or amendment which under the Indenture is to be given by the registered owners of the Bonds at the time Outstanding; provided, however, that the Credit Provider shall not consent to any modification or amendment of the Indenture or the Loan Agreement requiring the consent of the Owners of 100% in aggregate principal amount of the Bonds Outstanding or which would cause the interest on the Bonds to be no longer

excluded from gross income for federal income tax purposes unless the actual Owners of 100% in aggregate principal amount of the Bonds Outstanding shall have also consented thereto or unless the Credit Provider is also the registered owner of 100% of the Bonds Outstanding; and provided further, that the Credit Provider shall have no right to deprive any Owner of the Bonds of the benefit of the Letter of Credit under the circumstances and in the manner contemplated as set forth in the Indenture.

The New Jersey Economic Development Authority Act, constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey, approved on November 7, 1974, as amended and supplemented (the “Act” ) provides that no member of the Authority nor any person executing bonds for the Authority shall be liable personally on this Bond by reason of the issuance hereof.

It is hereby certified and recited that all conditions, acts and things required by the Constitution or statutes of the State of New Jersey or the Indenture to exist, to have happened or to have been performed precedent to or in the issuance of this Bond, exist, have happened and have been performed and that said issue of Bonds, together with all other indebtedness of the Authority, is within every debt and other limit prescribed by said Constitution or statutes.

This Bond shall not be entitled to any benefit under the Indenture, or become valid or obligatory for any purpose, until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee.

In Witness Whereof, the New Jersey Economic Development Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its Director of Closing Services or any other Authority Officer and its corporate seal to be hereunto affixed, impressed or otherwise reproduced, and attested by the manual or facsimile signature of its Assistant Secretary, and this Bond to be dated the Dated Date.


[Seal]	New Jersey Economic Development Authority

Attest:


______________________________	By: __________________________


[Name]	[Name]


[Title]	[Title]

Trustee’s Certificate of Authentication

Dated: ____________, 2019

This is one of the Bonds described in the within‑mentioned Indenture.

U.S. Bank National Association,

as Trustee

By: ___________________________________

Authorized Representative

[ Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ( “DTC” ), to the Authority or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), any transfer, pledge, or other use hereof for value or otherwise by or to any person is wrongful inasmuch as the registered owner hereof Cede & Co., has an interest herein. ]

Assignment

For value received the undersigned do(es) hereby sell, assign and transfer unto _______________________________________________ [name, address and tax i.d. number of transferee] the within‑mentioned Registered Bond and do(es) hereby irrevocably constitute and appoint _____________________________________________ attorney, to transfer the same on the books of the Trustee with full power of substitution in the premises.

Dated: ___________, 20__ Signed: __________________________________


Note:	The signature(s) to this Assignment must correspond with the name(s) as written on the face of the within Registered Bond in every particular, without alteration or enlargement or any change whatsoever.

Signature guaranteed by:

Notice : Signature guarantee should be made by a guarantor institution participating in the Securities, Transfer Agents Medallion Program or in such other program acceptable to the Bond Registrar.

Exhibit B

Form of Investor Letter

[Date]

New Jersey Economic Development

Authority

36 West State Street

Trenton, New Jersey 08625

New Jersey Natural Gas Company

1415 Wyckoff Road

Wall, New Jersey 07719

U.S. Bank National Association

333 Thornall Street, 4th Floor

Edison, New Jersey 08837

Attention: Corporate Trust Dept.

[Transferor Address]

New Jersey Economic Development Authority

$10,300,000 Natural Gas Facilities Refunding Revenue Bonds, Series 2005A

(New Jersey Natural Gas Company Project) (the “Series 2005A Bonds” )

and

$10,500,000 Natural Gas Facilities Refunding Revenue Bonds, Series 2005B

(New Jersey Natural Gas Company Project) (the “Series 2005B Bonds” )

and

$15,000,000 Natural Gas Facilities Revenue Bonds, Series 2005C

(New Jersey Natural Gas Company Project) (the “Series 2005C Bonds” )

Ladies and Gentlemen:

[Name of Purchaser] (the “Purchaser” ) has agreed to purchase the above‑referenced Series 2005[A][B][C] Bonds in the amount of $____________ which were issued in the original aggregate principal amount of $____________ by the New Jersey Economic Development Authority (the “Authority” ) bearing the ___________ Rate as set forth in the Amended and Restated Indenture dated as of April 1, 2019 (the “Amended and Restated Indenture” ), between the Authority and U.S. Bank National Association, as trustee (the “Trustee” ). All capitalized terms used herein, but not defined herein, shall have the respective meanings set forth in the Amended and Restated Indenture. The undersigned, an authorized representative of the Purchaser, hereby represents to you that:

1. We understand that the Series 2005[A][B][C] Bonds have not been registered pursuant to the Securities Act of 1933, as amended (the “1933 Act” ), or the securities laws of any state, nor has the Amended and Restated Indenture been qualified pursuant to the Trust Indenture Act of 1939, as amended, in reliance upon certain exemptions set forth therein. We acknowledge that the Bonds (i) are not being registered or otherwise qualified for sale under the “blue sky” laws and regulations of any state, (ii) will not be listed on any securities exchange, and (iii) will not carry a rating from any rating service.

2. We have not offered, offered to sell, offered for sale or sold any of the Series 2005[A][B][C] Bonds by means of any form of general solicitation or general advertising, and we are not an underwriter of the Series 2005[A][B][C] Bonds within the meaning of Section 2(11) of the 1933 Act.

3. We have sufficient knowledge and experience in financial and business matters, including purchase and ownership of municipal and other Tax‑exempt obligations, to be able to evaluate the risks and merits of the investment represented by the purchase of the Series 2005[A][B][C] Bonds.

4. We have the authority to purchase the Series 2005[A][B][C] Bonds and to execute this letter and any other instruments and documents required to be executed by the Purchaser in connection with the purchase of the Series 2005[A][B][C] Bonds.

5. The undersigned is a duly appointed, qualified and acting representative of the Purchaser and is authorized to cause the Purchaser to make the certifications, representations and warranties contained herein by execution of this letter on behalf of the Purchaser.

6. The undersigned is a “qualified institutional buyer” as defined in Rule 144A promulgated under the 1933 Act that is a commercial bank organized under the laws of the United States, or any state thereof, or any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country and, in any such case, has a combined capital and surplus, determined as of the date of purchase of the Series 2005[A][B][C] Bonds, of not less than $5,000,000,000.

7. The undersigned understands that no official statement, prospectus, offering circular, or other comprehensive offering statement is being provided with respect to the Series 2005[A][B][C] Bonds. The undersigned has made its own inquiry and analysis with respect to the Authority, the Borrower, the Series 2005[A][B][C] Bonds and the security therefor, and other material factors affecting the security for and payment of the Series 2005[A][B][C] Bonds.

8. The undersigned acknowledges that it has either been supplied with or been given access to information, including financial statements and other financial information, regarding the Borrower, to which a reasonable investor would attach significance in making investment decisions, and has had the opportunity to ask questions and receive answers from

knowledgeable individuals concerning the Borrower, the Series 2005[A][B][C] Bonds and the security therefor, so that as a reasonable investor, it has been able to make its decision to purchase the Series 2005[A][B][C] Bonds.

9. The Series 2005[A][B][C] Bonds are being acquired by the Purchaser for investment for its own account and not with a present view toward resale or distribution; provided, however, that the Purchaser reserves the right to sell, transfer or redistribute the Series 2005[A][B][C] Bonds, but agrees that any such sale, transfer or distribution by the Purchaser shall be only with the consent of the Borrower, in the case of transfer described in (c) below, and to a Person:

(a) that is an affiliate of the Purchaser;

(b) that is a trust or other custodial arrangement established by the Purchaser or one of its affiliates, the owners of any beneficial interest in which are limited to “qualified institutional buyers” as defined in Rule 144A promulgated under the 1933 Act; or

(c) that the Purchaser reasonably believes to meet the requirements set forth in paragraph 6 of this letter and who executes an investor letter substantially in the form of this letter.

[Name of Purchaser]

By: _____________________________

Name: ____________________________

Title: _________________________

Exhibit C

Form of Bank Index Rate Period Conversion Notice

[Date]

U.S. Bank National Association

333 Thornall Street, 4th Floor

Edison, New Jersey 08837

Attention: Corporate Trust Dept.

Re: New Jersey Economic Development Authority

Natural Gas Facilities [Refunding] Revenue Bonds, Series 2005[A][B][C]

(New Jersey Natural Gas Company Project)

Ladies and Gentlemen:

Reference is hereby made to that:

A. Amended and Restated Indenture, dated as of April 1, 2019 (the “Indenture” ), between the New Jersey Economic Development Authority (the “Authority” ) and U.S. Bank National Association, as Trustee;

B. Loan Agreement dated as of October 1, 2005, as supplemented and amended (the “Agreement” ), between the Authority and New Jersey Natural Gas Company (the “Borrower” ); and

C. _________________________ dated as of [Date] (the “Bank Index Rate Agreement” ) between the Borrower and ___________________________, as Bank (the “Bank” ).

All capitalized terms contained herein which are not specifically defined shall have the meanings assigned to such terms in the Indenture.

The Borrower hereby elects, pursuant to Section 2.3(E) of the Indenture, to change the Interest Rate Period to a new Bank Index Rate Period as follows:

1. Conversion Date: __________________________________.

2. New Interest Rate Mode: Bank Index Rate Period.

3. New Bank Index Rate: [LIBOR Index Rate] [other Bank Index Rate].

4. New Bank Purchase Date: _________________________.

5. New Applicable Factor: _______%.

6. New Applicable Spread: _____ basis points (___%) ; provided, however, that in the event that any change in any credit rating assigned to the long‑term unenhanced debt of the Borrower by Moody’s, Fitch or S&P, the Applicable Spread shall be the number of basis points associated with such new rating as set forth in the following schedule:



Tier	Credit Ratings (Moody’s/Fitch/S&P)	Applicable Spread
I	__/__/__	_____%
II	__/__/__	_____%
III	__/__/__	_____%
IV	__/__/__	_____%
V	__/__/__	_____%
VI	__/__/__	_____%

In the event credit ratings are assigned by any two or all three Rating Agencies, and two credit ratings assigned are equivalent ratings, the Applicable Spread shall be based on the tier corresponding to the two equivalent ratings; (ii) in the event credit ratings are assigned by all three Rating Agencies and no two such ratings are equivalent, the Applicable Spread shall be based on the tier corresponding to the middle such rating; and (iii) in the event credit ratings are assigned by only two Rating Agencies and such credit ratings are not equivalent, the Applicable Spread shall be based on the tier corresponding to the higher of such two ratings; provided however, if one of the credit ratings is two or more tiers lower than the other, the Applicable Spread shall be based on the tier next above the tier of the lower of the two credit ratings. References in the definition of Applicable Spread are to rating categories as presently determined by the Rating Agencies, and in the event of the adoption of any new or changed rating system or a “global” rating scale by any such Rating Agency, the rating categories shall be adjusted accordingly to a new rating which most closely approximates the requirements as set forth herein. Any change in the Applicable Spread shall apply to the LIBOR Index Reset Date or other Bank Rate Reset Date (as set forth and in accordance with the terms of the applicable Bank Index Rate Agreement), as applicable, next succeeding the date on which the change occurs.

Very truly yours,

New Jersey Natural Gas Company

By: ___________________________________

Name: _____________________________

Title: _______________________________

The Bank hereby agrees, subject to the satisfaction all requirements of the Indenture, to purchase the Series 2005[A][B][C] Bonds in the new Bank Index Rate Period upon the foregoing terms on the Conversion Date,

_________________________________,

as Purchaser

By: ___________________________________

Name: ______________________________

Title: _______________________________

In the judgment of the Market Agent, having due regard for prevailing market conditions for bonds or other securities the interest comparable as to credit and maturity to the Series 2005[A][B][C] Bonds, the interest rates at which the Purchaser has agreed to purchase the Series 2005[A][B][C] Bonds as set forth above is necessary, but does not exceed the interest rate necessary, which would enable the Market Agent to place the Bonds at a price of par on the Conversion Date.

[Market Agent],

as Market Agent

By: ___________________________________

Name: ______________________________

Title: _______________________________

Acknowledged:

U.S. Bank National Association,

as Trustee

By: _________________________________

Name: ___________________________

Title: ____________________________

SECOND AMENDMENT TO LOAN AGREEMENT

Dated as of April 1, 2019

Between

NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY

And

NEW JERSEY NATURAL GAS COMPANY

Supplementing and amending that certain

Loan Agreement

dated as of October 1, 2005,

as supplemented and amended by the

Supplement and Amendment of Agreements

dated as of September 24, 2014

New Jersey Economic Development Authority

$10,300,000 Natural Gas Facilities Refunding Revenue Bonds, Series 2005A

(New Jersey Natural Gas Company Project)

and

$10,500,000 Natural Gas Facilities Refunding Revenue Bonds, Series 2005B

(New Jersey Natural Gas Company Project)

and

$15,000,000 Natural Gas Facilities Revenue Bonds, Series 2005C

(New Jersey Natural Gas Company Project)

Second Amendment to Loan Agreement

________________________

Table of Contents

(This Table of Contents is not a part of this Second Amendment to Loan Agreement

and is only for convenience of reference.)



Section		Heading		Page

Article I		Definitions		2
	Section 101.		Definitions of Terms	2
Article II		Amendments to Original Loan Agreement		3
	Section 201.		Amendment to the Original Loan Agreement	3
	Section 202.		Amendment to Section 1.1 of the Original Loan Agreement	3
	Section 203.		Amendments to Article II of the Original Loan Agreement	4
	Section 204.		Amendments to Article III of the Original Loan Agreement	5
	Section 205.		Amendments to Article IV of the Original Loan Agreement	5
	Section 206.		Amendment to Article V of the Original Loan Agreement	5
	Section 207.		Amendment to Article VI of the Original Loan Agreement	5
	Section 208.		Amendments to Exhibit A of the Original Loan Agreement	6
Article III		Miscellaneous		6
	Section 301.		Agreement Confirmed	6
	Section 302.		Severability	6
	Section 303.		Counterparts	6
	Section 304.		Applicable Provisions of Law	6
	Section 305.		Effective Date	6
Exhibit A - Forms of First Mortgage Bonds

SECOND AMENDMENT TO LOAN AGREEMENT

This Second Amendment to Loan Agreement (this “Second Amendment” ) is made and entered into as of April 1, 2019 between the New Jersey Economic Development Authority, a body politic and corporate duly organized and validly existing under the laws of the State of New Jersey (the “Authority” ), and New Jersey Natural Gas Company, a New Jersey corporation (the “Borrower” ):

WITNESSETH:

WHEREAS, on October 18, 2005, the Authority issued its $10,300,000 in aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project) (the “Series 2005A Bonds” ), its $10,500,000 in aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project) (the “Series 2005B Bonds” ) and its $15,000,000 in aggregate principal amount of Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project) (the “Series 2005C Bonds” and together with the Series 2005A Bonds and the Series 2005B Bonds, the “Bonds” ) pursuant to an Indenture of Trust dated as of October 1, 2005 (the “2005 Indenture” ) between the Authority and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as trustee (the “Prior Trustee” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, the Prior Trustee and the Borrower (the “Supplement and Amendment” and together with the 2005 Indenture, the “Original Indenture” ); and

WHEREAS, in connection with the issuance of the Bonds, the Authority and the Borrower executed and delivered the Loan Agreement dated as of October 1, 2005 between the Authority and the Borrower, as supplemented and amended by the Supplement and Amendment (together, the “Original Loan Agreement” ); and

WHEREAS, the Original Indenture is being amended and restated by the Amended and Restated Indenture of even date herewith (the “Indenture” ) in connection with (i) the cancellations of the Bond Insurance Policies (as hereinafter defined) and the amendment of the Bonds, the Original Indenture and the Original Loan Agreement to remove references to such Policies, (ii) the extension of the related maturity for each series of the Bonds, (iii) the exchange of the previously issued Initial First Mortgage Bonds for new series of corresponding First Mortgage Bonds (as defined in the Indenture) and (iv) other certain changes to the Original Indenture and the Bonds; and

WHEREAS, Section 7.2 of the Original Loan Agreement and Section 902 of the Original Indenture provide that certain amendments to the Original Loan Agreement may not be made without the consent of the Trustee (as hereinafter defined) and the Registered Owners of all of the Bonds Outstanding, and Section 902 of the Original Indenture requires the written consent of the Bond Insurer (as hereinafter defined); and

WHEREAS, New Jersey Natural Gas Company is the Beneficial Owner of all of the Bonds Outstanding (the “Current Bondholder” ); and

WHEREAS, the Authority and the Borrower desire to enter into this Second Amendment, as permitted by Section 7.2 of the Original Loan Agreement and Section 902 of the Original Indenture, and have obtained the written approval of the Authorized Representative of each of the Authority and the Borrower; and

WHEREAS, the Authority and Borrower, pursuant to (i) Section 7.2 of the Original Loan Agreement and Section 902 of the Original Indenture, have obtained the written consent of the Trustee and the Current Bondholder and (ii) Section 902 of the Original Indenture, have obtained the written consent of the Bond Insurer; and

WHEREAS, Municipal Bond New Issue Insurance Policy No. 05010702 relating to the Series 2005A Bonds, Municipal Bond New Issue Insurance Policy No. 05010703 relating to the Series 2005B Bonds and Municipal Bond New Issue Insurance Policy No. 05010704 relating to the Series 2005C Bonds (collectively, the “Bond Insurance Policies” ) , which such Bond Insurance Policies were issued by Financial Guaranty Insurance Company subsequently reinsured by MBIA Insurance Corporation and novated to National Public Finance Guarantee Corporation (the “Bond Insurer” ), have been cancelled, which cancellations became effective April 18, 2019 pursuant to the Cancellation Agreement dated as of April 18, 2019 by and among the Authority, the Prior Trustee, the Borrower, the Current Bondholder and the Bond Insurer; and

WHEREAS, all Bonds issued under the Indenture will be payable from and secured by a pledge of this Loan Agreement, and secured by a pledge of the First Mortgage Bonds; and

WHEREAS, the execution and delivery of this Second Amendment have been in all respects duly and validly authorized by proper action duly adopted by the governing body of the Authority; and

WHEREAS, the execution and delivery of the Bonds and of this Second Amendment have been duly authorized and all things necessary to make the Bonds, when executed by the Authority and authenticated by the Bond Registrar, valid and binding legal obligations of the Authority and to make this Second Amendment a valid and binding agreement have been done;

Now, Therefore, in consideration of the foregoing and of the mutual covenants herein set forth, the parties hereto agree as follows:

Article I

Definitions

Section 101. Definitions of Terms Section 101. Definitions of Terms. For all purposes of this Second Amendment, in addition to the terms defined above in the WHEREAS clauses, unless the context clearly requires otherwise, all terms defined in Article I of the Indenture have the same meanings in this Second Amendment.

Article II

Amendments to Original Loan Agreement

Section 201. Amendment to the Original Loan Agreement The Original Loan Agreement is hereby amended such that all references to Agent Bank, Agent Obligor, Alternate Liquidity Facility, Bond Insurance Policy or Bond Insurance Policies, Insurer and Standby Purchase Agreement in the Original Loan Agreement are hereby inoperative such that said terms and the context in which they appear therein are not applicable.

Section 202. Amendment to Section 1.1 of the Original Loan Agreement (a) Section 1.1 of the Original Loan Agreement is hereby amended to delete the terms: “Additional First Mortgage Bonds,” “Alternate Liquidity Facility,” “Bond Insurance Policy or Bond Insurance Policies” and “Insurer,” each as defined in Section 1.1.

(b) The following terms and their corresponding definition hereby replace those in Section 1.1 of the Original Loan Agreement:

“Bonds” means the Authority’s Series 2005A Bonds, Series 2005B Bonds and Series 2005C Bonds authorized and issued pursuant to Section 2.1 of the Indenture.

“Indenture” or “Indenture of Trust” means the Amended and Restated Indenture dated as of April 1, 2019 between the Authority and U.S. Bank National Association, as trustee, as the same may be supplemented and amended in accordance with its terms.

“Mortgage Indenture” means the Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement dated as of September 1, 2014 by and between the Borrower and U.S. Bank National Association, as supplemented and amended.

“Mortgage Trustee” means U.S. Bank National Association, as the current trustee under the Mortgage Indenture and its successors in the trusts thereby created.

“Payment Date” means any date upon which payment of interest or principal and interest is due in accordance with the payment provisions of any series of the Bonds and the Indenture, or such other date as may be determined by the Trustee in accordance with Section 7.3 of the Indenture.

“Trustee” means U.S. Bank National Association and its successors hereafter appointed in the manner provided in the Indenture.

(c) The term “Investment Obligations” and all references to “Investment Obligations” in the Original Loan Agreement are hereby replaced with “Investment Securities” and its corresponding definition in the Indenture.

Section 203. Amendments to Article II of the Original Loan Agreement (a) Section 2.2(d) of the Original Loan Agreement is hereby amended to replace the reference to “Section 404 of the Indenture” with “Section 5.1 of the Indenture”.

(b) Section 2.2(g) of the Original Loan Agreement is hereby amended to replace the reference to “Section 1001 of the Indenture” with “Section 10.1 of the Indenture”.

“ Section 2.10. [Reserved.]”

(d) Section 2.11 of the Original Loan Agreement is hereby amended to replace the reference to (i) “(as described in Section 6 of the form of Bonds in the Indenture under the caption, “Special Mandatory Redemption”)” with “(as described in Section 4.1(A)(i) of the Indenture” and (ii) “pursuant to Section 6 of the form of Bonds in the Indenture under the caption “Mandatory Redemption”)” with “pursuant to Section 4.1(A)(ii) or Section 4.1(A)(iii) of the Indenture”.

(e) New Section 2.12 is hereby added to read as follows:

“ Section 2.12. Letter of Credit . (a) The Borrower may, at its option, provide for the delivery to the Trustee of a Letter of Credit or an Alternate Letter of Credit on (1) any Conversion Date, (2) any Business Day during a Term Interest Rate Period on which the Bonds are otherwise subject to optional redemption, or (3) any Business Day during a Variable Interest Rate Period. A Letter of Credit shall be an irrevocable letter of credit or other irrevocable credit facility (including, if applicable, a confirming letter of credit), issued by a Credit Provider, the terms of which shall be acceptable to the Trustee and shall otherwise comply with the requirements of the Indenture; provided, that the expiration date of such Letter of Credit shall be a date not earlier than one year from its date of issuance or, if a Term Interest Rate will be in effect, the first date on which the Bonds are subject to optional redemption, subject to earlier termination upon payment of the Bonds in full or provision for such payment in accordance with Article X of the Indenture. On or prior to the date of the delivery of a Letter of Credit to the Trustee, the Borrower shall cause to be furnished to the Trustee (i) an Approving Opinion addressed to the Trustee with respect to the delivery of such Letter of Credit, and (ii) an opinion of counsel to the Credit Provider issuing such Letter of Credit to the effect that such Letter of Credit is enforceable in accordance with its terms (except to the extent that the enforceability thereof may be limited by bankruptcy, reorganization or similar laws limiting the enforceability of creditors’ rights generally and except that no opinion need be expressed as to the availability of any discretionary equitable remedies).

(b) The Borrower shall provide to the Trustee (with a copy to the Authority and the Remarketing Agent) a notice at least 15 days prior to the effective date of any Letter of Credit or Alternate Letter of Credit (and in no event later than 35 days prior to the expiration of any existing Letter of Credit, if required by the terms of the Indenture) identifying the Letter of Credit or Alternate Letter of Credit, if any, and the rating which will apply to the Bonds after the effective date.”

Section 204. Amendments to Article III of the Original Loan Agreement. (a) Section 3.1 of the Original Loan Agreement is hereby amended to replace the reference to “Section 403 of the Indenture” with “Section 3.2(c) of the Indenture”.

(b) Sections 3.6 and 3.12 of the Original Loan Agreement are hereby amended to read as follows:

“ Section 3.6. [Reserved.]”

“ Section 3.12. [Reserved.]”

(c) Section 3.17 of the Original Loan Agreement is hereby amended to replace the reference to “Section 407 of the Indenture” with “Section 5.5 of the Indenture”.

Section 205. Amendments to Article IV of the Original Loan Agreement. (a) Section 4.04(h) of the Original Loan Agreement is hereby amended to replace the reference to “Section 405 of the Indenture” with “Section 5.6 of the Indenture”.

(b) Section 4.15 of the Original Loan Agreement is hereby amended to (i) replace the reference to “the independent auditors of the Borrower” with “an Accountant”, (ii) delete the phrase “or cause a reissuance” and (iii) to replace the references to “an opinion of Bond Counsel” and “an Opinion of Tax Counsel” each with “an Approving Opinion”.

(c) Section 4.21 of the Original Loan Agreement is hereby amended to replace the reference to “Section 304 of the Indenture.” with “Section 4.3 of the Indenture.”

(d) Section 4.22 of the Original Loan Agreement is hereby amended to read as follows:

“ Section 4.22. [Reserved.]”

Section 206. Amendments to Article V of the Original Loan Agreement. (a) Section 5.1(b) of the Original Loan Agreement is hereby amended to replace the reference to “period of ten (10) days” with “period of five Business Days”.

(b) Section 5.1(c) of the Original Loan Agreement is hereby amended to replace the introductory phrase “Failure by the Borrower to pay when due any payment required to be made

under this Loan Agreement other than payments to the Authority for the payment of the principal or Redemption Price or purchase price of or interest on the Bonds,” with “Failure by the Borrower to pay when due any payment required to be made under this Loan Agreement other than payments necessary to pay the principal or Redemption Price or Purchase Price of or interest on the Bonds,”.

Section 207. Amendment to Article VI of the Original Loan Agreement. Section 6.3(d) of the Original Loan Agreement is hereby amended to read as follows:

“(d) An Approving Opinion required by the Indenture;”

Section 208. Amendments to Exhibit A of the Original Loan Agreement. Exhibit A, Form of First Mortgage Bond, of the Original Loan Agreement is hereby replaced in its entirety with Exhibit A, Forms of First Mortgage Bonds, attached hereto.

Article III

Miscellaneous

Section 301. Agreement Confirmed. Except as amended by this Second Amendment, all of the provisions of the Original Agreement shall remain in full force and effect, and from and after the effective date of this Second Amendment shall be deemed to have been amended as herein set forth.

Section 302. Severability . If any provision of this Second Amendment shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions, or in all cases because it conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever.

Section 303. Counterparts . This Second Amendment may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 304. Applicable Provisions of Law Section. This Second Amendment shall be governed by and construed in accordance with the laws of the State of New Jersey.

Section 305. Effective Date . This Second Amendment shall become effective on the date the written approval of the Authorized Representative of each of the Authority and the Borrower is evidenced by the execution hereof and the written consent of each of the Trustee, the Current Bondholder and the Bond Insurer is received.

In Witness Whereof, the Authority and the Borrower have caused this Second Amendment to be executed in their respective corporate names, and attested by their duly authorized officers, respectively, all as of the date first above written.

NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY

By: /s/ Daniel T. Weick

Managing Director - Post Closing

Financial Services

Attest:

By: /s/ Richard T. LoCascio

Assistant Secretary

NEW JERSEY NATURAL GAS COMPANY

By: /s/ Mark G. Kahrer

Vice President - Regulatory Affairs

Attest:

By: /s/ Richard Reich

Corporate Secretary

[Signature Page to Second Amendment to Loan Agreement]

Consent of the Trustee

Pursuant to Section 7.2 of the Loan Agreement dated as of October 1, 2005 between the New Jersey Economic Development Authority (the “Authority” ), and New Jersey Natural Gas Company (the “Borrower” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as trustee (the “Prior Trustee” ) and the Borrower, U.S. Bank National Association, as successor trustee to the Prior Trustee, hereby consents to the execution and delivery of the Second Amendment to Loan Agreement dated as of April 1, 2019 between the Authority and the Borrower, in the form attached hereto.

U.S. Bank National Association


By:	/s/ Christopher E. Golabek

Christopher E. Golabek

Vice Presideent

Date: April 18, 2019

[Trustee Signature Page to Second Amendment to Loan Agreement Consent]

Consent of the Beneficial Owner

Pursuant to Section 7.2 of the Loan Agreement dated as of October 1, 2005 between the New Jersey Economic Development Authority (the “Authority” ) and New Jersey Natural Gas Company (the “Borrower” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as trustee (the “Prior Trustee” ) and the Borrower (the “Supplement and Amendment” ), and Section 902 of the Indenture of Trust dated as of October 1, 2005 between the Authority and the Prior Trustee, as supplemented and amended by the Supplement and Amendment, the undersigned (the “Beneficial Owner” ), as owner of all of the Authority’s (i) $10,300,000 in aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project), (ii) $10,500,000 in aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project) and (iii) $15,000,000 in aggregate principal amount of Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project), hereby consents to the execution and delivery of the Second Amendment to Loan Agreement dated as of April 1, 2019 between the Authority and the Borrower, in the form attached hereto.

NEW JERSEY NATURAL GAS COMPANY


By:	/s/ Mark G. Kahrer

Name: Mark G. Kahrer

Title: Vice President - Regulatory Affairs

Date: April 18, 2019

[Beneficial Owner Signature Page to Second Amendment

to Loan Agreement Consent]

Consent of the Bond Insurer

National Public Finance Guarantee Corporation


By:	/s/ Daniel E. McManus Jr.

Name: Daniel E. McManus Jr.

Title: General Counsel

Date: April 18, 2019

[Bond Insurer Signature Page to Second Amendment to Loan Agreement Consent]

Exhibit A

Forms of First Mortgage Bonds

No. WW-1 $10,300,000

New Jersey Natural Gas Company

First Mortgage Bond, Series WW

Due 2042

New Jersey Natural Gas Company (hereinafter called the “Company” ), a corporation organized and existing under the laws of the State of New Jersey, for value received, hereby promises to pay to U.S. Bank National Association, as EDA Loan Trustee (as defined below), or (subject to the transfer restrictions specified below) registered assigns, on the first day of April, 2042, or upon earlier redemption, Ten Million Three Hundred Thousand Dollars ($10,300,000), in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest thereon from the date hereof until the principal hereof shall have been paid, at the minimum rate per annum necessary to yield interest in amounts sufficient, when taken together with other amounts available therefor under the EDA Bond Indenture (as defined below), to pay the interest from time to time payable on the Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project) (the “2005A EDA Bonds” ) of the New Jersey Economic Development Authority (the “Authority” ), and thereafter (if default be made in the payment of such principal or interest, or premium, if any, on redemption) at the rate provided in the EDA Bond Indenture on such principal or (to the extent legally enforceable) on such interest, until the same shall be paid, in like coin or currency, computed on the same basis as the 2005A EDA Bonds, but in no event shall the interest rate on this Bond exceed ten percent (10%) per annum. Interest on this Bond shall be payable on the first business day preceding each date on which interest shall from time to time be payable on the 2005A EDA Bonds. This Bond is issued and delivered to the EDA Loan Trustee (in conjunction with the assignment by the Authority of certain of its rights under a loan agreement dated as of October 1, 2005 by and between the Authority and the Company (the “2005 Loan Agreement” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, The Bank of New York Mellon, as trustee, and the Company (the “Supplement and Amendment” ), as further supplemented and amended by the Second Amendment to Loan Agreement dated as of April 1, 2019 between the Authority and the Company (together with the 2005 Loan Agreement and the Supplement and Amendment, the “Loan Agreement” ) to the EDA Loan Trustee), for the benefit and security of the holders of the 2005A EDA Bonds. The obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on this Bond shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, premium, if any, and interest on any of the 2005A EDA Bonds shall have been fully or partially paid from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in the principal and interest account for the 2005A EDA Bonds, or as far as principal is concerned, reduced by the principal amount of any of the 2005A EDA Bonds

deemed paid pursuant to Article X of the EDA Bond Indenture. Payments of principal, premium, if any, and interest are to be made at the principal office of the Trustee referred to hereinafter in the Town of Edison, New Jersey or, at the option of the Company, at the “Principal Office” of the trustee under an Amended and Restated Indenture (the “EDA Bond Indenture” ) dated as of April 1, 2019 by and between the Authority and U.S. Bank National Association, as trustee (the “EDA Loan Trustee,” as such term, “Principal Office,” is defined in the EDA Bond Indenture. The term “business day” shall mean “Business Day,” as defined in the Loan Agreement.

This Bond is one of an authorized issue of Bonds of the Company known as its “First Mortgage Bonds” (the “Bonds” ) of an unlimited permitted aggregate principal amount, except as provided in the Indenture hereinafter mentioned, and issued and to be issued in one or more series under, and all equally and ratably secured (except as any sinking, amortization, improvement, renewal or other analogous fund, established in accordance with the provisions of the Indenture hereinafter mentioned, may afford additional security for the Bonds of any particular series) by, an Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement dated as of September 1, 2014, as amended (hereinafter called the “Indenture” ), executed by the Company to U.S. Bank National Association, as Trustee (herein called the “Trustee” ), to which Indenture, including all indentures supplemental thereto, reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the holders of said Bonds, the Trustee and the Company in respect of such security, and the terms and conditions upon which said Bonds are and are to be issued and secured.

As provided in said Indenture, said Bonds are issuable in series which may vary as in said Indenture provided or permitted. This Bond is one of a series of Bonds entitled “First Mortgage Bonds, Series WW due 2042” (sometimes herein called “2042 Series WW Bonds” ).

The Company has entered into the Loan Agreement with the Authority, a public instrumentality of the State of New Jersey and a public body corporate and politic organized and existing under the New Jersey Economic Development Authority Act, providing for (i) the issuance by the Authority of its 2005A EDA Bonds to finance part of the cost of refunding the 1993A Bonds (as defined in the Loan Agreement); (ii) the loan by the Authority of the proceeds of the 2005A EDA Bonds pursuant to the Loan Agreement; and (iii) the payment of the 2005A EDA Bonds from loan payments and certain other amounts payable by the Company under the Loan Agreement as secured by the First Mortgage Bonds, Series WW due 2042 in the amount of $10,300,000 to be issued pursuant to the Fourth Supplemental Indenture dated as of April 1, 2019 supplementing the Indenture.

The 2005A EDA Bonds are payable from payments made, or caused to be made, by the Company of principal of, premium, if any, and interest on the Loan (defined in the Loan Agreement) and secured by the First Mortgage Bonds, Series WW due 2042. Under certain terms and conditions, moneys held under and pursuant to the Loan Agreement and credits arising by reason of the purchase or redemption of the 2005A EDA Bonds shall be applied in like manner against payment obligations on the First Mortgage Bonds, Series WW due 2042 and to the extent so applied shall satisfy a like amount otherwise due thereunder.

To the extent permitted by the Indenture and as provided therein, with the consent of the Company and upon the written consent of the holders of at least sixty-six and two-thirds percent (66‑2/3%) in principal amount of the Bonds then outstanding and entitled to consent, and of not less than sixty-six and two-thirds (66-2/3%) percent in principal amount of the Bonds then outstanding and entitled to consent of each series affected thereby in case one or more but less than all of the series of Bonds issued under the Indenture are so affected, the rights and obligations of the Company and of the holders of Bonds and the terms and provisions of the Indenture, including any instrument supplemental thereto, may be modified from time to time, provided that no such modification or alteration shall be made without the consent of the holders of all of the Bonds which would (i) postpone the date fixed herein or in the Indenture for the payment of the principal of, or any installment of interest on, the Bonds, or (ii) reduce the principal of, premium, if any, on, or the rate of interest payable on, the Bonds, or (iii) reduce the percentage of the principal amount of Bonds the consent of which is required for the authorization of any such modification or alteration, or which would modify, without the written consent of the Trustee, the rights, duties or immunities of the Trustee.

The First Mortgage Bonds, Series WW due 2042, are not subject to prepayment or redemption, in whole or in part, pursuant to Article Ten of the Indenture, except as hereinafter in this Bond expressly provided, including with reference to Section 8.08 of the Indenture.

This Bond shall be subject to mandatory redemption as follows: payments of principal of and premium on the 2042 Series WW Bonds shall be made to the EDA Loan Trustee to redeem 2042 Series WW Bonds in such amounts as shall be necessary, in accordance with the provisions of the Loan Agreement, to provide funds under the Loan Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the 2005A EDA Bonds) and (b) make, when due, any prepayment required by the Loan Agreement in connection with any mandatory, special mandatory, optional or extraordinary optional redemption of 2005A EDA Bonds; provided, however, that the obligation of the Company to make any redemption payments under this paragraph shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the 2005A EDA Bonds shall have been fully or partially made from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in a redemption account or subaccount for the 2005A EDA Bonds or, as far as principal is concerned, reduced by the principal amount of any 2005A EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture.

In the case of the redemption of the First Mortgage Bonds, Series WW due 2042, out of monies deposited with the Trustee pursuant to Section 8.08 of the Indenture, such First Mortgage Bonds, Series WW due 2042, shall, upon compliance with provisions of Section 10.02 of the Indenture, and subject to the provisions of Section 2.1 and Section 3.1 of the Fourth Supplemental Indenture thereto, be redeemable at the principal amounts thereof, together with the interest accrued to the date fixed for redemption without premium.

If this Bond, or any portion hereof, is called for redemption in accordance with the foregoing provisions and payment thereof is duly provided for as specified in the Indenture, interest shall

cease to accrue hereon or on such portion, as the case may be, from and after the date fixed for redemption.

If an Event of Default, as defined in said Indenture, shall occur, the principal of this Bond may become or be declared due and payable, in the manner and with the effect provided in said Indenture.

This Bond is transferable only to a successor EDA Loan Trustee under the EDA Bond Indenture by the registered owner hereof in person or by attorney authorized in writing, on the books of the Trustee in the Town of Edison, New Jersey, and on the books of the Company at its principal office in the State of New Jersey, upon surrender for cancellation of this Bond and on payment of charges, and upon any such transfer a new registered Bond or Bonds, of the same series, for the same aggregate principal amount, will be issued to the transferee in exchange herefor.

The Company and the Trustee and any paying agent may deem and treat the person in whose name this Bond is registered as the absolute owner hereof, for the purpose of receiving payment of or on account of the principal and premium, if any, hereof and interest due hereon, and for all other purposes, and neither the Company nor the Trustee nor any paying agent shall be affected by any notice to the contrary.

No recourse under or upon any obligation, covenant or agreement contained in the Indenture, including any indenture supplemental thereto, or in any Bond, or because of any indebtedness thereby secured, shall be had against any incorporator, or against any past, present or future stockholder, officer or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation under any rule of law, statute or constitution or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise; it being expressly agreed and understood that the Indenture, any indenture supplemental thereto and the obligations thereby secured, are solely corporate obligations, and that no personal liability whatever shall attach to, or be incurred by, such incorporators, stockholders, officers or directors, as such, of the Company or of any successor corporation, or any of them, because of the incurring of the indebtedness thereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in the Indenture, including any indenture supplemental thereto, or in any of the Bonds, or implied therefrom.

This Bond shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee, or its successor as Trustee under said Indenture.

In Witness Whereof, the Company has caused this Bond to be signed in its name by its President or one of its Vice Presidents, and its corporate seal to be impressed or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries.


Dated: April __, 2019	New Jersey Natural Gas Company

Attest


_________________________________	By:_________________________


Name:	Name:


Title:	Title:

[Seal]

Trustee’s Certificate of Authentication

This is one of the Bonds described in the within-mentioned Indenture.

U.S. Bank National Association,

as Trustee


By:

Authorized Officer

No. XX-1 $10,500,000

New Jersey Natural Gas Company

First Mortgage Bond, Series XX

Due 2038

New Jersey Natural Gas Company (hereinafter called the “Company” ), a corporation organized and existing under the laws of the State of New Jersey, for value received, hereby promises to pay to U.S. Bank National Association, as EDA Loan Trustee (as defined below), or (subject to the transfer restrictions specified below) registered assigns, on the first day of April, 2038, or upon earlier redemption, Ten Million Five Hundred Thousand Dollars ($10,500,000), in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest thereon from the date hereof until the principal hereof shall have been paid, at the minimum rate per annum necessary to yield interest in amounts sufficient, when taken together with other amounts available therefor under the EDA Bond Indenture (as defined below), to pay the interest from time to time payable on the Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project) (the “2005B EDA Bonds” ) of the New Jersey Economic Development Authority (the “Authority” ), and thereafter (if default be made in the payment of such principal or interest, or premium, if any, on redemption) at the rate provided in the EDA Bond Indenture on such principal or (to the extent legally enforceable) on such interest, until the same shall be paid, in like coin or currency, computed on the same basis as the 2005B EDA Bonds, but in no event shall the interest rate on this Bond exceed ten percent (10%) per annum. Interest on this Bond shall be payable on the first business day preceding each date on which interest shall from time to time be payable on the 2005B EDA Bonds. This Bond is issued and delivered to the EDA Loan Trustee (in conjunction with the assignment by the Authority of certain of its rights under a loan agreement dated as of October 1, 2005 by and between the Authority and the Company (the “2005 Loan Agreement” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, The Bank of New York Mellon, as trustee, and the Company (the “Supplement and Amendment” ), as further supplemented and amended by the Second Amendment to Loan Agreement dated as of April 1, 2019 between the Authority and the Company (together with the 2005 Loan Agreement and the Supplement and Amendment, the “Loan Agreement” ) to the EDA Loan Trustee), for the benefit and security of the holders of the 2005B EDA Bonds. The obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on this Bond shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, premium, if any, and interest on any of the 2005B EDA Bonds shall have been fully or partially paid from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in the principal and interest account for the 2005B EDA Bonds, or as far as principal is concerned, reduced by the principal amount of any of the 2005B EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. Payments of principal, premium, if any, and interest are to be made at the principal office of the Trustee referred to hereinafter in the Town of Edison, New Jersey or, at the option of the Company, at the “Principal Office” of the trustee

under an Amended and Restated Indenture (the “EDA Bond Indenture” ) dated as of April 1, 2019 by and between the Authority and U.S. Bank National Association, as trustee (the “EDA Loan Trustee,” as such term, “Principal Office,” is defined in the EDA Bond Indenture. The term “business day” shall mean “Business Day,” as defined in the Loan Agreement.

As provided in said Indenture, said Bonds are issuable in series which may vary as in said Indenture provided or permitted. This Bond is one of a series of Bonds entitled “First Mortgage Bonds, Series XX due 2038” (sometimes herein called “2038 Series XX Bonds” ).

The Company has entered into the Loan Agreement with the Authority, a public instrumentality of the State of New Jersey and a public body corporate and politic organized and existing under the New Jersey Economic Development Authority Act, providing for (i) the issuance by the Authority of its 2005B EDA Bonds to finance part of the cost of refunding the 1994A Bonds (as defined in the Loan Agreement); (ii) the loan by the Authority of the proceeds of the 2005B EDA Bonds pursuant to the Loan Agreement; and (iii) the payment of the 2005B EDA Bonds from loan payments and certain other amounts payable by the Company under the Loan Agreement as secured by the First Mortgage Bonds, Series XX due 2038 in the amount of $10,500,000 to be issued pursuant to the Fourth Supplemental Indenture dated as of April 1, 2019 supplementing the Indenture.

The 2005B EDA Bonds are payable from payments made, or caused to be made, by the Company of principal of, premium, if any, and interest on the Loan (as defined in the Loan Agreement) and secured by the First Mortgage Bonds, Series XX due 2038. Under certain terms and conditions, moneys held under and pursuant to the Loan Agreement and credits arising by reason of the purchase or redemption of the 2005B EDA Bonds shall be applied in like manner against payment obligations on the First Mortgage Bonds, Series XX due 2038 and to the extent so applied shall satisfy a like amount otherwise due thereunder.

less than sixty-six and two-thirds (66-2/3%) percent in principal amount of the Bonds then outstanding and entitled to consent of each series affected thereby in case one or more but less than all of the series of Bonds issued under the Indenture are so affected, the rights and obligations of the Company and of the holders of Bonds and the terms and provisions of the Indenture, including any instrument supplemental thereto, may be modified from time to time, provided that no such modification or alteration shall be made without the consent of the holders of all of the Bonds which would (i) postpone the date fixed herein or in the Indenture for the payment of the principal of, or any installment of interest on, the Bonds, or (ii) reduce the principal of, premium, if any, on, or the rate of interest payable on, the Bonds, or (iii) reduce the percentage of the principal amount of Bonds the consent of which is required for the authorization of any such modification or alteration, or which would modify, without the written consent of the Trustee, the rights, duties or immunities of the Trustee.

The First Mortgage Bonds, Series XX due 2038, are not subject to prepayment or redemption, in whole or in part, pursuant to Article Ten of the Indenture, except as hereinafter in this Bond expressly provided, including with reference to Section 8.08 of the Indenture.

This Bond shall be subject to mandatory redemption as follows: payments of principal of and premium on the 2038 Series XX Bonds shall be made to the EDA Loan Trustee to redeem 2038 Series XX Bonds in such amounts as shall be necessary, in accordance with the provisions of the Loan Agreement, to provide funds under the Loan Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the 2005B EDA Bonds) and (b) make, when due, any prepayment required by the Loan Agreement in connection with any mandatory, special mandatory, optional or extraordinary optional redemption of 2005B EDA Bonds; provided, however, that the obligation of the Company to make any redemption payments under this paragraph shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the 2005B EDA Bonds shall have been fully or partially made from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in a redemption account or subaccount for the 2005B EDA Bonds or, as far as principal is concerned, reduced by the principal amount of any 2005B EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture.

In the case of the redemption of the First Mortgage Bonds, Series XX due 2038, out of monies deposited with the Trustee pursuant to Section 8.08 of the Indenture, such First Mortgage Bonds, Series XX due 2038, shall, upon compliance with provisions of Section 10.02 of the Indenture, and subject to the provisions of Section 4.1 and Section 5.1 of the Fourth Supplemental Indenture thereto, be redeemable at the principal amounts thereof, together with the interest accrued to the date fixed for redemption without premium.

If this Bond, or any portion hereof, is called for redemption in accordance with the foregoing provisions and payment thereof is duly provided for as specified in the Indenture, interest shall cease to accrue hereon or on such portion, as the case may be, from and after the date fixed for redemption.

If an Event of Default, as defined in said Indenture, shall occur, the principal of this Bond may become or be declared due and payable, in the manner and with the effect provided in said Indenture.


Dated: April __, 2019	New Jersey Natural Gas Company

Attest


_________________________________	By:_________________________


Name:	Name:


Title:	Title:

[Seal]

Trustee’s Certificate of Authentication

This is one of the Bonds described in the within-mentioned Indenture.

U.S. Bank National Association,

as Trustee


By:

Authorized Officer

No. YY-1 $15,000,000

New Jersey Natural Gas Company

First Mortgage Bond, Series YY

Due 2059

New Jersey Natural Gas Company (hereinafter called the “Company” ), a corporation organized and existing under the laws of the State of New Jersey, for value received, hereby promises to pay to U.S. Bank National Association, as EDA Loan Trustee (as defined below), or (subject to the transfer restrictions specified below) registered assigns, on the first day of April, 2059, or upon earlier redemption, Fifteen Million Dollars ($15,000,000), in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest thereon from the date hereof until the principal hereof shall have been paid, at the minimum rate per annum necessary to yield interest in amounts sufficient, when taken together with other amounts available therefor under the EDA Bond Indenture (as defined below), to pay the interest from time to time payable on the Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project) (the “2005C EDA Bonds” ) of the New Jersey Economic Development Authority (the “Authority” ), and thereafter (if default be made in the payment of such principal or interest, or premium, if any, on redemption) at the rate provided in the EDA Bond Indenture on such principal or (to the extent legally enforceable) on such interest, until the same shall be paid, in like coin or currency, computed on the same basis as the 2005C EDA Bonds, but in no event shall the interest rate on this Bond exceed ten percent (10%) per annum. Interest on this Bond shall be payable on the first business day preceding each date on which interest shall from time to time be payable on the 2005C EDA Bonds. This Bond is issued and delivered to the EDA Loan Trustee (in conjunction with the assignment by the Authority of certain of its rights under a loan agreement dated as of October 1, 2005 by and between the Authority and the Company (the “2005 Loan Agreement” ), as supplemented and amended by the Supplement and Amendment of Agreements dated as of September 24, 2014 by and among the Authority, The Bank of New York Mellon, as trustee, and the Company (the “Supplement and Amendment” ), as further supplemented and amended by the Second Amendment to Loan Agreement dated as of April 1, 2019 between the Authority and the Company (together with the 2005 Loan Agreement and the Supplement and Amendment, the “Loan Agreement” ) to the EDA Loan Trustee), for the benefit and security of the holders of the 2005C EDA Bonds. The obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on this Bond shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, premium, if any, and interest on any of the 2005C EDA Bonds shall have been fully or partially paid from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in the principal and interest account for the 2005C EDA Bonds, or as far as principal is concerned, reduced by the principal amount of any of the 2005C EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. Payments of principal, premium, if any, and interest are to be made at the principal office of the Trustee referred to hereinafter in the Town of Edison, New Jersey or, at the option of the Company, at the “Principal Office” of the trustee under an Amended and Restated Indenture (the “EDA Bond Indenture” ) dated as of

April 1, 2019 by and between the Authority and U.S. Bank National Association, as trustee (the “EDA Loan Trustee,” as such term, “Principal Office,” is defined in the EDA Bond Indenture. The term “business day” shall mean “Business Day,” as defined in the Loan Agreement.

As provided in said Indenture, said Bonds are issuable in series which may vary as in said Indenture provided or permitted. This Bond is one of a series of Bonds entitled “First Mortgage Bonds, Series YY due 2059” (sometimes herein called “2059 Series YY Bonds” ).

The Company has entered into the Loan Agreement with the Authority, a public instrumentality of the State of New Jersey and a public body corporate and politic organized and existing under the New Jersey Economic Development Authority Act, providing for (i) the issuance by the Authority of its 2005C EDA Bonds to finance part of the cost of the Project (as defined in the Loan Agreement); (ii) the loan by the Authority of the proceeds of the 2005C EDA Bonds pursuant to the Loan Agreement; and (iii) the payment of the 2005C EDA Bonds from loan payments and certain other amounts payable by the Company under the Loan Agreement as secured by the First Mortgage Bonds, Series YY due 2059 in the amount of $15,000,000 to be issued from time to time pursuant to the Fourth Supplemental Indenture dated as of April 1, 2019 supplementing the Indenture.

The 2005C EDA Bonds are payable from payments made, or caused to be made, by the Company of principal of, premium, if any, and interest on the Loan (as defined in the Loan Agreement) and secured by the First Mortgage Bonds, Series YY due 2059. Under certain terms and conditions, moneys held under and pursuant to the Loan Agreement and credits arising by reason of the purchase or redemption of the 2005C EDA Bonds shall be applied in like manner against payment obligations on the First Mortgage Bonds, Series YY due 2059 and to the extent so applied shall satisfy a like amount otherwise due thereunder.

outstanding and entitled to consent of each series affected thereby in case one or more but less than all of the series of Bonds issued under the Indenture are so affected, the rights and obligations of the Company and of the holders of Bonds and the terms and provisions of the Indenture, including any instrument supplemental thereto, may be modified from time to time, provided that no such modification or alteration shall be made without the consent of the holders of all of the Bonds which would (i) postpone the date fixed herein or in the Indenture for the payment of the principal of, or any installment of interest on, the Bonds, or (ii) reduce the principal of, premium, if any, on, or the rate of interest payable on, the Bonds, or (iii) reduce the percentage of the principal amount of Bonds the consent of which is required for the authorization of any such modification or alteration, or which would modify, without the written consent of the Trustee, the rights, duties or immunities of the Trustee.

The First Mortgage Bonds, Series YY due 2059, are not subject to prepayment or redemption, in whole or in part, pursuant to Article Ten of the Indenture, except as hereinafter in this Bond expressly provided, including with reference to Section 8.08 of the Indenture.

This Bond shall be subject to mandatory redemption as follows: payments of principal of and premium on the 2059 Series YY Bonds shall be made to the EDA Loan Trustee to redeem 2059 Series YY Bonds in such amounts as shall be necessary, in accordance with the provisions of the Loan Agreement, to provide funds under the Loan Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the 2005C EDA Bonds) and (b) make, when due, any prepayment required by the Loan Agreement in connection with any mandatory, special mandatory, optional or extraordinary optional redemption of 2005C EDA Bonds; provided, however, that the obligation of the Company to make any redemption payments under this paragraph shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the 2005C EDA Bonds shall have been fully or partially made from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in a redemption account or subaccount for the 2005C EDA Bonds or, as far as principal is concerned, reduced by the principal amount of any 2005C EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture.

In the case of the redemption of the First Mortgage Bonds, Series YY due 2059, out of monies deposited with the Trustee pursuant to Section 8.08 of the Indenture, such First Mortgage Bonds, Series YY due 2059, shall, upon compliance with provisions of Section 10.02 of the Indenture, and subject to the provisions of Section 6.1 and Section 7.1 of the Fourth Supplemental Indenture thereto, be redeemable at the principal amounts thereof, together with the interest accrued to the date fixed for redemption without premium.

If an Event of Default, as defined in said Indenture, shall occur, the principal of this Bond may become or be declared due and payable, in the manner and with the effect provided in said Indenture.


Dated: April __, 2019	New Jersey Natural Gas Company

Attest


_________________________________	By:_________________________


Name:	Name:


Title:	Title:

[Seal]

Trustee’s Certificate of Authentication

This is one of the Bonds described in the within-mentioned Indenture.

U.S. Bank National Association,

as Trustee


By:

Authorized Officer

AMENDED AND RESTATED

CONTINUING DISCLOSURE UNDERTAKING

This Amended and Restated Continuing Disclosure Undertaking (the “ Disclosure Undertaking ”) is dated April 18, 2019 executed and delivered by new jersey NATURAL GAS COMPANY (the “Company”) amends and restates the Continuing Disclosure Undertakings dated October 18, 2005 each executed and delivered by the Company in connection with the issuance of $10,300,000 aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project) (the “ Series A Bonds ”), $10,500,000 aggregate principal amount of Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project) (the “ Series B Bonds ”) and $15,000,000 aggregate principal amount of Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project) (the “ Series C Bonds ” and together with the Series A Bonds and the Series B Bonds, the “ Bonds ”) issued by New Jersey Economic Development Authority (the “ Issuer ”). The Bonds were issued pursuant to an Indenture of Trust dated as of October 1, 2005 (the “ 2005 Indenture ”) between the Authority and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as trustee (the “ Prior Trustee ”), as supplemented and amended by the Supplement and Amendment of Agreements dated September 24, 2014 by and among the Issuer, the Prior Trustee and the Company (the “ Supplement and Amendment ” and together with the 2005 Indenture, the “ Original Indenture ”). The Original Indenture has been restated and amended by an Amended and Restated Indenture (the “ Indenture ”), dated as of April 1, 2019, between the Issuer and U.S. Bank National Association, as trustee (the “ Trustee ”). The CUSIP Number for the Series A Bonds is 645779 CB3; the CUSIP Number for the Series B Bonds is 645779 CC1 and the CUSIP Number for the Series C Bonds is 645779 CD9.

The Company covenants and agrees as follows for the benefit of the Beneficial Owners (as defined below):

Section 1. Purpose of the Disclosure Undertaking . This Disclosure Undertaking is being executed and delivered by the Company for the benefit of the Beneficial Owners (defined below) and in order to assist the Participating Underwriter (defined below) in complying with the Rule (defined below). The Company acknowledges that the Issuer has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Disclosure Undertaking, and the Issuer has no liability to any person, including any Beneficial Owner, with respect to any such reports, notices or disclosures.

Section 2. Definitions . In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Undertaking unless otherwise defined in this Section 2 , the following capitalized terms shall have the following meanings:

“ Annual Report ” shall mean collectively, the filings described in Section 3(a) hereof.

“ Beneficial Owner ” shall mean, while the Bonds are held in a book-entry only system, the actual purchaser of each Bond, the ownership interest of which is to be recorded on the records of the direct and indirect participants of the Depository, and otherwise shall mean the holder of Bonds.

“ Commission ” shall mean the Securities and Exchange Commission, or any successor body thereto.

“ EMMA ” shall mean the Electronic Municipal Market Access system and the EMMA Continuing Disclosure Service of MSRB, or any successor thereto approved by the United States Securities and Exchange Commission, as a repository for municipal continuing disclosure information pursuant to the Rule.

“ Financial Obligation ” means a (a) debt obligation; (b) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (c) guarantee of (a) or (b); provided that “financial obligation” shall not include municipal securities as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule.

“ Listed Events ” shall mean any of the events listed in Section 4(a) of this Disclosure Undertaking.

“ MSRB ” means the Municipal Securities Rulemaking Board, or any successor thereto.

“ Official Statement ” shall mean the Final Reoffering Circular dated April 11, 2019 with respect to the Bonds, including all Appendices thereto, as they may be amended or supplemented.

“ Participating Underwriter ” shall mean the original underwriter of the Bonds required to comply with the Rule in connection with the issuance of the Bonds.

“ Quarterly Report ” shall mean any Quarterly Report provided by the Company pursuant to Section 3(b) of this Disclosure Undertaking.

“ Rule ” shall mean Rule 15c2-12(b)(5) adopted by the Commission under the Securities Exchange Act of 1934 (the “ Exchange Act ”), as the same may be amended from time to time.

“ Submission Date ” shall mean the January 28 after the end of each fiscal year of the Company, commencing with the fiscal year September 30, 2019.

Section 3. Provision of Annual Reports and Quarterly Reports

(a) Not later than the Submission Date of each year, the Company shall file on EMMA its Annual Report.


(1)	The Annual Report shall consist of:


i.	the Company’s audited financial statements prepared in accordance with generally accepted accounting principles used in the United States of America (“GAAP”), and


ii.	annual financial information and operating data of the type contained in Appendix A to the Official Statement under the following captions: (1) table setting forth ratio of earnings to fixed charges under "HISTORICAL CASH FLOWS, "(2)" CAPITALIZATION," (3) "SELECTED HISTORICAL FINANCIAL INFORMATION" and (4) "NJNG OPERATING STATISTICS.”


(2)	If any part of the Annual Report can no longer be generated because the operations to which it is related have been materially changed or discontinued, the Company will disseminate a statement to such effect as part of its Annual Report for the year in which such event first occurs.


(3)	If any amendment is made to this Agreement, the Annual Report for the year in which such amendment or waiver is made (or in any notice or supplement provided to the MSRB) shall contain a narrative description of the reasons for such amendment and its impact on the type of information being provided.


(4)	The Company agrees that, when filing its Annual Financial Information with the MSRB vis EMMA, it will include the statements under the caption “AVAILABLE INFORMATION” in Appendix A of the Official Statement, updated as appropriate.

(b) The Company agrees to provide unaudited quarterly financial statements (to the extent that such quarterly financial statements are otherwise available) to the MSRB via EMMA, not later than the 70 ^th day following the end of each fiscal quarter of the Company (other than the last quarter of any fiscal year) beginning with the quarter ending March 31, 2019. The Company may provide to the MSRB any or all of the quarterly financial statements by specific reference to documents previously provided to the MSRB via EMMA, if any, or filed with the Commission.

(c) The Company shall file, in a timely manner, with the MSRB and the Trustee, notice of failure by the Company to file any Annual Report or Quarterly Report by the date due.

Section 4. Reporting of Material Events .

(a) The Company shall file, in a timely manner not in excess of ten business days after the occurrence of the event, with the MSRB and the Trustee notice of the occurrence of any of the following events (if applicable) with respect to the Bonds:


(1)	principal and interest payment delinquencies;


(2)	non-payment related defaults, if material;


(3)	any unscheduled draws on debt service reserves reflecting financial difficulties;


(4)	unscheduled draws on credit enhancement facilities reflecting financial difficulties;


(5)	substitution of credit or liquidity providers, or their failure to perform;


(6)	adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds;


(7)	modifications to rights of holders of the Bonds, if material;


(8)	bond calls, if material, and tender offers;


(9)	defeasance of the Bonds or any portion thereof;


(10)	release, substitution, or sale of property securing repayment of the Bonds, if material;


(11)	rating changes with respect to the Bonds;


(12)	bankruptcy, insolvency, receivership or similar event of the Company;


(13)	the consummation of a merger, consolidation, or acquisition involving the Company or the sale of all or substantially all of the assets of the Company, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and


(14)	appointment of a successor or additional trustee or the change of name of a trustee, if material.


(15)	incurrence of a Financial Obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of Financial Obligation of the obligated person, any of which affect security holders, if material;” and


(16)	default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflected financial difficulties.

(b) Neither the terms of the Indenture nor the Bonds require that any debt service reserve fund be established.

Section 5. Termination of Reporting Obligation . This Disclosure Undertaking shall remain in effect only for such period during which any of the Bonds are outstanding in accordance with their terms and the Company remains an obligated person with respect to the Bonds within the meaning of the Rule. The Company’s obligations under this Disclosure Undertaking shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds. If the Company’s obligations under this Disclosure Undertaking are assumed in full by some other entity, such entity shall be responsible for compliance with this Disclosure Undertaking in the same manner as if it were the Company and the Company shall have no further responsibility hereunder. The Company shall file, in a timely manner, with the MSRB and the Trustee, notice of the termination of this Disclosure Undertaking or the Company’s obligations under this Disclosure Undertaking pursuant to an assumption of its obligations hereunder.

Section 6. Amendment; Waiver . Notwithstanding any other provision of this Disclosure Undertaking, the Company and the Trustee may amend this Disclosure Undertaking (and the Trustee shall agree to any amendment so requested by the Company that does not change the duties of the Trustee hereunder and otherwise complies with the requirements of this Section 6 , provided it receives indemnity satisfactory to it) or waive any provision hereof, but only in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the obligor with respect to the Bonds or the type of business conducted by said obligor, provided

that (1) the undertaking, as amended or following such waiver, would have complied with the requirements of the Rule on the date of the issuance of the Bonds, after taking into account any amendments to the Rule as well as any change in circumstances, and (2) the amendment or waiver does not materially impair the interests of the holders of Bonds, in the opinion of counsel expert in federal securities laws reasonably satisfactory to both the Company and the Trustee, or is approved by the Beneficial Owners of not less than a majority in aggregate principal amount of the outstanding Bonds.

In the event of any amendment to the type of financial or operating data provided in an Annual Report provided pursuant to Section 3(a) hereof, or any change in accounting principles reflected in such Annual Report, the Company agrees that the Annual Report will explain, in narrative form, the reasons for the amendment or change and the effect of such change, including comparative information, where appropriate. To the extent not otherwise included in such Annual Report, the Company will also provide timely notice of any change in accounting principles to the MSRB and the Trustee.

Section 7. Additional Information . Nothing in this Disclosure Undertaking shall be deemed to prevent the Company from disseminating any other information, using the means of dissemination set forth in this Disclosure Undertaking or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Undertaking. If the Company chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Undertaking, the Company shall have no obligation under this Disclosure Undertaking to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 8. Default . In the event of a failure of the Company to comply with any provision of this Disclosure Undertaking, the Trustee may (and, at the request of the Beneficial Owners of not less than twenty-five percent (25%) of the aggregate principal amount of outstanding Bonds, shall) subject to the same conditions, limitations and procedures that would apply under the Indenture if the breach were an Event of Default under the Indenture, or any Beneficial Owner may, take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Company to comply with its obligations under this Disclosure Undertaking. A default under this Disclosure Undertaking shall not be deemed an Event of Default under the Indenture or the Loan Agreement, and the sole remedy under this Disclosure Undertaking in the event of any failure of the Company to comply with this Disclosure Undertaking shall be an action to compel performance. The Trustee shall be entitled to rely conclusively upon any written evidence provided by the Company regarding the provision of information to the MSRB.

Section 9. Beneficiaries . This Disclosure Undertaking shall inure solely to the benefit of the Issuer, the Company, the Trustee, the Participating Underwriter, and Beneficial Owners, and shall create no rights in any other person or entity.

Section 10. Submission of Documents to the MSRB . Unless otherwise required by law, all documents provided to the MSRB or EMMA pursuant to this Disclosure Undertaking shall be provided to the MSRB in an electronic format and shall be accompanied by identifying information, in each case as prescribed by the MSRB.

Section 11. Governing Law . This Disclosure Undertaking shall be governed by and construed in accordance with the laws of the State of New Jersey.

[signatures on following page]

IN WITNESS WHEREOF, the Company has caused this Amended and Restated Continuing Disclosure Undertaking to be executed in its name and on its behalf, all as of the date and year first above written.

NEW JERSEY NATURAL GAS COMPANY


By:	/s/ James W. Kent

Name: James W. Kent

Title: Treasurer

MORTGAGE

NEW JERSEY NATURAL GAS COMPANY

U.S. BANK NATIONAL ASSOCIATION,

As Trustee

_________________________________

FOURTH SUPPLEMENTAL INDENTURE

Dated as of April 1, 2019

_________________________________

Supplemental to Amended and Restated Indenture of Mortgage,

Deed of Trust and Security Agreement Dated as of September 1, 2014,

As Supplemented and Amended

Prepared by: William M. Libit Record and Return to: Richard Reich, Esq.

Chapman and Cutler LLP NJR Service Corporation

111 West Monroe Street 1415 Wyckoff Road

Chicago, Illinois 60603 Wall, New Jersey 07719

MORTGAGE

FOURTH SUPPLEMENTAL INDENTURE, dated as of April 1, 2019, between NEW JERSEY NATURAL GAS COMPANY, a corporation organized and existing under the laws of the State of New Jersey (hereinafter called the “ Company ”), having its principal office at 1415 Wyckoff Road, Wall, New Jersey, and U.S. BANK NATIONAL ASSOCIATION, a national banking association (hereinafter called the “ Trustee ”), having a principal office at 333 Thornall Street, Edison, New Jersey 08837, as Trustee under the Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement hereinafter mentioned.

WHEREAS, the Company has heretofore executed and delivered to the Trustee its Amended and Restated Indenture of Mortgage, Deed of Trust and Security Agreement, dated as of September 1, 2014 (the “ Amended and Restated Indenture ” and, as originally executed or as the same may from time to time be supplemented, modified or amended by any supplemental indenture entered into pursuant to the provisions thereof, the “ Indenture ”), to secure the payment of the principal of and the interest and premium (if any) on all Bonds at any time issued and outstanding thereunder, and to declare the terms and conditions upon which Bonds are to be issued thereunder; and

WHEREAS, the Amended and Restated Indenture completely restated and amended the Indenture of Mortgage and Deed of Trust, dated April 1, 1952, as heretofore supplemented and amended (the “ Original Indenture ”) without any interruption of the Lien of the Original Indenture; and

WHEREAS, Bonds in the aggregate principal amount of $10,300,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series II due 2023,” herein sometimes called “2023 Series II Bonds ,” have been designated as Existing Bonds in Section 3.01 of the Indenture and are outstanding at the date hereof and secured by the Indenture, provided that such 2023 Series II Bonds will be retired by the Company and replaced with the 2042 Series WW Bonds (as hereinafter defined) issued hereunder; and

WHEREAS, Bonds in the aggregate principal amount of $10,500,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series JJ due 2024,” herein sometimes called “ 2024 Series JJ Bonds ,” have been designated as Existing Bonds in Section 3.02 of the Indenture and are outstanding at the date hereof and secured by the Indenture, provided that such 2024 Series JJ Bonds will be retired by the Company and replaced with the 2038 Series XX Bonds (as hereinafter defined) issued hereunder; and

WHEREAS, Bonds in the aggregate principal amount of $15,000,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series KK due 2040,” herein sometimes called “ 2040 Series KK Bonds ,” have been designated as Existing Bonds in Section 3.03 of the Indenture and are outstanding at the date hereof and secured by the Indenture, provided that such 2040 Series KK

Bonds will be retired by the Company and replaced with the 2059 Series YY Bonds (as hereinafter defined) issued hereunder; and

WHEREAS, Bonds in the aggregate principal amount of $125,000,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series LL due 2018,” herein sometimes called “ 2018 Series LL Bonds ,” were designated as Existing Bonds in Section 3.04 of the Indenture, which 2018 Series LL Bonds have since been paid at maturity by the Company; and

WHEREAS, Bonds in the aggregate principal amount of $9,545,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series MM due 2027,” herein sometimes called “ 2027 Series MM Bonds ,” have been designated as Existing Bonds in Section 3.05 of the Indenture and are outstanding at the date hereof and secured by the Indenture; and

WHEREAS, Bonds in the aggregate principal amount of $41,000,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series NN due 2035,” herein sometimes called “ 2035 Series NN Bonds ,” have been designated as Existing Bonds in Section 3.06 of the Indenture and are outstanding at the date hereof and secured by the Indenture; and

WHEREAS, Bonds in the aggregate principal amount of $46,500,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series OO due 2041,” herein sometimes called “ 2041 Series OO Bonds ,” have been designated as Existing Bonds in Section 3.07 of the Indenture and are outstanding at the date hereof and secured by the Indenture; and

WHEREAS, Bonds in the aggregate principal amount of $50,000,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series PP due 2028,” herein sometimes called “ 2028 Series PP Bonds ,” have been designated as Existing Bonds in Section 3.08 of the Indenture and are outstanding at the date hereof and secured by the Indenture; and

WHEREAS, Bonds in the aggregate principal amount of $70,000,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series QQ due 2024,” herein sometimes called “ 2024 Series QQ Bonds ,” have been designated as Existing Bonds in Section 3.09 of the Indenture and are outstanding at the date hereof and secured by the Indenture; and

WHEREAS, Bonds in the aggregate principal amount of $55,000,000, originally issued under and in accordance with the terms of the Original Indenture, as supplemented and amended, as a series designated “First Mortgage Bonds, Series RR due 2044,” herein sometimes called “ 2044 Series RR Bonds ,” have been designated as Existing Bonds in Section 3.10 of the Indenture and are outstanding at the date hereof and secured by the Indenture; and

WHEREAS, the Amended and Restated Indenture provides that, subject to certain exceptions not presently relevant, such changes in or additions to the provisions of the Indenture (terms used herein having the meanings assigned thereto in the Amended and Restated Indenture except as herein expressly modified) may be made to add to the covenants and agreements of the Company in the Indenture contained other covenants and agreements thereafter to be observed by the Company; and to provide for the creation of any series of Bonds, designating the series to be created and specifying the form and provisions of the Bonds of such series as in the Indenture provided or permitted; and

WHEREAS, the Indenture further provides that the Company and the Trustee may enter into indentures supplemental to the Indenture to assign, convey, mortgage, pledge, transfer and set over unto the Trustee and to subject to the lien of the Indenture additional property of the Company; and

WHEREAS, pursuant to the Amended and Restated Indenture as amended by the First Supplemental Indenture, dated as of April 1, 2015, between the Company and the Trustee, the Company determined to amend certain provisions of the Amended and Restated Indenture and to create an eleventh and a twelfth series of Bonds under the Indenture, known as (i) “First Mortgage Bonds, Series SS due 2025,” herein sometimes called “ 2025 Series SS Bonds ,” and (ii) “First Mortgage Bonds, Series TT due 2045,” herein sometimes called “ 2045 Series TT Bonds ,” respectively; and

WHEREAS, pursuant to the Amended and Restated Indenture as amended by the Second Supplemental Indenture, dated as of June 1, 2016, between the Company and the Trustee, the Company determined to amend certain provisions of the Amended and Restated Indenture and to create a thirteenth series of Bonds under the Indenture, known as “First Mortgage Bonds, Series UU due 2046,” herein sometimes called “ 2046 Series UU Bonds ”; and

WHEREAS, pursuant to the Amended and Restated Indenture as amended by the Third Supplemental Indenture, dated as of May 1, 2018, between the Company and the Trustee, the Company determined to amend certain provisions of the Amended and Restated Indenture and to create a fourteenth series of Bonds under the Indenture, known as “First Mortgage Bonds, Series VV due 2048,” herein sometimes called “ 2048 Series VV Bonds ”; and

WHEREAS, (i) the 2025 Series SS Bonds were issued in and are currently outstanding under the Indenture in the aggregate principal amount of $50,000,000, (ii) the 2045 Series TT Bonds were issued in and are currently outstanding under the Indenture in the aggregate principal amount of $100,000,000, (iii) the 2045 Series UU Bonds were issued in and are currently outstanding under the Indenture in the aggregate principal amount of $125,000,000 and (iv) the 2048 Series VV Bonds were issued in and are currently outstanding under the Indenture in the aggregate principal amount of $125,000,000; and

WHEREAS, the Company has entered into a Loan Agreement dated as of October 1, 2005 with the New Jersey Economic Development Authority (herein sometimes called the “EDA” ), a public body corporate and politic of the State of New Jersey, as supplemented and amended by the

Supplement and Amendment of Agreements dated as of September 24, 2014 (the “Supplement and Amendment” ) by and among the EDA, The Bank of New York Mellon (as successor to JPMorgan Chase Bank, National Association), as prior trustee (the “Prior EDA Loan Trustee” ), and the Company, and by the Second Amendment to Loan Agreement dated as of April 1, 2019 between the EDA and the Company (collectively, the “Loan Agreement” ), pursuant to which (i) the proceeds of the issuance by the EDA of $10,300,000 in aggregate principal amount of its Natural Gas Facilities Refunding Revenue Bonds, Series 2005A (New Jersey Natural Gas Company Project) (the “2005A EDA Bonds” ) were loaned to the Company to provide for the refinancing of certain natural gas and functionally related and subordinate facilities of the Company; (ii) the proceeds of the issuance by the EDA of $10,500,000 in aggregate principal amount of its Natural Gas Facilities Refunding Revenue Bonds, Series 2005B (New Jersey Natural Gas Company Project) (the “2005B EDA Bonds” ) were loaned to the Company to provide for the refinancing of certain natural gas and functionally related and subordinate facilities of the Company; and (iii) the proceeds of the issuance by the EDA of $15,000,000 in aggregate principal amount of its Natural Gas Facilities Revenue Bonds, Series 2005C (New Jersey Natural Gas Company Project) (the “2005C EDA Bonds” and together with the 2005A EDA Bonds and the 2005B EDA Bonds, the “2005 Series EDA Bonds” ) were loaned to the Company to provide for the financing of certain natural gas and functionally related and subordinate facilities of the Company, which 2005 Series EDA Bonds were issued pursuant to an Indenture of Trust dated as of October 1, 2005 between the EDA and the Prior EDA Loan Trustee, as supplemented and amended by the Supplement and Amendment (together, the “Original EDA Bond Indenture” ); and

Whereas, the Original EDA Bond Indenture is being amended and restated by an Amended and Restated Indenture dated as of April 1, 2019 (the “EDA Bond Indenture” ) between the EDA and U.S. Bank National Association, as trustee (the “EDA Loan Trustee” ) in connection with (i) the extension of the related maturity for each series of the 2005 Series EDA Bonds, (ii) the exchange of the previously issued 2023 Series II Bonds, 2024 Series JJ Bonds and 2040 Series KK Bonds for new series of corresponding Bonds to reflect certain corresponding amendments to the related 2005 Series EDA Bonds, and (iii) certain other changes to the Original EDA Bond Indenture and the related 2005 Series EDA Bonds; and

WHEREAS, the Company has duly determined to create a fifteenth, a sixteenth and a seventeenth series of Bonds under the Indenture, to be known as (i) “First Mortgage Bonds, Series WW due 2042,” herein sometimes called “2042 Series WW Bonds ” (to replace the 2023 Series II Bonds), (ii) “First Mortgage Bonds, Series XX due 2038,” herein sometimes called “2038 Series XX Bonds ” (to replace the 2024 Series JJ Bonds) and (iii) “First Mortgage Bonds, Series YY due 2059,” herein sometimes called “ 2059 Series YY Bonds ” (to replace the 2040 Series KK Bonds), respectively, to be delivered and pledged (in conjunction with the assignment by the EDA of certain of its rights under the Loan Agreement) to the EDA Loan Trustee pursuant to the EDA Bond Indenture for the benefit and security of the holders of the related 2005 Series EDA Bonds, all as herein provided, and to add to the covenants and agreements contained in the Indenture, the covenants and agreements hereinafter set forth; and

WHEREAS, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate resolutions of its

Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a Fourth Supplemental Indenture in the form hereof for the purposes herein provided; and

WHEREAS, all conditions and requirements necessary to make this Fourth Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

That NEW JERSEY NATURAL GAS COMPANY, by way of further assurance and in consideration of the premises and of the acceptance by the Trustee of the trusts hereby created and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in order to secure the payment of principal of and any premium which may be due and payable on and the interest on all Bonds at any time issued and outstanding under the Indenture according to their tenor and effect, and the performance and observance by the Company of all the covenants and conditions herein and therein contained, has granted, bargained, sold, warranted, aliened, remised, released, conveyed, assigned, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, warrant, alien, remise, release, convey, assign, transfer, mortgage, pledge, set over and confirm, unto the Trustee, and to its successors in the trust, and to it and its assigns forever, and has granted and does hereby grant thereunto a security interest in, all of the property, real, personal and mixed, now owned by the Company and situated in the Counties of Burlington, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Sussex in the State of New Jersey, or wherever situate (except Excepted Property and property released from the lien of the Indenture by the terms of the Indenture) and also all of the property, real, personal and mixed, hereafter acquired by the Company wherever situate (except Excepted Property and property released from the lien of the Indenture by the terms of the Indenture), including both as to property now owned and property hereafter acquired, without in any way limiting or impairing the enumeration of the same, the scope and intent of the foregoing or of any general or specific description contained in the Indenture, the following:


I.	FRANCHISES

All and singular, the franchises, grants, permits, immunities, privileges and rights of the Company owned and held by it at the date of the execution hereof or hereafter acquired for the construction, maintenance, and operation of the gas plants and systems now or hereafter subject to the lien hereof, as well as all certificates, franchises, grants, permits, immunities, privileges, and rights of the Company used or useful in the operation of the property now or hereafter mortgaged hereunder, including all and singular the franchises, grants, permits, immunities, privileges, and rights of the Company granted by the governing authorities of any municipalities or other political subdivisions and all renewals, extensions and modifications of said certificates, franchises, grants, permits, privileges, arid rights or any of them.


II.	GAS DISTRIBUTION SYSTEMS AND RELATED PROPERTY

All gas generating plants, gas storage plants and gas manufacturing plants of the Company, all the buildings, erections, structures, generating and purifying apparatus, holders, engines, boilers, benches, retorts, tanks, instruments, appliances, apparatus, facilities, machinery, fixtures, and all other property used or provided for use in the generation, manufacturing and purifying of gas, together with the land on which the same are situated, and all other lands and easements, rights-of-way, permits, privileges, and sites forming a part of such plants or any of them or occupied, enjoyed or used in connection therewith.

All gas distribution or gas transmission systems of the Company, all buildings, erections, structures, generating and purifying apparatus, holders, engines, boilers, benches, retorts, tanks, pipe lines, connections, service pipes, meters, conduits, tools, instruments, appliances, apparatus, facilities, machinery, fixtures, and all other property used or provided for use in the construction, maintenance, repair or operations of such distribution or transmission systems, together with all the certificates, rights, privileges, rights-of-way, franchises, licenses, easements, grants, liberties, immunities, permits of the Company, howsoever conferred or acquired, under, over, or upon any private property or any public streets or highways within as well as without the corporate limits of any municipal corporation. Without limiting the generality of the foregoing, there are expressly included the gas distribution or gas transmission systems located in the Counties of Burlington, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Sussex in the State of New Jersey, and in the following municipalities in said State and Counties: Aberdeen Township (formerly Matawan Township), Allenhurst Borough, City of Asbury Park, Atlantic Highlands Borough, Avon By the Sea Borough, Barnegat Light Borough, Barnegat Township (formerly named Union Township), Bay Head Borough, Beach Haven Borough, Beachwood Borough, Belmar Borough, Berkeley Township, Boonton Town, Boonton Township, Bradley Beach Borough, Brick Township, Brielle Borough, Colts Neck Township, Deal Borough, Denville Township, Dover Town, Dover Township, Eagleswood Township, East Brunswick Township, Eatontown Borough, Englishtown Borough, Fair Haven Borough, Farmingdale Borough, Franklin Township in Somerset County, Freehold Borough, Freehold Township, Hanover Township, Harvey Cedars Borough, Hazlet Township, Highlands Borough, Holmdel Township, Hopatcong Borough, Howell Township, Interlaken Borough, Island Heights Borough, Jackson Township, Jefferson Township, Keansburg Borough, Keyport Borough, Lacey Township, Lakehurst Borough, Lakewood Township, Lavallette Borough, Lincoln Park Borough, Little Egg Harbor Township, Little Silver Borough, Loch Arbour Village, Long Beach Township, Long Branch City, Manalapan Township, Manasquan Borough, Manchester Township, Mantoloking Borough, Marlboro Township, Matawan Borough, Middletown Township, Milltown Borough, Mine Hill Township, Monmouth Beach Borough, Monroe Township, Montville Township, Morris Plains Borough, Mount Arlington Borough, Mount Olive Township, Mountain Lakes Borough, Neptune City Borough, Neptune Township, Netcong Borough, New Brunswick City, North Brunswick Township, Ocean Township in Monmouth County, Ocean Township in Ocean County, Ocean Gate Borough, Oceanport Borough, Old Bridge Township (formerly named Madison Township), Parsippany-Troy Hills Township, Pine Beach Borough, Point Pleasant Borough, Point Pleasant Beach Borough, Randolph Township, Red Bank Borough, Rockaway Borough, Rockaway Township, Roxbury Township, Rumson Borough, Sayreville Borough, Sea Bright Borough, Sea Girt Borough, Seaside Heights Borough, Seaside Park Borough,

Ship Bottom Borough, Shrewsbury Borough, Shrewsbury Township, Lake Como Borough, South Brunswick Township, South River Borough, South Toms River Borough, Spring Lake Borough, Spring Lake Heights Borough, Stafford Township, Surf City Borough, Tinton Falls Borough (formerly named New Shrewsbury Borough), Tuckerton Borough, Union Beach Borough, Union Township, Victory Gardens Borough, Wall Township, Washington Township in Burlington County, Washington Township in Morris County, West Long Branch Borough, West Milford Township and Wharton Borough.


III.	CONTRACTS

All of the Company’s right, title and interest in and under all contracts, licenses or leases for the purchase of gas, either in effect at the date of execution hereof or hereafter made and any extension or renewal thereof.

TOGETHER WITH ALL AND SINGULAR the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the Trust Estate, or any part thereof, with the reversion or reversions, remainder and remainders, rents, issues, income and profits thereof, and all the right, title, interest and claim whatsoever, at law or in equity, which the Company now has or which it may hereafter acquire in and to the Trust Estate and every part and parcel thereof;

TO HAVE AND TO HOLD the Trust Estate and all and singular the lands, properties, estates, rights, franchises, privileges and appurtenances hereby mortgaged, conveyed, pledged or assigned, or intended so to be, together with all the appurtenances thereto appertaining, unto the Trustee and its successors and assigns forever;

SUBJECT, HOWEVER, as to property hereby conveyed, to Permitted Encumbrances;

BUT IN TRUST, NEVERTHELESS, under and subject to the terms and conditions hereafter set forth, for the equal and proportionate use, benefit, security and protection of each and every person who may be or become the holders of the Bonds hereby secured without preference, priority or distinction as to the lien or otherwise of one Bond over or from the others by reason of priority in the issue or negotiation thereof, or by reason of the date of maturity thereof, or otherwise (except as any sinking, amortization, improvement, renewal or other analogous fund, established in accordance with the provisions of the Indenture, may afford additional security for the Bonds of any particular series), and for securing the observance and performance of all the terms, provisions and conditions of the Indenture.

THIS INDENTURE FURTHER WITNESSETH, that the Company has agreed and covenanted, and hereby does agree and covenant, with the Trustee and its successors and assigns and with the respective holders from time to time of the Bonds, or any thereof, as follows:

ARTICLE I

CERTAIN AMENDMENTS OF INDENTURE

§ 1.1. The Indenture be and it hereby is amended in the following respects, the section numbers specified below being the sections of the Indenture in which such amendments occur:

§ 1.01 . The following definitions be and they hereby are added at the end of § 1.02:

“(tttt) “Fourth Supplemental Indenture” shall mean the Fourth Supplemental Indenture, dated as of April 1, 2019, supplemental to the Indenture.”

“(uuuu) “2042 Series WW Bond” shall mean one of the First Mortgage Bonds, Series WW due 2042, issued hereunder.”

“(vvvv) “2038 Series XX Bond” shall mean one of the First Mortgage Bonds, Series XX due 2038, issued hereunder.”

“(wwww) “2059 Series YY Bond” shall mean one of the First Mortgage Bonds, Series YY due 2059, issued hereunder.”

§ 2.11. The following be and it hereby is added at the end of § 2.11:

“No charge except for taxes or governmental charges shall be made against any holder of any 2042 Series WW Bond, 2038 Series XX Bond or 2059 Series YY Bond for the exchange, transfer or registration of transfer thereof.”

§ 8.08. The period at the end of the first paragraph of § 8.08 be and it hereby is deleted and the following words and figures be and they hereby are added thereto:

“, and the 2042 Series WW Bonds, the 2038 Series XX Bonds and the 2059 Series YY Bonds shall be redeemed at the redemption price specified in § 10.34, § 10.36 and § 10.38, respectively.”

ARTICLE II

2042 SERIES WW BONDS

§ 2.1. There shall be a fifteenth series of Bonds under the Indenture, known as and entitled “First Mortgage Bonds, Series WW due 2042” or “First Mortgage Bonds, Series WW” (herein and in the Indenture referred to as the “ 2042 Series WW Bonds ”), and the form thereof shall contain suitable provisions with respect to the matters hereinafter in this Section specified and shall in other respects be substantially as set forth in Exhibit A to the Indenture.

The aggregate principal amount of 2042 Series WW Bonds which may be authenticated and delivered and outstanding under the Indenture is $10,300,000.

The 2042 Series WW Bonds shall be payable to the EDA Loan Trustee, and shall be nontransferable except to a successor of the EDA Loan Trustee.

The 2042 Series WW Bonds shall bear interest at the minimum rate per annum necessary to yield interest in amounts sufficient, when taken together with other amounts available therefor under the EDA Bond Indenture, to pay the interest from time to time payable on the 2005A EDA Bonds, computed on the same basis as the 2005A EDA Bonds (interest on overdue principal and premium, if any, and, to the extent legally enforceable, interest, being at the rate provided in the EDA Bond Indenture), but in no event shall the interest rate on the 2042 Series WW Bonds exceed ten percent (10%) per annum; and the 2042 Series WW Bonds shall mature on April 1, 2042, subject to prior redemption as described herein.

The 2042 Series WW Bonds shall be in the form of registered Bonds without coupons of denominations of $5,000 and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2042 Series WW Bonds shall be dated (i) as of the Interest Payment Date (as that term is defined in the EDA Bond Indenture) next preceding the date on which such 2042 Series WW Bonds shall be authenticated, unless such 2042 Series WW Bonds are authenticated before the first Interest Payment Date, in which case such 2042 Series WW Bonds shall be the Effective Date (as that term is defined in the EDA Bond Indenture) or, (ii) if such date of authentication shall be an Interest Payment Date, such 2042 Series WW Bonds shall be dated such Interest Payment Date; provided, however, that, if at the time of authentication of any 2042 Series WW Bonds interest is in default on the 2042 Series WW Bonds, such 2042 Series WW Bonds shall be dated as of the Interest Payment Date to which interest has previously been paid or made available for payment on the 2042 Series WW Bonds. All 2042 Series WW Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2042 Series WW Bonds, on the first business day preceding each date on which interest shall from time to time be payable on the 2005A EDA Bonds; provided, that the obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on the 2042 Series WW Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, premium, if any, and interest on any of the 2005A EDA Bonds shall have been fully or partially paid from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in the principal and interest account for the 2005A EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any of the 2005A EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. The principal of and the premium, if any, and interest on the 2042 Series WW Bonds shall be payable at the principal office of the Trustee, in the Town of Edison, New Jersey, or, at the option of the Company, at the “Corporate Trust Office” (as that term is defined in the EDA Bond Indenture) of the EDA Loan Trustee, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

Notwithstanding any other provision of the Indenture or of the 2042 Series WW Bonds, payments of the principal of, premium, if any, and interest on any 2042 Series WW Bond may be made directly to the registered holder thereof without presentation or surrender thereof or the making

of any notation thereon if there shall be filed with the Trustee a Certificate of the Company to the effect that such registered holder (or the person for whom such registered holder is a nominee) and the Company have entered into a written agreement that payment shall be so made; provided, however, that before such registered holder transfers or otherwise disposes of any 2042 Series WW Bond, such registered holder will, at its election, either endorse thereon (or on a paper annexed thereto) the principal amount thereof redeemed and the last date to which interest has been paid thereon or make such Bond available to the Company at the principal office of the Trustee for the purpose of making such endorsement thereon.

The 2042 Series WW Bonds shall be subject to redemption at the option of the Company or otherwise, and shall be subject to mandatory redemption, in the manner provided in the applicable provisions of Article Ten of the Indenture, as amended by Article III of this Fourth Supplemental Indenture.

The 2042 Series WW Bonds shall be excluded from the benefits of, and shall not be subject to redemption through the operation of, a Mandatory Sinking Fund pursuant to § 11.02 of the Indenture.

Notwithstanding the provisions of § 10.02 or any other provision of the Indenture, the selection of 2042 Series WW Bonds to be redeemed shall, in case fewer than all of the outstanding 2042 Series WW Bonds are to be redeemed, be made by the Trustee pro rata (to the nearest multiple of $5,000) among the registered holders of the 2042 Series WW Bonds in proportion, as nearly as practicable, to the respective unpaid principal amounts of 2042 Series WW Bonds registered in the names of such holders, with adjustments, to the extent practicable, to compensate for any prior redemption not made exactly in such proportion (or otherwise as may be specified by a written order signed by the registered holders of all outstanding 2042 Series WW Bonds).

The definitive 2042 Series WW Bonds may be issued in the form of engraved Bonds or Bonds printed or lithographed on steel engraved borders or Bonds in typed form on normal bond paper. Subject to the foregoing provisions of this Section and the provisions of § 2.11 of the Indenture, all definitive 2042 Series WW Bonds shall be fully exchangeable for other Bonds of the same series, of like aggregate principal amounts, and, upon surrender to the Trustee at its principal office, shall be exchangeable for other Bonds of the same series of a different authorized denomination or denominations, as requested by the holder surrendering the same. The Company will execute, and the Trustee shall authenticate and deliver, registered Bonds without coupons, whenever the same shall be required for any such exchange.

§ 2.2. 2042 Series WW Bonds in the aggregate principal amount of $10,300,000 may forthwith upon the execution and delivery of this Fourth Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee, and shall thereupon be authenticated and delivered by the Trustee upon compliance by the Company with the provisions of Articles Four, Five or Six of the Indenture, without awaiting the filing or recording of this Fourth Supplemental Indenture. No additional 2042 Series WW Bonds shall be issued under Article Four, Five or Six of the Indenture without the consent in writing of the holders of all the outstanding 2042 Series WW Bonds.

ARTICLE III

REDEMPTION OF THE 2042 SERIES WW BONDS

§ 3.1. The following § 10.33 and § 10.34 be and they hereby are added to Article Ten of the Indenture:

“ § 10.33 . The 2042 Series WW Bonds shall be subject to redemption as follows: payments of principal of and premium, if any, on the 2042 Series WW Bonds shall be made to the EDA Loan Trustee to redeem 2042 Series WW Bonds in such amounts as shall be necessary, in accordance with the provisions of the Loan Agreement, to provide funds under the Loan Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the 2005A EDA Bonds) and (b) make, when due, any prepayment required by the Loan Agreement in connection with any mandatory, special mandatory, optional or extraordinary optional redemption of 2005A EDA Bonds; provided, however, that the obligation of the Company to make any redemption payments under this Section shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the 2005A EDA Bonds shall have been fully or partially made from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in a redemption account or subaccount for the 2005A EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any 2005A EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. Terms used and not defined in this Section and in § 10.34 shall have the respective meanings given to them in the Fourth Supplemental Indenture.”

“ § 10.34 . In the case of the redemption of the 2042 Series WW Bonds out of monies deposited with the Trustee pursuant to § 8.08, such 2042 Series WW Bonds shall, upon compliance with provisions of § 10.02, and subject to the provisions of § 2.1 of the Fourth Supplemental Indenture, be redeemable at the principal amounts thereof, together with the interest accrued to the date fixed for redemption without premium.”

ARTICLE IV

2038 SERIES XX BONDS

§ 4.1. There shall be a sixteenth series of Bonds under the Indenture, known as and entitled “First Mortgage Bonds, Series XX due 2038” or “First Mortgage Bonds, Series XX” (herein and in the Indenture referred to as the “ 2038 Series XX Bonds ”), and the form thereof shall contain suitable provisions with respect to the matters hereinafter in this Section specified and shall in other respects be substantially as set forth in Exhibit A to the Indenture.

The aggregate principal amount of 2038 Series XX Bonds which may be authenticated and delivered and outstanding under the Indenture is $10,500,000.

The 2038 Series XX Bonds shall be payable to the EDA Loan Trustee, and shall be nontransferable except to a successor of the EDA Loan Trustee.

The 2038 Series XX Bonds shall bear interest at the minimum rate per annum necessary to yield interest in amounts sufficient, when taken together with other amounts available therefor under the EDA Bond Indenture, to pay the interest from time to time payable on the 2005B EDA Bonds, computed on the same basis as the 2005B EDA Bonds (interest on overdue principal and premium, if any, and, to the extent legally enforceable, interest, being at the rate provided in the EDA Bond Indenture), but in no event shall the interest rate on the 2038 Series XX Bonds exceed ten percent (10%) per annum; and the 2038 Series XX Bonds shall mature on April 1, 2038, subject to prior redemption as described herein.

The 2038 Series XX Bonds shall be in the form of registered Bonds without coupons of denominations of $5,000 and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2038 Series XX Bonds shall be dated (i) as of the Interest Payment Date (as that term is defined in the EDA Bond Indenture) next preceding the date on which such 2038 Series XX Bonds shall be authenticated, unless such 2038 Series XX Bonds are authenticated before the first Interest Payment Date, in which case such 2038 Series XX Bonds shall be the Effective Date (as that term is defined in the EDA Bond Indenture) or, (ii) if such date of authentication shall be an Interest Payment Date, such 2038 Series XX Bonds shall be dated such Interest Payment Date; provided, however, that, if at the time of authentication of any 2038 Series XX Bonds interest is in default on the 2038 Series XX Bonds, such 2038 Series XX Bonds shall be dated as of the Interest Payment Date to which interest has previously been paid or made available for payment on the 2038 Series XX Bonds. All 2038 Series XX Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2038 Series XX Bonds, on the first business day preceding each date on which interest shall from time to time be payable on the 2005B EDA Bonds; provided, that the obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on the 2038 Series XX Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, premium, if any, and interest on any of the 2005B EDA Bonds shall have been fully or partially paid from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in the principal and interest account for the 2005B EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any of the 2005B EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. The principal of and the premium, if any, and interest on the 2038 Series XX Bonds shall be payable at the principal office of the Trustee, in the Town of Edison, New Jersey, or, at the option of the Company, at the “Corporate Trust Office” (as that term is defined in the EDA Bond Indenture) of the EDA Loan Trustee, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

Notwithstanding any other provision of the Indenture or of the 2038 Series XX Bonds, payments of the principal of, premium, if any, and interest on any 2038 Series XX Bond may be made directly to the registered holder thereof without presentation or surrender thereof or the making

of any notation thereon if there shall be filed with the Trustee a Certificate of the Company to the effect that such registered holder (or the person for whom such registered holder is a nominee) and the Company have entered into a written agreement that payment shall be so made; provided, however, that before such registered holder transfers or otherwise disposes of any 2038 Series XX Bond, such registered holder will, at its election, either endorse thereon (or on a paper annexed thereto) the principal amount thereof redeemed and the last date to which interest has been paid thereon or make such Bond available to the Company at the principal office of the Trustee for the purpose of making such endorsement thereon.

The 2038 Series XX Bonds shall be subject to redemption at the option of the Company or otherwise, and shall be subject to mandatory redemption, in the manner provided in the applicable provisions of Article Ten of the Indenture, as amended by Article V of this Fourth Supplemental Indenture.

The 2038 Series XX Bonds shall be excluded from the benefits of, and shall not be subject to redemption through the operation of, a Mandatory Sinking Fund pursuant to § 11.02 of the Indenture.

Notwithstanding the provisions of § 10.02 or any other provision of the Indenture, the selection of 2038 Series XX Bonds to be redeemed shall, in case fewer than all of the outstanding 2038 Series XX Bonds are to be redeemed, be made by the Trustee pro rata (to the nearest multiple of $5,000) among the registered holders of the 2038 Series XX Bonds in proportion, as nearly as practicable, to the respective unpaid principal amounts of 2038 Series XX Bonds registered in the names of such holders, with adjustments, to the extent practicable, to compensate for any prior redemption not made exactly in such proportion (or otherwise as may be specified by a written order signed by the registered holders of all outstanding 2038 Series XX Bonds).

The definitive 2038 Series XX Bonds may be issued in the form of engraved Bonds or Bonds printed or lithographed on steel engraved borders or Bonds in typed form on normal bond paper. Subject to the foregoing provisions of this Section and the provisions of § 2.11 of the Indenture, all definitive 2038 Series XX Bonds shall be fully exchangeable for other Bonds of the same series, of like aggregate principal amounts, and, upon surrender to the Trustee at its principal office, shall be exchangeable for other Bonds of the same series of a different authorized denomination or denominations, as requested by the holder surrendering the same. The Company will execute, and the Trustee shall authenticate and deliver, registered Bonds without coupons, whenever the same shall be required for any such exchange.

§ 4.2. 2038 Series XX Bonds in the aggregate principal amount of $10,500,000 may forthwith upon the execution and delivery of this Fourth Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee, and shall thereupon be authenticated and delivered by the Trustee upon compliance by the Company with the provisions of Articles Four, Five or Six of the Indenture, without awaiting the filing or recording of this Fourth Supplemental Indenture. No additional 2038 Series XX Bonds shall be issued under Article Four, Five or Six of the Indenture without the consent in writing of the holders of all the outstanding 2038 Series XX Bonds.

ARTICLE V

REDEMPTION OF THE 2038 SERIES XX BONDS

§ 5.1. The following § 10.35 and § 10.36 be and they hereby are added to Article Ten of the Indenture:

“ § 10.35 . The 2038 Series XX Bonds shall be subject to redemption as follows: payments of principal of and premium, if any, on the 2038 Series XX Bonds shall be made to the EDA Loan Trustee to redeem 2038 Series XX Bonds in such amounts as shall be necessary, in accordance with the provisions of the Loan Agreement, to provide funds under the Loan Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the 2005B EDA Bonds) and (b) make, when due, any prepayment required by the Loan Agreement in connection with any mandatory, special mandatory, optional or extraordinary optional redemption of 2005B EDA Bonds; provided, however, that the obligation of the Company to make any redemption payments under this Section shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the 2005B EDA Bonds shall have been fully or partially made from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in a redemption account or subaccount for the 2005B EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any 2005B EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. Terms used and not defined in this Section and in § 10.36 shall have the respective meanings given to them in the Fourth Supplemental Indenture.”

“ § 10.36 . In the case of the redemption of the 2038 Series XX Bonds out of monies deposited with the Trustee pursuant to § 8.08, such 2038 Series XX Bonds shall, upon compliance with provisions of § 10.02, and subject to the provisions of § 4.1 of the Fourth Supplemental Indenture, be redeemable at the principal amounts thereof, together with the interest accrued to the date fixed for redemption without premium.”

ARTICLE VI

2059 SERIES YY BONDS

§ 6.1. There shall be a seventeenth series of Bonds under the Indenture, known as and entitled “First Mortgage Bonds, Series YY due 2059” or “First Mortgage Bonds, Series YY” (herein and in the Indenture referred to as the “ 2059 Series YY Bonds ”), and the form thereof shall contain suitable provisions with respect to the matters hereinafter in this Section specified and shall in other respects be substantially as set forth in Exhibit A to the Indenture.

The aggregate principal amount of 2059 Series YY Bonds which may be authenticated and delivered and outstanding under the Indenture is $15,000,000.

The 2059 Series YY Bonds shall be payable to the EDA Loan Trustee, and shall be nontransferable except to a successor of the EDA Loan Trustee.

The 2059 Series YY Bonds shall bear interest at the minimum rate per annum necessary to yield interest in amounts sufficient, when taken together with other amounts available therefor under the EDA Bond Indenture, to pay the interest from time to time payable on the 2005C EDA Bonds, computed on the same basis as the 2005C EDA Bonds (interest on overdue principal and premium, if any, and, to the extent legally enforceable, interest, being at the rate provided in the EDA Bond Indenture), but in no event shall the interest rate on the 2059 Series YY Bonds exceed ten percent (10%) per annum; and the 2059 Series YY Bonds shall mature on April 1, 2059, subject to prior redemption as described herein.

The 2059 Series YY Bonds shall be in the form of registered Bonds without coupons of denominations of $5,000 and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2059 Series YY Bonds shall be dated (i) as of the Interest Payment Date (as that term is defined in the EDA Bond Indenture) next preceding the date on which such 2059 Series YY Bonds shall be authenticated, unless such 2059 Series YY Bonds are authenticated before the first Interest Payment Date, in which case such 2059 Series YY Bonds shall be the Effective Date (as that term is defined in the EDA Bond Indenture) or, (ii) if such date of authentication shall be an Interest Payment Date, such 2059 Series YY Bonds shall be dated such Interest Payment Date; provided, however, that, if at the time of authentication of any 2059 Series YY Bonds interest is in default on the 2059 Series YY Bonds, such 2059 Series YY Bonds shall be dated as of the Interest Payment Date to which interest has previously been paid or made available for payment on the 2059 Series YY Bonds. All 2059 Series YY Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2059 Series YY Bonds, on the first business day preceding each date on which interest shall from time to time be payable on the 2005C EDA Bonds; provided, that the obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on the 2059 Series YY Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, premium, if any, and interest on any of the 2005C EDA Bonds shall have been fully or partially paid from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in the principal and interest account for the 2005C EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any of the 2005C EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. The principal of and the premium, if any, and interest on the 2059 Series YY Bonds shall be payable at the principal office of the Trustee, in the Town of Edison, New Jersey, or, at the option of the Company, at the “Corporate Trust Office” (as that term is defined in the EDA Bond Indenture) of the EDA Loan Trustee, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts.

Notwithstanding any other provision of the Indenture or of the 2059 Series YY Bonds, payments of the principal of, premium, if any, and interest on any 2059 Series YY Bond may be made directly to the registered holder thereof without presentation or surrender thereof or the making

of any notation thereon if there shall be filed with the Trustee a Certificate of the Company to the effect that such registered holder (or the person for whom such registered holder is a nominee) and the Company have entered into a written agreement that payment shall be so made; provided, however, that before such registered holder transfers or otherwise disposes of any 2059 Series YY Bond, such registered holder will, at its election, either endorse thereon (or on a paper annexed thereto) the principal amount thereof redeemed and the last date to which interest has been paid thereon or make such Bond available to the Company at the principal office of the Trustee for the purpose of making such endorsement thereon.

The 2059 Series YY Bonds shall be subject to redemption at the option of the Company or otherwise, and shall be subject to mandatory redemption, in the manner provided in the applicable provisions of Article Ten of the Indenture, as amended by Article VII of this Fourth Supplemental Indenture.

The 2059 Series YY Bonds shall be excluded from the benefits of, and shall not be subject to redemption through the operation of, a Mandatory Sinking Fund pursuant to § 11.02 of the Indenture.

Notwithstanding the provisions of § 10.02 or any other provision of the Indenture, the selection of 2059 Series YY Bonds to be redeemed shall, in case fewer than all of the outstanding 2059 Series YY Bonds are to be redeemed, be made by the Trustee pro rata (to the nearest multiple of $5,000) among the registered holders of the 2059 Series YY Bonds in proportion, as nearly as practicable, to the respective unpaid principal amounts of 2059 Series YY Bonds registered in the names of such holders, with adjustments, to the extent practicable, to compensate for any prior redemption not made exactly in such proportion (or otherwise as may be specified by a written order signed by the registered holders of all outstanding 2059 Series YY Bonds).

The definitive 2059 Series YY Bonds may be issued in the form of engraved Bonds or Bonds printed or lithographed on steel engraved borders or Bonds in typed form on normal bond paper. Subject to the foregoing provisions of this Section and the provisions of § 2.11 of the Indenture, all definitive 2059 Series YY Bonds shall be fully exchangeable for other Bonds of the same series, of like aggregate principal amounts, and, upon surrender to the Trustee at its principal office, shall be exchangeable for other Bonds of the same series of a different authorized denomination or denominations, as requested by the holder surrendering the same. The Company will execute, and the Trustee shall authenticate and deliver, registered Bonds without coupons, whenever the same shall be required for any such exchange.

§ 6.2. 2059 Series YY Bonds in the aggregate principal amount of $15,000,000 may forthwith upon the execution and delivery of this Fourth Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee, and shall thereupon be authenticated and delivered by the Trustee upon compliance by the Company with the provisions of Articles Four, Five or Six of the Indenture, without awaiting the filing or recording of this Fourth Supplemental Indenture. No additional 2059 Series YY Bonds shall be issued under Article Four, Five or Six of the Indenture without the consent in writing of the holders of all the outstanding 2059 Series YY Bonds.

ARTICLE VII

REDEMPTION OF THE 2059 SERIES YY BONDS

§ 7.1. The following § 10.37 and § 10.38 be and they hereby are added to Article Ten of the Indenture:

“ § 10.37 . The 2059 Series YY Bonds shall be subject to redemption as follows: payments of principal of and premium, if any, on the 2059 Series YY Bonds shall be made to the EDA Loan Trustee to redeem 2059 Series YY Bonds in such amounts as shall be necessary, in accordance with the provisions of the Loan Agreement, to provide funds under the Loan Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the 2005C EDA Bonds) and (b) make, when due, any prepayment required by the Loan Agreement in connection with any mandatory, special mandatory, optional or extraordinary optional redemption of 2005C EDA Bonds; provided, however, that the obligation of the Company to make any redemption payments under this Section shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the 2005C EDA Bonds shall have been fully or partially made from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in a redemption account or subaccount for the 2005C EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any 2005C EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. Terms used and not defined in this Section and in § 10.38 shall have the respective meanings given to them in the Fourth Supplemental Indenture.”

“ § 10.38 . In the case of the redemption of the 2059 Series YY Bonds out of monies deposited with the Trustee pursuant to § 8.08, such 2059 Series YY Bonds shall, upon compliance with provisions of § 10.02, and subject to the provisions of § 6.1 of the Fourth Supplemental Indenture, be redeemable at the principal amounts thereof, together with the interest accrued to the date fixed for redemption without premium.”

ARTICLE VIII

MISCELLANEOUS

§ 8.1. The Company is lawfully seized and possessed of all the real estate, franchises and other property described or referred to in the Indenture (except properties released from the lien of the Indenture pursuant to the provisions thereof) as presently mortgaged, subject to the exceptions stated therein, such real estate, franchises and other property are free and clear of any lien prior to the lien of the Indenture except as set forth in the Granting Clauses of the Indenture and the Company has good right and lawful authority to mortgage the same as provided in and by the Indenture.

§ 8.2. The Trustee assumes no duties, responsibilities or liabilities by reason of this Fourth Supplemental Indenture other than as set forth in the Indenture, and this Fourth Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions of its acceptance of the trust under the Indenture, as fully as if said terms and conditions were herein set forth at length.

§ 8.3. The terms used in this Fourth Supplemental Indenture shall have the meanings assigned thereto in the Indenture. Reference by number in this Fourth Supplemental Indenture to Articles or Sections shall be construed as referring to Articles or Sections contained in the Indenture, unless otherwise stated.

§ 8.4. As amended and modified by this Fourth Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Indenture and this Fourth Supplemental Indenture shall be read, taken and construed as one and the same instrument.

§ 8.5. Neither the approval by the Board of Public Utilities of the State of New Jersey of the execution and delivery of this Fourth Supplemental Indenture nor the approval by said Board of the issue of any Bonds under the Indenture shall in any way be construed as the approval by said Board of any other act, matter or thing which requires approval of said Board under the laws of the State of New Jersey; nor shall approval by said Board of the issue of any Bonds under the Indenture bind said Board or any other public body or authority of the State of New Jersey having jurisdiction in the premises in any future application for the issue of Bonds under the Indenture or otherwise.

§ 8.6. This Fourth Supplemental Indenture may be executed in any number of counterparts and all said counterparts executed and delivered each as an original shall constitute but one and the same instrument.

NEW JERSEY NATURAL GAS COMPANY HEREBY DECLARES THAT IT HAS READ THIS FOURTH SUPPLEMENTAL INDENTURE, HAS RECEIVED A COMPLETELY FILLED-IN TRUE COPY OF IT WITHOUT CHARGE AND HAS SIGNED THIS FOURTH SUPPLEMENTAL INDENTURE ON THE DATE CONTAINED IN ITS ACKNOWLEDGEMENT HEREOF.

IN WITNESS WHEREOF, NEW JERSEY NATURAL GAS COMPANY has caused these presents to be signed in its corporate name by its President, a Vice President or its Treasurer and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and U.S. BANK NATIONAL ASSOCIATION, in evidence of its acceptance of the trust hereby created, has caused these presents to be signed in its corporate name by one of its Vice Presidents.

NEW JERSEY NATURAL GAS COMPANY

By: /s/ Mark G. Kahrer

Name: Mark G. Kahrer

Title: Vice President - Regulatory Affairs

[Corporate Seal]

ATTEST:

/s/ Richard Reich

Name: Richard Reich

Title: Corporate Secretary

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By: /s/ Christopher E. Golabek

Name: Christopher E. Golabek

Title: Vice President

ATTEST:

/s/ Stephanie Roche

Name: Stephanie Roche

Title: Vice President

STATE OF NEW JERSEY )

) SS:

COUNTY OF MONMOUTH )

BE IT REMEMBERED that on this 11th day of April, 2019, before me, the subscriber, an Attorney-at-Law of the State of New Jersey, and I hereby certify that I am such an Attorney-at-Law as witness my hand, personally appeared Richard Reich to me known who, being by me duly sworn according to law, on his oath, does depose and make proof to my satisfaction that he is the Corporate Secretary of NEW JERSEY NATURAL GAS COMPANY, the grantor or mortgagor in the foregoing Supplemental Indenture named; that he well knows the seal of said corporation; that the seal affixed to said Supplemental Indenture is the corporate seal of said corporation, and that it was so affixed in pursuance of resolutions of the Board of Directors of said corporation; that Mark G. Kahrer is Vice President - Regulatory Affairs of said corporation; that he saw said Mark G. Kahrer, as such Vice President - Regulatory Affairs, affix said seal thereto, sign and deliver said Supplemental Indenture, and heard him declare that he signed, sealed and delivered the same as the voluntary act and deed of said corporation, in pursuance of said resolutions, and that this deponent signed his name thereto, at the same time, as attesting witness.

/s/ Richard Reich

Name: Richard Reich

Title: Corporate Secretary

Subscribed and sworn to before me,

an Attorney-at-Law of the State of

New Jersey, at Wall, New Jersey,

the day and year aforesaid.

/s/ Alexander Gonzalez

Name: Alexander Gonzalez

Attorney-at-Law of the

State of New Jersey

ACKNOWLEDGEMENT

STATE OF NEW JERSEY )

) ss:

COUNTY OF MIDDLESEX )

I HEREBY CERTIFY that on this 10th of April, 2019, before me, a Notary Public for the state aforesaid, personally appeared Christopher E. Golabek, known to me or satisfactorily proven to be the Person whose name is subscribed to the Fourth Supplemental Indenture dated as of April 1, 2019, who acknowledged that he is an authorized signatory for U.S. Bank National Association, a national banking association, as Trustee; that he has been duly authorized to execute, and has executed, such instrument on its behalf for the purposes therein set forth; and that the same is its act and deed.

IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and year first above written.

/s/ Denise M. Kellerk

Notary Public

My commission expires on 2/15/2024

EXHIBIT 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Laurence M. Downes, certify that:


1)	I have reviewed this report on Form 10-Q of New Jersey Resources Corporation;


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5)	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	May 3, 2019	By:	/s/ Laurence M. Downes
			Laurence M. Downes
			Chairman & Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick Migliaccio, certify that:


1)	I have reviewed this report on Form 10-Q of New Jersey Resources Corporation;


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5)	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	May 3, 2019	By:	/s/ Patrick Migliaccio
			Patrick Migliaccio
			Senior Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Laurence M. Downes hereby certifies as follows:


(a)	I am the Chief Executive Officer of New Jersey Resources Corporation (the "Company");


(b)	To the best of my knowledge, this quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2019 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(c)	To the best of my knowledge, based upon a review of this report, the information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	May 3, 2019	By:	/s/ Laurence M. Downes
			Laurence M. Downes
			Chairman and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Patrick Migliaccio hereby certifies as follows:


(a)	I am the Chief Financial Officer of New Jersey Resources Corporation (the "Company");


(b)	To the best of my knowledge, this quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2019 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(c)	To the best of my knowledge, based upon a review of this report, the information contained in this periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	May 3, 2019	By:	/s/ Patrick Migliaccio
			Patrick Migliaccio
			Senior Vice President and Chief Financial Officer