Notes to Consolidated Financial Statements
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1.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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GENERAL - South Jersey Industries, Inc. (SJI or the Company) currently provides a variety of energy-related products and services primarily through the following wholly-owned subsidiaries:
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South Jersey Gas Company (SJG) is a regulated natural gas utility. SJG distributes natural gas in the
seven
southernmost counties of New Jersey.
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South Jersey Energy Company (SJE) acquires and markets natural gas and electricity to retail end users and provides total energy management services to commercial, industrial and residential customers.
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South Jersey Resources Group, LLC (SJRG) markets natural gas storage, commodity and transportation assets along with fuel management services on a wholesale basis in the mid-Atlantic, Appalachian and southern states.
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South Jersey Exploration, LLC (SJEX) owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania.
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Marina Energy, LLC (Marina) develops and operates on-site energy-related projects. The significant wholly-owned subsidiaries of Marina include:
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ACB Energy Partners, LLC (ACB) owns and operates a natural gas fueled combined heating, cooling and power facility located in Atlantic City, New Jersey.
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AC Landfill Energy, LLC (ACLE), BC Landfill Energy, LLC (BCLE), SC Landfill Energy, LLC (SCLE) and SX Landfill Energy, LLC (SXLE) own and operate landfill gas-fired electric production facilities in Atlantic, Burlington, Salem and Sussex Counties in New Jersey.
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MCS Energy Partners, LLC (MCS), NBS Energy Partners, LLC (NBS) and SBS Energy Partners, LLC (SBS) own and operate solar-generation sites located in New Jersey.
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South Jersey Energy Service Plus, LLC (SJESP) services residential and small commercial HVAC systems, installs small commercial HVAC systems, provides plumbing services and services appliances under warranty via a subcontractor arrangement as well as on a time and materials basis.
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SJI Midstream, LLC invests in infrastructure and other midstream projects, including a current project to build a
100
-mile natural gas pipeline in Pennsylvania and New Jersey.
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BASIS OF PRESENTATION - The consolidated financial statements include the accounts of SJI, its wholly-owned subsidiaries and subsidiaries in which SJI has a controlling interest. SJI eliminates all significant intercompany accounts and transactions. In management's opinion, the consolidated financial statements reflect all normal and recurring adjustments needed to fairly present SJI's financial position, operating results and cash flows at the dates and for the periods presented.
Certain reclassifications have been made to the prior period's consolidated balance sheets, as well as the prior period's long-term debt carrying value and the prior period's segment disclosures in Notes 7 and 8, respectively, to conform to the current period presentation. The unamortized debt issuance costs previously included in "Regulatory and Other Noncurrent Assets" on the consolidated balance sheets were reclassified to "Long-Term Debt" to conform to ASU 2015-03, which is described below under "New Accounting Pronouncements." This reclassification caused the prior periods long-term debt carrying value in Note 7 to be adjusted, along with the prior periods unamortized debt issuance costs recorded as Identifiable Assets in the Gas Utility Operations, On-Site Energy Production and Corporate and Services segments in Note 8 to be removed.
On February 26, 2015, the Board of Directors approved an amendment to SJI's Certificate of Incorporation to increase the authorized number of shares of common stock from
60,000,000
shares to
120,000,000
shares. The principal purpose of the increase was to permit a
two
-for-one split of all the issued shares of SJI's common stock, effected pursuant to a stock dividend of one share of common stock for each outstanding share of common stock, payable May 8, 2015 to shareholders of record at the close of business on April 17, 2015. All references to number of shares and per share information in the consolidated financial statements and related notes have been adjusted for all periods presented to reflect this stock split.
South Jersey Industries, Inc.
Part II
EQUITY INVESTMENTS - Marketable equity securities that are purchased as long-term investments are classified as Available-for-Sale Securities and carried at their fair value on the consolidated balance sheets. Any unrealized gains or losses are included in Accumulated Other Comprehensive Loss. SJI, through wholly owned subsidiaries, holds significant variable interests in several companies but is not the primary beneficiary. Consequently, these investments are accounted for under the equity method. In the event that losses and/or distributions from these equity method investments exceed the carrying value, and the Company is obligated to provide additional financial support, the excess will be recorded as either a current or non-current liability on the consolidated balance sheets. We include the operations of these affiliated companies on a pre-tax basis in the statements of consolidated income under Equity in Earnings (Loss) of Affiliated Companies (see Note 3). An impairment loss is recorded when there is clear evidence that a decline in value is other than temporary. In 2015, the Company recorded a
$7.7 million
(net of tax) non-cash charge to earnings due to the reduction in the carrying value of an investment in a project entered into by Energenic (see Note 7). No impairment losses were recorded on Investments during
2016
or 2014.
ESTIMATES AND ASSUMPTIONS - We prepare our consolidated financial statements to conform with accounting principles generally accepted in the United States of America (GAAP). Management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and related disclosures. Therefore, actual results could differ from those estimates. Significant estimates include amounts related to regulatory accounting, energy derivatives, environmental remediation costs, pension and other postretirement benefit costs, and revenue recognition.
REGULATION - SJG is subject to the rules and regulations of the New Jersey Board of Public Utilities (BPU). See Note 10 for a detailed discussion of SJG's rate structure and regulatory actions. SJG maintains its accounts according to the BPU's prescribed Uniform System of Accounts. SJG follows the accounting for regulated enterprises prescribed by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 980 -”Regulated Operations.” In general, Topic 980 allows for the deferral of certain costs (regulatory assets) and creation of certain obligations (regulatory liabilities) when it is probable that such items will be recovered from or refunded to customers in future periods. See Note 11 for a detailed discussion of regulatory assets and liabilities.
OPERATING REVENUES - Gas and electric revenues are recognized in the period the commodity is delivered to customers. For SJG and SJE retail customers that are not billed at the end of the month, we record an estimate to recognize unbilled revenues for gas and electricity delivered from the date of the last meter reading to the end of the month. SJRG's gas revenues are recognized in the period the commodity is delivered. Realized and unrealized gains and losses on energy-related derivative instruments are also recognized in operating revenues for SJRG. See further discussion under Derivative Instruments. SJRG presents revenues and expenses related to its energy trading activities on a net basis in operating revenues. This net presentation has no effect on operating income or net income. We recognize revenues related to SJESP appliance service contracts on a monthly basis as work is completed or commissions are earned. Revenue related to services provided on a time and materials basis is recognized on a monthly basis as the services are provided. Marina recognizes revenue on a monthly basis as services are provided, as lease income is earned, and for on-site energy production that is delivered to its customers.
REVENUE AND THROUGHPUT-BASED TAXES — SJG collects certain revenue-based energy taxes from its customers. Such taxes include New Jersey State Sales Tax and Public Utilities Assessment (PUA). State sales tax is recorded as a liability when billed to customers and is not included in revenue or operating expenses. The PUA is included in both utility revenue and energy and other taxes and totaled
$1.1 million
,
$1.2 million
, and
$1.1 million
in
2016
,
2015
and
2014
, respectively.
ACCOUNTS RECEIVABLE AND PROVISION FOR UNCOLLECTIBLE ACCOUNTS - Accounts receivable are carried at the amount owed by customers. A provision for uncollectible accounts is established based on our collection experience and an assessment of the collectibility of specific accounts.
NATURAL GAS IN STORAGE – Natural Gas in Storage is reflected at average cost on the consolidated balance sheets, and represents natural gas that will be utilized in the ordinary course of business.
ASSET RETIREMENT OBLIGATIONS - The amounts included under Asset Retirement Obligations (ARO) are primarily related to the legal obligations the Company has to cut and cap gas distribution pipelines when taking those pipelines out of service in future years. These liabilities are generally recognized upon the acquisition or construction of the asset. The related asset retirement cost is capitalized concurrently by increasing the carrying amount of the related asset by the same amount as the liability. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO.
South Jersey Industries, Inc.
Part II
ARO activity was as follows (in thousands):
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2016
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2015
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AROs as of January 1,
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$
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57,943
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$
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42,502
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Accretion
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1,937
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1,675
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Additions
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1,098
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802
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Settlements
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(1,551
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(1,110
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)
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Revisions in Estimated Cash Flows (A)
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—
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14,074
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ARO's as of December 31,
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$
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59,427
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$
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57,943
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(A) The revision in estimated cash flows reflects an increase in the contractual cost to settle ARO. A corresponding increase was made to Regulatory Assets, thus having no impact on earnings.
PROPERTY, PLANT AND EQUIPMENT - For regulatory purposes, utility plant is stated at original cost, which may be different than SJG's cost if the assets were acquired from another regulated entity. Nonutility plant is stated at cost. The cost of adding, replacing and renewing property is charged to the appropriate plant account. As of December 31,
2016
, SJG's utility plant had a gross book value of
$2.4 billion
, which consists of utility plant assets along with projects for distribution, some of which are part of SJG's Accelerated Infrastructure Replacement Program (AIRP), as discussed in Note 10. As of December 31, 2016, the gross book value of SJI's nonutility property and equipment is
$821.9 million
, which consists of
$652.8 million
of solar assets,
$124.2 million
of cogeneration assets and
$44.9 million
of other property and equipment.
DEPRECIATION - We depreciate utility plant on a straight-line basis over the estimated remaining lives of the various property classes. These estimates are periodically reviewed and adjusted as required after BPU approval. The composite annual rate for all depreciable utility property was approximately
2.2%
in each of
2016
,
2015
and
2014
. The actual composite rate may differ from the approved rate as the asset mix changes over time. Except for retirements outside of the normal course of business, accumulated depreciation is charged with the cost of depreciable utility property retired, less salvage. Nonutility property depreciation is computed on a straight-line basis over the estimated useful lives of the property, ranging up to
50
years. Gain or loss on the disposition of nonutility property is recognized in operating income. As of December 31, 2016, total accumulated deprecation for utility and nonutility property and equipment was
$471.2 million
and
$151.1 million
, respectively.
CAPITALIZED INTEREST - SJG capitalizes interest on construction at the rate of return on the rate base utilized by the BPU to set rates in SJG's last base rate proceeding. For SJG's accelerated infrastructure programs, SJG capitalizes interest on construction at a rate prescribed by the programs (see Note 10), and amounts are included in Utility Plant on the consolidated balance sheets. Marina and Midstream capitalize interest on capital projects in progress based on the actual cost of borrowed funds, and amounts are included in Nonutility Property and Equipment on the consolidated balance sheets. Interest Charges are presented net of capitalized interest on the statements of consolidated income. The amount of interest capitalized by SJI for the years ended
December 31, 2016
,
2015
and
2014
was
$6.6 million
,
$4.9 million
and
$4.6 million
, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - We review the carrying amount of long-lived assets for possible impairment whenever events or changes in circumstances indicate that such amounts may not be recoverable. For the years ended December 31, 2016, 2015 and 2014, no significant impairments were identified.
DERIVATIVE INSTRUMENTS - SJI accounts for derivative instruments in accordance with FASB ASC Topic 815 - “Derivatives and Hedging.” We record all derivatives, whether designated in hedging relationships or not, on the consolidated balance sheets at fair value unless the derivative contracts qualify for the normal purchase and sale exemption. In general, if the derivative is designated as a fair value hedge, we recognize the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk in earnings. We currently have no fair value hedges. If the derivative is designated as a cash flow hedge, we record the effective portion of the hedge in Accumulated Other Comprehensive Loss and recognize it in the income statement when the hedged item affects earnings. We recognize ineffective portions of the cash flow hedges immediately in earnings. We currently have no cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives, strategies for undertaking various hedge transactions and our methods for assessing and testing correlation and hedge ineffectiveness. All hedging instruments are linked to the hedged asset, liability, firm commitment or forecasted transaction. Due to the application of regulatory accounting principles under FASB ASC Topic 980, gains and losses on derivatives related to SJG's gas purchases are recorded through the Basic Gas Supply Service (BGSS) clause.
South Jersey Industries, Inc.
Part II
Initially and on an ongoing basis, we assess whether derivatives designated as hedges are highly effective in offsetting changes in cash flows or fair values of the hedged items. We discontinue hedge accounting prospectively if we decide to discontinue the hedging relationship; determine that the anticipated transaction is no longer likely to occur; or determine that a derivative is no longer highly effective as a hedge. In the event that hedge accounting is discontinued, we will continue to carry the derivative on the balance sheet at its current fair value and recognize subsequent changes in fair value in current period earnings. Unrealized gains and losses on the discontinued hedges that were previously included in Accumulated Other Comprehensive Loss will be reclassified into earnings when the forecasted transaction occurs, or when it is probable that it will not occur. Hedge accounting has been discontinued for all remaining derivatives that were designated as hedging instruments.
GAS EXPLORATION AND DEVELOPMENT - The Company capitalizes all costs associated with gas property acquisition, exploration and development activities under the full cost method of accounting. Capitalized costs include costs related to unproved properties, which are not amortized until proved reserves are found or it is determined that the unproved properties are impaired. All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred.
No
impairment charges were recorded during the years ended December 31, 2016, 2015 and 2014. As of
December 31, 2016
and
2015
,
$8.8 million
and
$8.9 million
, respectively, related to interests in proved and unproved properties in Pennsylvania, net of amortization, is included with Nonutility Property and Equipment and Other Noncurrent Assets on the consolidated balance sheets.
TREASURY STOCK – SJI uses the par value method of accounting for treasury stock. As of
December 31, 2016
and
2015
, SJI held
212,617
and
236,571
shares of treasury stock, respectively. These shares are related to deferred compensation arrangements where the amounts earned are held in the stock of SJI.
INCOME TAXES - Deferred income taxes are provided for all significant temporary differences between the book and taxable bases of assets and liabilities in accordance with FASB ASC Topic 740 - “Income Taxes” (See Note 4). A valuation allowance is established when it is determined that it is more likely than not that a deferred tax asset will not be realized. Investment tax credits related to renewable energy facilities of Marina are recognized on the flow-through method.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, highly liquid investments with original maturities of three months or less are considered cash equivalents.
IDENTIFIABLE INTANGIBLE ASSETS - Identifiable intangible assets were acquired as part of the acquisition of Energenic projects as discussed in Note 3 and are a part of the On-Site Energy Production segment. The primary identifiable intangible assets of the Company are customer relationships. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Considerations may include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives (finite-lived intangible assets) are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from
2
to
20
years. The cost of identifiable intangible assets of
$15.8 million
and
$21.6 million
are included in Noncurrent Assets on the consolidated balance sheets as of December 31, 2016 and 2015, respectively. The decrease in intangible assets of
$5.7 million
was attributable to the finalization of the purchase price allocation (see Note 3), which resulted in an adjustment of
$4.6 million
, along with amortization expense recorded during 2016 of
$1.1 million
. No amortization was recorded on these assets during 2015.
GOODWILL - Goodwill was acquired as part of the acquisition of Energenic projects as discussed in Note 3 and is a part of the On-Site Energy Production segment. Goodwill represents the excess of the consideration paid over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. The Company performed its annual goodwill impairment test in the fourth quarter of 2016 using a qualitative analysis at the reporting unit level. The reporting unit level is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. Factors utilized in the qualitative analysis performed on goodwill in our reporting units include, among other things, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, company specific operating results and other relevant entity-specific events affecting individual reporting units.The Company concluded based on the results of the annual testing performed that the carrying value of goodwill was not impaired as of December 31, 2016.
South Jersey Industries, Inc.
Part II
Goodwill of
$4.8 million
and
$8.9 million
is included in Noncurrent Assets on the consolidated balance sheets as of December 31, 2016 and 2015, respectively. The following table summarizes the changes in Goodwill for the year ended
December 31, 2016
(in thousands):
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2016
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Beginning Balance, January 1
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$
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8,880
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Fair Value Adjustments During Measurement Period (See Note 3)
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(4,042
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)
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Ending Balance, December 31
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$
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4,838
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NEW ACCOUNTING PRONOUNCEMENTS - Other than as described below, no new accounting pronouncement issued or effective during
2016
,
2015
or
2014
had, or is expected to have, a material impact on the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606).
This ASU supersedes the revenue recognition requirements in FASB ASC 605,
Revenue Recognition
, and in most industry-specific topics. The new guidance identifies how and when entities should recognize revenue. The new rules establish a core principle requiring the recognition of revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. In connection with this new standard, the FASB has issued several amendments to ASU 2014-09, as follows:
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In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
. This standard improves the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.
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In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. This standard clarifies identifying performance obligations and the licensing implementation guidance.
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In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. This standard provides additional guidance on (a) the objective of the collectibility criterion, (b) the presentation of sales tax collected from customers, (c) the measurement date of non-cash consideration received, (d) practical expedients in respect of contract modifications and completed contracts at transition, and (e) disclosure of the effects of the accounting change in the period of adoption.
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In December 2016, the FASB issued ASU No. 2016-20,
Technical Corrections and Improvements to (Topic 606), Revenue from Contracts with Customers
, which amends certain narrow aspects of the guidance including the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.
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The new guidance in ASU 2014-09, as well as all amendments discussed above, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Management has formed an implementation team that is currently evaluating the impact that adoption of this guidance will have on the Company's financial statement results. Based on the review of customer contracts to date, the Company is not anticipating a material impact to its statements of consolidated income, cash flows or consolidated balance sheets upon adoption. The Company expects to transition to the new guidance using the modified retrospective approach.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.
The new guidance requires management of a company to evaluate whether there is substantial doubt about the company's ability to continue as a going concern. This ASU is effective for the annual reporting period ending after December 15, 2016, and for interim and annual reporting periods thereafter, with early adoption permitted. Adoption of this guidance did not have an impact on the Company's financial statement results.
South Jersey Industries, Inc.
Part II
In February 2015, the FASB issued ASU 2015-02,
Consolidation (Topic 810) - Amendments to the Consolidation Analysis
, which changes the analysis to be performed in determining whether certain types of legal entities should be consolidated. Specifically, the standard amends the evaluation of whether (a) fees paid to a decision maker or a service provider represent a variable interest, (b) a limited partnership or similar entity has the characteristics of a Variable Interest Entity ("VIE") and (c) a reporting entity is the primary beneficiary of a VIE. The standard was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. Adoption of this guidance did not have an impact on the Company's financial statement results.
In April 2015, the FASB issued ASU 2015-03,
Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
. This ASU requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The standard was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Adoption of this guidance did not have an impact on the Company's results of operations; however, balance sheet presentations were modified to conform to this guidance, as described under "Basis of Presentation" above.
Also in April 2015, the FASB issued ASU 2015-05,
Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)
. This ASU provides guidance to customers (a) in determining whether a cloud computing arrangement includes a software license, and (b) on how the arrangement should be accounted for, depending on whether or not it includes a software license. The amended guidance was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Adoption of this guidance did not have an impact on the Company's financial statement results.
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
. This ASU states that inventory for which cost is determined using a method other than last-in, first-out (LIFO) or the retail method should be subsequently measured at the lower of cost or net realizable value (NRV), rather than at the lower of cost or market. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
, which enhances the reporting model for financial instruments and includes amendments to address aspects of recognition, measurement, presentation and disclosure. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for only certain portions of the new guidance. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which establishes a new lease accounting model for lessees. The new standard requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new standard also will result in enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing leases. The accounting for leases by the lessor remains relatively the same. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In March 2016, the FASB issued ASU 2016-05,
Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
. The amendments in this guidance clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In March 2016, the FASB issued ASU 2016-07,
Investments- Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,
which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
South Jersey Industries, Inc.
Part II
In March 2016, the FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which simplifies various aspects of accounting for share-based payment arrangements. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
This standard is intended to provide guidance concerning the classification of certain cash receipts and cash payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. This standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740); Intra-Entity Transfers of Assets Other Than Inventory.
This standard requires recognition of the current and deferred income tax effects of an intra-entity asset transfer, other than inventory, when the transfer occurs, as opposed to current GAAP, which requires companies to defer the income tax effects of intra-entity asset transfers until the asset has been sold to an outside party. The income tax effects of intra-entity inventory transfers will continue to be deferred until the inventory is sold. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. The standard is required to be adopted on a modified retrospective basis with a cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. This standard is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash on the consolidated statement of cash flows. The ASU requires that the consolidated statement of cash flows explain the change in total cash and cash equivalents and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The ASU also requires a reconciliation between the total of cash and equivalents and restricted cash presented on the consolidated statement of cash flows and the cash and cash equivalents balance presented on the consolidated balance sheets. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business.
This new standard provides amended and clarifying guidance regarding whether an integrated set of assets and activities acquired is deemed the acquisition of a business (and, thus, accounted for as a business combination) or the acquisition of assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. The amendments in this Update are effective for annual and any interim impairment tests performed in periods beginning after December 31, 2019. Management is currently determining the impact that adoption of this guidance will have on the Company's financial statement results.
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2.
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STOCK-BASED COMPENSATION PLAN:
|
On April 30, 2015, the shareholders of SJI approved the adoption of the Company's 2015 Omnibus Equity Compensation Plan (Plan), replacing the Amended and Restated 1997 Stock-Based Compensation Plan that had terminated on January 26, 2015. Under the Plan, shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. No options were granted or outstanding during the years ended
December 31, 2016
,
2015
and
2014
. No stock appreciation rights have been issued under the plans. During the years ended
December 31, 2016
,
2015
and
2014
, SJI granted
194,347
,
158,929
and
136,526
restricted shares, respectively, to Officers and other key employees under the plans. Performance-based restricted shares vest over a
three
-year period and are subject to SJI achieving certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from
0% to 200%
of the original share units granted.
South Jersey Industries, Inc.
Part II
Beginning in 2015, SJI began granting time-based shares of restricted stock, one-third of which vests annually over a
three
-year period and is limited to
100%
payout. Vesting of time-based grants is contingent upon SJI achieving a return on equity (ROE) of at least
7%
during the initial year of the grant and meeting the service requirement. Provided that the
7%
ROE requirement is met in the initial year, payout is solely contingent upon the service requirement being met in years
two
and
three
of the grant. In 2016 and 2015, Officers and other key employees were granted
58,304
and
47,678
shares of time-based restricted stock, respectively, which are included in the shares noted above.
Grants containing market-based performance targets use SJI's total shareholder return (TSR) relative to a peer group to measure performance. As TSR-based grants are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant on a straight-line basis over the requisite three-year period of each award. In addition, SJI identifies specific forfeitures of share-based awards, and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of performance goals. The fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.
Through 2014, grants containing earnings-based targets were based on SJI's earnings growth rate per share (EGR) relative to a peer group to measure performance. In 2015, earnings-based performance targets included predefined EGR and ROE goals to measure performance. Beginning in 2016, performance targets include pre-defined compounded earnings annual growth rate (CEGR) for SJI. As EGR-based, ROE-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.
SJI granted
35,197
,
26,338
and
23,220
restricted shares to Directors in
2016
,
2015
and
2014
, respectively. Shares issued to Directors vest over twelve months and contain no performance conditions. As a result,
100%
of the shares granted generally vest.
The following table summarizes the nonvested restricted stock awards outstanding at
December 31, 2016
, and the assumptions used to estimate the fair value of the awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants
|
|
Shares Outstanding
|
|
Fair Value Per Share
|
|
Expected Volatility
|
|
Risk-Free Interest Rate
|
Officers & Key Employees -
|
2015 - TSR
|
|
33,537
|
|
|
$
|
26.31
|
|
|
16.0
|
%
|
|
1.10
|
%
|
|
2015 - EGR, ROE, Time
|
|
73,118
|
|
|
$
|
29.47
|
|
|
N/A
|
|
|
N/A
|
|
|
2016 - TSR
|
|
66,101
|
|
|
$
|
22.53
|
|
|
18.1
|
%
|
|
1.31
|
%
|
|
2016 - CEGR, Time
|
|
122,759
|
|
|
23.52
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Directors -
|
2016
|
|
35,197
|
|
|
$
|
23.88
|
|
|
N/A
|
|
|
N/A
|
|
Expected volatility is based on the actual volatility of SJI’s share price over the preceding
three
-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the
three
-year term of the Officers' and other key employees' restricted shares. As notional dividend equivalents are credited to the holders during the
three
-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the requisite service period, the fair value of these awards are equal to the market value of the shares on the date of grant.
South Jersey Industries, Inc.
Part II
The following table summarizes the total stock-based compensation cost for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Officers & Key Employees
|
$
|
3,051
|
|
|
$
|
1,128
|
|
|
$
|
1,260
|
|
Directors
|
841
|
|
|
769
|
|
|
633
|
|
Total Cost
|
3,892
|
|
|
1,897
|
|
|
1,893
|
|
|
|
|
|
|
|
Capitalized
|
(385
|
)
|
|
(216
|
)
|
|
(147
|
)
|
Net Expense
|
$
|
3,507
|
|
|
$
|
1,681
|
|
|
$
|
1,746
|
|
The table above reflects the reversal of approximately
$0.1 million
,
$1.2 million
and
$1.1 million
of previously recorded costs in 2016, 2015 and 2014, respectively. These reversals are associated with EPS-based grants for which performance goals were not met.
As of
December 31, 2016
, there was
$4.0 million
of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the plans. That cost is expected to be recognized over a weighted average period of
1.7
years.
The following table summarizes information regarding restricted stock award activity during
2016
, excluding accrued dividend equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Officers & Other Key Employees
|
|
Directors
|
|
Weighted
Average
Fair Value
|
Nonvested Shares Outstanding, January 1, 2016
|
226,191
|
|
|
26,338
|
|
|
$
|
26.89
|
|
Granted
|
194,347
|
|
|
35,197
|
|
|
$
|
23.28
|
|
Vested*
|
(113,917
|
)
|
|
(26,338
|
)
|
|
$
|
25.69
|
|
Cancelled/Forfeited**
|
(11,106
|
)
|
|
—
|
|
|
$
|
25.11
|
|
Nonvested Shares Outstanding, December 31, 2016
|
295,515
|
|
|
35,197
|
|
|
$
|
24.96
|
|
*Based on performance information available at the filing of this Report, management expects to award
29,044
shares associated with the 2014 grants to Officers and other key employees in 2017.
** Represents shares forfeited as a result of separation of employment prior to the satisfaction of service conditions.
Performance targets during the
three
-year vesting periods were not attained for the 2012 or 2013 Officer and other key employee grants that vested at December 31, 2014 and 2015, respectively. As a result,
no
shares were awarded in 2015 or 2016 associated with those grants. However, the initial performance hurdle for the 2015 time-based grant was met. As a result,
13,247
shares were awarded to Officers and other key employees in 2016 at a market value of
$0.3 million
. Also, during the years ended
December 31, 2016
,
2015
and
2014
, SJI granted
35,197
,
26,338
and
23,220
shares to its Directors at a market value of
$0.8 million
,
$0.8 million
and
$0.6 million
, respectively. The Company has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming nonforfeitable or immediately payable in cash. At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods. These deferred shares are included in Treasury Stock on the consolidated balance sheets.
South Jersey Industries, Inc.
Part II
|
|
3.
|
AFFILIATIONS AND DISCONTINUED OPERATIONS:
|
AFFILIATIONS — The following affiliated entities are accounted for under the equity method:
Energenic – US, LLC (Energenic) - Marina and a joint venture partner formed Energenic, in which Marina has a
50%
equity interest. Energenic developed and operated on-site, self-contained, energy-related projects.
On December 31, 2015, Energenic, Marina and its joint venture partner entered into
two
Equity Distribution and Purchase Agreements (the "Transaction"), pursuant to which Marina became the sole owner of
eight
of the Energenic projects ("Marina Projects") and its joint venture partner became the sole owner of
seven
other Energenic projects ("Partner Projects"). The Transaction has been accounted for as a distribution of member interests by Energenic to its owners and a business combination through the exchange of member interests in various projects between Marina and its joint venture partner. In connection with the exchange, the joint venture partner provided a
$19.5 million
note payable to Marina. The note and other existing obligations of the joint venture partner to Marina are included in Notes Receivable on the consolidated balance sheets, with approximately
$1.5 million
being included as a current asset as of December 31, 2016 as it is due within one year. This note is collateralized by security interests in various energy project assets owned by the joint venture partner, as well as personal guarantees from its principals.
As part of the transaction, each party is relieved of any guarantees related to the Projects in which it no longer has an ownership interest.
The projects that are now wholly-owned by Marina are ACB, ACLE, BCLE, SCLE, SXLE, MCS, NBS and SBS.
Through December 31, 2015, Marina’s investment in Energenic was accounted for under the equity method of accounting. As such, Marina’s share of the equity value of the projects was included within Investment in Affiliates on the consolidated balance sheets and Marina’s share of the loss or earnings from the projects was included within Equity in (Loss) Earnings of Affiliated Companies on the statements of consolidated income for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, the assets and liabilities of the projects that are now wholly-owned by Marina are consolidated into the consolidated balance sheets. Beginning in 2016, the respective results from operations and cash flows of the projects that are now wholly-owned by Marina are consolidated into the statements of consolidated income and cash flows, respectively. This transaction represents a non-cash investing and financing activity. The results of the acquired projects are included in the On-Site Energy Production segment.
The following table summarizes the final purchase price allocation and reflects
100%
of the fair values of the assets acquired and the liabilities assumed by the Company in connection with the Transaction. Total consideration for the step acquisition of the remaining interest in the Marina Projects was
$46.0 million
, which represents the fair value of the Company’s interest in the Partner Projects exchanged (
$31.5 million
) as well as the existing value of the Marina Projects immediately prior to the exchange (
$14.5 million
) (in thousands):
|
|
|
|
|
|
|
Current assets (excluding inventory)
|
$
|
7,804
|
|
Inventory
|
3,154
|
|
Note Receivable Received
|
19,504
|
|
Fixed Assets
|
46,460
|
|
Intangible Assets:
|
|
Identifiable Intangibles
|
16,950
|
|
Goodwill
|
4,838
|
|
Non-Current Assets
|
4,783
|
|
Current Liabilities
|
(8,196
|
)
|
Note Payable - Affiliate
|
(16,986
|
)
|
Long-Term Debt, including current portion
|
(21,642
|
)
|
Capital Lease Payable
|
(10,458
|
)
|
Other Non-Current Liabilities
|
(181
|
)
|
Fair Value of Consolidated Assets and Liabilities of Acquired Projects
|
$
|
46,030
|
|
The pro forma impact of this transaction on the operations of the Company is not significant.
South Jersey Industries, Inc.
Part II
Potato Creek, LLC (Potato Creek) - SJI and a joint venture partner formed Potato Creek, in which SJI has a
30%
equity interest. Potato Creek owns and manages the oil, gas and mineral rights of certain real estate in Pennsylvania.
PennEast Pipeline Company, LLC (PennEast) - Midstream has a
20%
investment in PennEast, which is planning to construct an approximately
100
-mile natural gas pipeline that will extend from Northeastern Pennsylvania into New Jersey, with a target completion of late 2018.
The Company made net investments in unconsolidated affiliates of
$7.5 million
and
$18.0 million
in 2016 and 2015, respectively. During 2014, the Company provided net advances to unconsolidated affiliates of
$2.4 million
. As of
December 31, 2016
and
2015
, the outstanding balance of Notes Receivable – Affiliate was
$15.7 million
and
$16.4 million
, respectively. As of
December 31, 2016
, approximately
$13.6 million
of these notes are secured by property, plant and equipment of the affiliates, accrue interest at
7.5%
and are to be repaid through
2025
, and the remaining
$2.1 million
of these notes are unsecured and accrue interest at variable rates.
SJI holds significant variable interests in these entities but is not the primary beneficiary. Consequently, these entities are accounted for under the equity method because SJI does not have both (a) the power to direct the activities of the entity that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses of the entity that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. As of
December 31, 2016
, the Company had a net asset of approximately
$28.9 million
included in Investment in Affiliates on the consolidated balance sheets related to equity method investees, in addition to Notes Receivable – Affiliate as discussed above. SJI’s maximum exposure to loss from these entities as of
December 31, 2016
is limited to its combined equity contributions and the Notes Receivable-Affiliate in the aggregate amount of
$44.6 million
.
DISCONTINUED OPERATIONS - Discontinued Operations consist of the environmental remediation activities related to the properties of South Jersey Fuel, Inc. (SJF) and the product liability litigation and environmental remediation activities related to the prior business of The Morie Company, Inc. (Morie). SJF is a subsidiary of Energy & Minerals, Inc. (EMI), an SJI subsidiary, which previously operated a fuel oil business. Morie is the former sand mining and processing subsidiary of EMI. EMI sold the common stock of Morie in 1996.
SJI conducts tests annually to estimate the environmental remediation costs for these properties.
Summarized operating results of the discontinued operations for the years ended December 31, were (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Loss before Income Taxes:
|
|
|
|
|
|
Sand Mining
|
$
|
(205
|
)
|
|
$
|
(422
|
)
|
|
$
|
(620
|
)
|
Fuel Oil
|
(179
|
)
|
|
(338
|
)
|
|
(274
|
)
|
Income Tax Benefits
|
133
|
|
|
257
|
|
|
312
|
|
Loss from Discontinued Operations — Net
|
$
|
(251
|
)
|
|
$
|
(503
|
)
|
|
$
|
(582
|
)
|
Earnings Per Common Share from
|
|
|
|
|
|
|
Discontinued Operations — Net:
|
|
|
|
|
|
|
Basic and Diluted
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
South Jersey Industries, Inc.
Part II
SJI files a consolidated federal income tax return. State income tax returns are filed on a separate company basis in states where SJI has operations and/or a requirement to file. Total income taxes applicable to operations differ from the tax that would have resulted by applying the statutory Federal income tax rate to pre-tax income for the following reasons (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Tax at Statutory Rate
|
|
$
|
60,624
|
|
|
$
|
37,440
|
|
|
$
|
35,727
|
|
Increase (Decrease) Resulting from:
|
|
|
|
|
|
|
State Income Taxes
|
|
6,438
|
|
|
3,985
|
|
|
1,960
|
|
ESOP Dividend
|
|
(1,300
|
)
|
|
(1,298
|
)
|
|
(1,232
|
)
|
Amortization of Investment Tax Credits - Utility
|
|
—
|
|
|
(149
|
)
|
|
(211
|
)
|
AFUDC
|
|
(900
|
)
|
|
(1,109
|
)
|
|
(1,481
|
)
|
Investment and Other Tax Credits
|
|
(10,706
|
)
|
|
(37,503
|
)
|
|
(30,661
|
)
|
Other - Net
|
|
(5
|
)
|
|
(6
|
)
|
|
347
|
|
Income Taxes:
|
|
|
|
|
|
|
Continuing Operations
|
|
54,151
|
|
|
1,360
|
|
|
4,449
|
|
Discontinued Operations
|
|
(133
|
)
|
|
(257
|
)
|
|
(312
|
)
|
Total Income Tax Expense
|
|
$
|
54,018
|
|
|
$
|
1,103
|
|
|
$
|
4,137
|
|
|
|
|
|
|
|
|
|
|
|
The provision for Income Taxes is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(62
|
)
|
State
|
|
(1,638
|
)
|
|
(2,352
|
)
|
|
3,052
|
|
Total Current
|
|
(1,638
|
)
|
|
(2,352
|
)
|
|
2,990
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
44,246
|
|
|
(4,622
|
)
|
|
1,707
|
|
State
|
|
11,543
|
|
|
8,483
|
|
|
(37
|
)
|
Total Deferred
|
|
55,789
|
|
|
3,861
|
|
|
1,670
|
|
Investment Tax Credit - Utility
|
|
—
|
|
|
(149
|
)
|
|
(211
|
)
|
Income Taxes:
|
|
|
|
|
|
|
Continuing Operations
|
|
54,151
|
|
|
1,360
|
|
|
4,449
|
|
Discontinued Operations
|
|
(133
|
)
|
|
(257
|
)
|
|
(312
|
)
|
Total Income Tax Expense
|
|
$
|
54,018
|
|
|
$
|
1,103
|
|
|
$
|
4,137
|
|
For the year ended December 31, 2016, the Company's overall tax expense increased primarily due to a decrease in the investment tax credits available on renewable energy facilities at Marina, along with higher income before income taxes.
Investment Tax Credits attributable to SJG are deferred and amortized at the annual rate of
3.0%
, which approximates the life of related assets.
South Jersey Industries, Inc.
Part II
The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following net deferred tax assets and liabilities at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred Tax Assets:
|
|
|
|
|
Net Operating Loss Carryforward
|
|
$
|
211,004
|
|
|
$
|
195,358
|
|
Investment and Other Tax Credits
|
|
213,946
|
|
|
200,491
|
|
Derivatives / Unrealized Gain
|
|
—
|
|
|
5,652
|
|
Deferred State Tax
|
|
28,833
|
|
|
24,833
|
|
Pension & Other Post Retirement Benefits
|
|
19,351
|
|
|
29,998
|
|
Deferred Revenues
|
|
7,669
|
|
|
4,924
|
|
Provision for Uncollectibles
|
|
5,231
|
|
|
4,200
|
|
Other
|
|
8,368
|
|
|
6,448
|
|
Total Deferred Tax Asset
|
|
$
|
494,402
|
|
|
$
|
471,904
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
Book versus Tax Basis of Property
|
|
$
|
732,535
|
|
|
$
|
675,521
|
|
Deferred Gas Costs - Net
|
|
2,052
|
|
|
3,998
|
|
Derivatives / Unrealized Loss
|
|
1,794
|
|
|
—
|
|
Environmental Remediation
|
|
32,885
|
|
|
19,207
|
|
Deferred Regulatory Costs
|
|
1,554
|
|
|
566
|
|
Budget Billing - Customer Accounts
|
|
3,347
|
|
|
830
|
|
Deferred Pension & Other Post Retirement Benefits
|
|
34,432
|
|
|
42,216
|
|
Conservation Incentive Program
|
|
11,846
|
|
|
1,132
|
|
Equity In Loss Of Affiliated Companies
|
|
3,092
|
|
|
9,111
|
|
Other
|
|
14,414
|
|
|
15,268
|
|
Total Deferred Tax Liability
|
|
$
|
837,951
|
|
|
$
|
767,849
|
|
|
|
|
|
|
Deferred Tax Liability - Net
|
|
$
|
343,549
|
|
|
$
|
295,945
|
|
As of
December 31, 2016
, SJI has the following federal and state net operating loss carryforwards (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
Expire in:
|
|
Federal
|
State
|
2031
|
|
$
|
163,572
|
|
$
|
45,866
|
|
2032
|
|
42,988
|
|
19,356
|
|
2033
|
|
67,496
|
|
34,940
|
|
2034
|
|
119,122
|
|
28,622
|
|
2035
|
|
70,992
|
|
9,860
|
|
2036
|
|
93,508
|
|
81,369
|
|
|
|
$
|
557,678
|
|
$
|
220,013
|
|
South Jersey Industries, Inc.
Part II
As of
December 31, 2016
, SJI has the following investment tax credit carryforwards (in thousands):
|
|
|
|
|
|
Expire in:
|
|
Investment Tax Credit Carryforward
|
2030
|
|
$
|
11,628
|
|
2031
|
|
25,664
|
|
2032
|
|
32,071
|
|
2033
|
|
45,606
|
|
2034
|
|
37,699
|
|
2035
|
|
45,097
|
|
2036
|
|
11,659
|
|
|
|
$
|
209,424
|
|
SJI has
$1.2 million
of federal alternative minimum tax credits which have no expiration date. SJI also has research and development credits of
$3.3 million
that will expire between 2031 and 2035. A valuation allowance is recorded when it is more likely than not that any of SJI's deferred tax assets will not be realized. SJI believes that it will generate sufficient future taxable income to realize the income tax benefits related to SJI's net deferred tax assets.
The total unrecognized tax benefits as of
December 31, 2016
,
2015
, and
2014
were
$1.4 million
,
$0.6 million
, and
$0.6 million
, respectively, which excludes
$0.7 million
, of accrued interest and penalties for each period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at January 1,
|
|
$
|
559
|
|
|
$
|
552
|
|
|
$
|
547
|
|
Increase as a result of tax positions taken in prior years
|
|
886
|
|
|
7
|
|
|
5
|
|
Balance at December 31,
|
|
$
|
1,445
|
|
|
$
|
559
|
|
|
$
|
552
|
|
The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not significant. The Company's policy is to record interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively. These amounts were not significant in
2016
,
2015
or
2014
. The majority of the increased tax position in 2016 is attributable to research and development credits. The Company does not anticipate any significant changes in the total unrecognized tax benefits within the next 12 months.
The unrecognized tax benefits are primarily related to an uncertainty of state income tax issues relating to the Company's nexus in certain states and tax credits. Federal income tax returns from 2013 forward and state income tax returns from 2008 forward are open and subject to examination.
REDEEMABLE CUMULATIVE PREFERRED STOCK - SJI has
2,500,000
authorized shares of Preference Stock, no par value, which has not been issued.
The following shares were issued and outstanding at December 31 (See Note 1):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Beginning of Year
|
70,965,622
|
|
|
68,334,860
|
|
|
65,430,084
|
|
New Issues During Year:
|
|
|
|
|
|
|
Dividend Reinvestment Plan
|
417,095
|
|
|
2,604,424
|
|
|
2,881,556
|
|
Stock-Based Compensation Plan
|
45,338
|
|
|
26,338
|
|
|
23,220
|
|
Public Equity Offering
|
8,050,000
|
|
|
—
|
|
|
—
|
|
End of Year
|
79,478,055
|
|
|
70,965,622
|
|
|
68,334,860
|
|
The par value (
$1.25
per share) of stock issued was recorded in Common Stock and the net excess over par value at
December 31, 2016
of approximately
$207.5 million
was recorded in Premium on Common Stock.
In May 2016, the Company issued and sold
8,050,000
shares of its common stock, par value
$1.25
per share pursuant to a public offering, raising net proceeds of approximately
$203.6 million
. The net proceeds from this offering were or will be used for capital expenditures, primarily for regulated businesses, including infrastructure investments at its utility business.
EARNINGS PER COMMON SHARE (EPS) — Basic EPS is based on the weighted-average number of common shares outstanding. The incremental shares required for inclusion in the denominator for the diluted EPS calculation were
112,590
,
195,139
, and
150,062
shares for the years ended
December 31, 2016
,
2015
and
2014
, respectively. These shares relate to SJI’s restricted stock as discussed in Note 2.
DIVIDENDS PER SHARE - Dividends per share were
$1.07
,
$1.02
and
$0.96
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
DIVIDEND REINVESTMENT PLAN (DRP) — The Company offered a DRP which allowed participating shareholders to purchase shares of SJI common stock by automatic reinvestment of dividends or optional purchases, prior to May 1, 2016. Shares of common stock offered by the DRP had been issued directly by SJI from its authorized but unissued shares of common stock. The Company raised
$10.8 million
and
$63.2 million
of equity capital through the DRP in
2016
and
2015
, respectively. Effective May 1, 2016, SJI switched to purchasing shares on the open market to fund share purchases by DRP participants. SJI does not intend to issue any more new equity capital via the DRP in 2017.
|
|
7.
|
FINANCIAL INSTRUMENTS:
|
RESTRICTED INVESTMENTS —Marina is required to maintain escrow accounts related to ongoing capital projects as well as unused loan proceeds pending approval of construction expenditures. As of
December 31, 2016
and
2015
, the escrowed funds, including interest earned, totaled
$1.9 million
and
$3.4 million
, respectively.
The Company maintains margin accounts with selected counterparties to support its risk management activities. The balances required to be held in these margin accounts increase as the net value of the outstanding energy-related contracts with the respective counterparties decrease. As of
December 31, 2016
and
2015
, the balances in these accounts totaled
$11.7 million
and
$43.7 million
, respectively.
As of December 31, 2015, in accordance with an outstanding loan agreement with a third party, ACB was required to maintain control accounts, which included a debt service reserve of
$1.7 million
. In January 2016, the remaining debt on the loan agreement was paid (see Note 14); accordingly, there was no such reserve as of December 31, 2016.
The carrying amounts of the Restricted Investments approximate their fair values at
December 31, 2016
and
2015
, which would be included in Level 1 of the fair value hierarchy (see Note 17).
INVESTMENT IN AFFILIATES - During 2011, subsidiaries of Energenic, in which Marina has a
50%
equity interest, entered into
20
-year contracts to build, own and operate a central energy center and energy distribution system for a new hotel, casino and entertainment complex in Atlantic City, New Jersey. The complex commenced operations in April 2012, and as a result, Energenic subsidiaries began providing full energy services to the complex.
South Jersey Industries, Inc.
Part II
In June 2014, the parent company of the hotel, casino and entertainment complex filed petitions in U. S. Bankruptcy Court to facilitate a sale of substantially all of its assets. The complex ceased normal business operations in September 2014. Energenic subsidiaries continued to provide limited energy services to the complex during the shutdown period under a temporary agreement with the trustee. The hotel, casino and entertainment complex was sold in April 2015. As of December 31, 2015, the Energenic subsidiaries were providing limited services to the complex under a short-term agreement with the new owner. However, the Energenic subsidiaries had not been able to secure a permanent or long-term energy services agreement with the new owner.
In 2015, management of the Company and Energenic evaluated the carrying value of the investment in this project and a related note receivable. Based on the inability of the Energenic subsidiaries to secure a permanent or long-term energy services agreement, the Company r
ecorded a
$7.7 million
(net of tax) no
n-cash charge to earnings during the second quarter of 2015 due to the reduction in the carrying value of the investment in this project recorded by Energenic. This charge was included in Equity in Loss of Affiliated Companies for the year ended December 31, 2015 on the statements of consolidated income.
The central energy center and energy distribution system owned by the Energenic subsidiaries was financed in part by the issuance of bonds during 2011. These bonds were collateralized primarily by certain assets of the central energy center and revenue from the energy services agreement with the hotel, casino and entertainment complex. During 2015, due to the cessation of normal business operations of the complex and the inability of the Energenic subsidiaries to meet its obligations under the bonds, the trustee for the bondholders filed suit to foreclose on certain assets of the central energy center. In November 2015 during settlement discussions, the bondholders alleged, among other things, that they were entitled to recover from Energenic itself, any amounts owed under the bonds that were not covered by the collateral, including principal, interest and attorney’s fees. The bondholders’ assertion was based on inconsistent language in the bond documents. In January 2016, Energenic and certain subsidiaries reached a multi-party settlement with the bondholders. This agreement resolves all outstanding litigation and transfers ownership of the bondholders’ collateral to the owners of the entertainment complex. The Company's share of this settlement was
$7.5 million
, which was accrued by Energenic as of December 31, 2015 and paid in 2016. The Company entered into agreements with its insurance carrier and external legal advisors to recover, net of legal costs, approximately
$7.0 million
of costs associated with the bondholder settlement discussed above. The Company received
$2.1 million
in the second quarter of 2016, which is included in Other Income on the statements of consolidated income for the year ended December 31, 2016, and
$5.3 million
was received in the third quarter of 2016 and is included in Equity in Earnings of Affiliated Companies on the statements of consolidated income for the year ended December 31, 2016, as the loss recorded in the prior year was included in this line item on the statements of consolidated income for the year ended December 31, 2015.
As of December 31, 2016, the Company, through its investment in Energenic, had a remaining net asset of approximately
$0.6 million
included in Investment in Affiliates on the consolidated balance sheets related to cogeneration assets for this project. In addition, the Company had approximately
$13.6 million
included in Notes Receivable - Affiliate on the consolidated balance sheets, due from Energenic, which is secured by those cogeneration assets. This note is subject to a reimbursement agreement that secures reimbursement for the Company, from its joint venture partner, of a proportionate share of any amounts that are not repaid.
Management will continue to monitor the situation surrounding the complex and will evaluate the carrying value of the investment and the note receivable as future events occur.
NOTE RECEIVABLE - In June 2015, SJG advanced
$10.0 million
to a not-for-profit organization formed to spur economic development in Atlantic City, New Jersey. The note bore interest at
1.0%
for an initial term of
six
months, with the borrower’s option to extend the term for
two
additional terms of
three
months each. In December 2015 and February 2016, the borrower exercised each option, respectively. In July 2016, the note was repaid in full, including interest.
LONG-TERM RECEIVABLES — SJG provides financing to customers for the purpose of attracting conversions to natural gas heating systems from competing fuel sources. The terms of these loans call for customers to make monthly payments over periods ranging from
five
to
ten
years, with no interest. The carrying amounts of such loans were
$9.5 million
and
$12.9 million
as of
December 31, 2016
and
2015
, respectively. The current portion of these receivables is reflected in Accounts Receivable and the non-current portion is reflected in Contract Receivables on the consolidated balance sheets. The carrying amounts noted above are net of unamortized discounts resulting from imputed interest in the amount of
$0.9 million
and
$1.3 million
as of
December 31, 2016
and
2015
, respectively. The annual amortization to interest is not material to the Company’s consolidated financial statements. The carrying amounts of these receivables approximate their fair value at
December 31, 2016
and
2015
, which would be included in Level 2 of the fair value hierarchy (see Note 17).
CREDIT RISK - As of
December 31, 2016
, approximately
$9.3 million
or
11.5%
of current and noncurrent Derivatives–Energy Related Assets are transacted with
three
counterparties, all of which are investment-grade-rated.
South Jersey Industries, Inc.
Part II
FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE - The fair value of a financial instrument is the market price to sell an asset or transfer a liability at the measurement date. The carrying amounts of SJI's financial instruments approximate their fair values at
December 31, 2016
and
2015
, except as noted below.
|
|
•
|
For Long-Term Debt, in estimating the fair value, we use the present value of remaining cash flows at the balance sheet date. We based the estimates on interest rates available to SJI at the end of each period for debt with similar terms and maturities (Level 2 in the fair value hierarchy, see Note 17). The estimated fair values of SJI's long-term debt, including current maturities, as of
December 31, 2016
and
2015
, were
$1,080.8 million
and
$1,079.0 million
, respectively. The carrying amounts of SJI's long-term debt, including current maturities, as of
December 31, 2016
and
2015
, was
$1,039.9 million
and
$1,026.9 million
, respectively. The carrying amounts as of
December 31, 2016
and
2015
are net of unamortized debt issuance costs of
$7.6 million
and
$9.0 million
, respectively (see Note 1).
|
OTHER FINANCIAL INSTRUMENTS - The carrying amounts of SJI's other financial instruments approximate their fair values at
December 31, 2016
and
2015
.
SJI operates in several different reportable operating segments which reflect the financial information regularly evaluated by the chief operating decision maker. These segments are as follows:
|
|
•
|
Gas utility operations (SJG) consist primarily of natural gas distribution to residential, commercial and industrial customers.
|
|
|
•
|
Wholesale energy operations include the activities of SJRG and SJEX.
|
|
|
•
|
SJE is involved in both retail gas and retail electric activities.
|
|
|
◦
|
Retail gas and other operations include natural gas acquisition and transportation service business lines.
|
|
|
◦
|
Retail electric operations consist of electricity acquisition and transportation to commercial, industrial and residential customers.
|
|
|
•
|
On-Site energy production consists of Marina’s thermal energy facility and other energy-related projects. Included in this segment are the activities of the following significant entities: ACB, ACLE, BCLE, SCLE, SXLE, MCS, NBS and SBS. These entities became wholly-owned subsidiaries of Marina on December 31, 2015 (see Note 3).
|
|
|
•
|
Appliance service operations includes SJESP, which services residential and small commercial HVAC systems, installs small commercial HVAC systems, provides plumbing services and services appliances under warranty via a subcontractor arrangement as well as on a time and materials basis.
|
|
|
•
|
Midstream was formed to invest in infrastructure and other midstream projects, including a current project to build a natural gas pipeline in Pennsylvania and New Jersey. The activities of Midstream are a part of the Corporate and Services segment.
|
SJI groups its nonutility operations into
two
categories: Energy Group and Energy Services. Energy Group includes wholesale energy, retail gas and other, and retail electric operations. Energy Services includes on-site energy production and appliance service operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are treated as if the sales or transfers were to third parties at current market prices.
South Jersey Industries, Inc.
Part II
Information about SJI’s operations in different reportable operating segments is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Operating Revenues:
|
|
|
|
|
|
Gas Utility Operations
|
$
|
461,055
|
|
|
$
|
534,290
|
|
|
$
|
501,875
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
220,707
|
|
|
129,098
|
|
|
77,048
|
|
Retail Gas and Other Operations
|
92,371
|
|
|
87,198
|
|
|
127,001
|
|
Retail Electric Operations
|
182,540
|
|
|
150,049
|
|
|
123,773
|
|
Subtotal Energy Group
|
495,618
|
|
|
366,345
|
|
|
327,822
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
94,375
|
|
|
63,665
|
|
|
56,129
|
|
Appliance Service Operations
|
7,898
|
|
|
11,186
|
|
|
10,518
|
|
Subtotal Energy Services
|
102,273
|
|
|
74,851
|
|
|
66,647
|
|
Corporate & Services
|
35,147
|
|
|
31,156
|
|
|
30,174
|
|
Subtotal
|
1,094,093
|
|
|
1,006,642
|
|
|
926,518
|
|
Intersegment Sales
|
(57,593
|
)
|
|
(47,074
|
)
|
|
(39,522
|
)
|
Total Operating Revenues
|
$
|
1,036,500
|
|
|
$
|
959,568
|
|
|
$
|
886,996
|
|
South Jersey Industries, Inc.
Part II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Operating Income:
|
|
|
|
|
|
|
|
|
Gas Utility Operations
|
$
|
122,455
|
|
|
$
|
119,585
|
|
|
$
|
113,690
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
41,667
|
|
|
35,024
|
|
|
9,493
|
|
Retail Gas and Other Operations
|
4,680
|
|
|
(3,218
|
)
|
|
479
|
|
Retail Electric Operations
|
7,007
|
|
|
1,042
|
|
|
(466
|
)
|
Subtotal Energy Group
|
53,354
|
|
|
32,848
|
|
|
9,506
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
13,301
|
|
|
2,027
|
|
|
2,560
|
|
Appliance Service Operations
|
582
|
|
|
468
|
|
|
362
|
|
Subtotal Energy Services
|
13,883
|
|
|
2,495
|
|
|
2,922
|
|
Corporate and Services
|
(416
|
)
|
|
1,966
|
|
|
1,485
|
|
Total Operating Income
|
$
|
189,276
|
|
|
$
|
156,894
|
|
|
$
|
127,603
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Gas Utility Operations
|
$
|
63,901
|
|
|
$
|
58,668
|
|
|
$
|
52,155
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
484
|
|
|
435
|
|
|
168
|
|
Retail Gas and Other Operations
|
337
|
|
|
161
|
|
|
83
|
|
Subtotal Energy Group
|
821
|
|
|
596
|
|
|
251
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
43,395
|
|
|
30,242
|
|
|
25,020
|
|
Appliance Service Operations
|
301
|
|
|
316
|
|
|
269
|
|
Subtotal Energy Services
|
43,696
|
|
|
30,558
|
|
|
25,289
|
|
Corporate and Services
|
1,400
|
|
|
1,220
|
|
|
816
|
|
Total Depreciation and Amortization
|
$
|
109,818
|
|
|
$
|
91,042
|
|
|
$
|
78,511
|
|
|
|
|
|
|
|
Interest Charges:
|
|
|
|
|
|
|
|
|
Gas Utility Operations
|
$
|
17,875
|
|
|
$
|
19,906
|
|
|
$
|
17,872
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
—
|
|
|
441
|
|
|
371
|
|
Retail Gas and Other Operations
|
350
|
|
|
185
|
|
|
267
|
|
Subtotal Energy Group
|
350
|
|
|
626
|
|
|
638
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
11,961
|
|
|
8,169
|
|
|
8,723
|
|
Corporate and Services
|
12,118
|
|
|
11,822
|
|
|
8,803
|
|
Subtotal
|
42,304
|
|
|
40,523
|
|
|
36,036
|
|
Intersegment Borrowings
|
(10,855
|
)
|
|
(8,901
|
)
|
|
(6,476
|
)
|
Total Interest Charges
|
$
|
31,449
|
|
|
$
|
31,622
|
|
|
$
|
29,560
|
|
South Jersey Industries, Inc.
Part II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Income Taxes:
|
|
|
|
|
|
Gas Utility Operations
|
$
|
39,366
|
|
|
$
|
36,945
|
|
|
$
|
34,895
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
15,882
|
|
|
14,410
|
|
|
4,822
|
|
Retail Gas and Other Operations
|
2,118
|
|
|
(978
|
)
|
|
787
|
|
Retail Electric Operations
|
2,862
|
|
|
426
|
|
|
(190
|
)
|
Subtotal Energy Group
|
20,862
|
|
|
13,858
|
|
|
5,419
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production
|
(6,353
|
)
|
|
(49,225
|
)
|
|
(36,404
|
)
|
Appliance Service Operations
|
232
|
|
|
186
|
|
|
223
|
|
Subtotal Energy Services
|
(6,121
|
)
|
|
(49,039
|
)
|
|
(36,181
|
)
|
Corporate and Services
|
44
|
|
|
(404
|
)
|
|
316
|
|
Total Income Taxes
|
$
|
54,151
|
|
|
$
|
1,360
|
|
|
$
|
4,449
|
|
|
|
|
|
|
|
Property Additions:
|
|
|
|
|
|
Gas Utility Operations
|
$
|
228,275
|
|
|
$
|
218,260
|
|
|
$
|
201,737
|
|
Energy Group:
|
|
|
|
|
|
Wholesale Energy Operations
|
7
|
|
|
382
|
|
|
18
|
|
Retail Gas and Other Operations
|
1,642
|
|
|
2,053
|
|
|
1,421
|
|
Subtotal Energy Group
|
1,649
|
|
|
2,435
|
|
|
1,439
|
|
Energy Services:
|
|
|
|
|
|
On-Site Energy Production (1)
|
38,193
|
|
|
139,018
|
|
|
132,214
|
|
Appliance Service Operations
|
431
|
|
|
379
|
|
|
84
|
|
Subtotal Energy Services
|
38,624
|
|
|
139,397
|
|
|
132,298
|
|
Corporate and Services
|
1,141
|
|
|
1,902
|
|
|
3,995
|
|
Total Property Additions
|
$
|
269,689
|
|
|
$
|
361,994
|
|
|
$
|
339,469
|
|
(1) The property additions for On-Site Energy Production in 2016 and 2015 do not include the approximately
$5.6 million
and
$40.9 million
of Property, Plant and Equipment obtained through the acquisition of
eight
Energenic projects as discussed in Note 3.
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Identifiable Assets (See Note 1):
|
|
|
|
Gas Utility Operations
|
$
|
2,551,923
|
|
|
$
|
2,281,576
|
|
Energy Group:
|
|
|
|
Wholesale Energy Operations
|
233,019
|
|
|
231,660
|
|
Retail Gas and Other Operations
|
52,729
|
|
|
55,111
|
|
Retail Electric Operations
|
41,280
|
|
|
55,528
|
|
Subtotal Energy Group
|
327,028
|
|
|
342,299
|
|
Energy Services:
|
|
|
|
On-Site Energy Production
|
767,710
|
|
|
790,231
|
|
Appliance Service Operations
|
2,879
|
|
|
4,885
|
|
Subtotal Energy Services
|
770,589
|
|
|
795,116
|
|
Discontinued Operations
|
1,756
|
|
|
1,545
|
|
Corporate and Services
|
649,795
|
|
|
652,325
|
|
Intersegment Assets
|
(570,524
|
)
|
|
(600,928
|
)
|
Total Identifiable Assets
|
$
|
3,730,567
|
|
|
$
|
3,471,933
|
|
9. LEASES:
Marina is considered to be the lessor of certain thermal energy generating property and equipment under an operating lease which expires in
May 2027
. As of
December 31, 2016
and
2015
, the carrying costs of this property and equipment under operating lease was
$75.9 million
and
$78.2 million
, respectively (net of accumulated depreciation of
$31.4 million
and
$28.5 million
, respectively), and is included in Nonutility Property and Equipment in the consolidated balance sheets.
Minimum future rentals to be received on this operating lease of property and equipment as of
December 31, 2016
for each of the next five years and in the aggregate are (in thousands):
|
|
|
|
|
Year ended December 31,
|
|
2017
|
$
|
5,396
|
|
2018
|
5,396
|
|
2019
|
5,396
|
|
2020
|
5,396
|
|
2021
|
5,396
|
|
Thereafter
|
29,230
|
|
Total minimum future rentals
|
56,210
|
|
Minimum future rentals do not include additional amounts to be received based on actual use of the leased property.
BCLE was considered to be the lessee of certain electric generating units and related facilities and equipment under a capital lease which was set to expire in October 2027. The interest rate related to the obligation was
6.8%
, and the related facilities and equipment were being amortized over the useful life ranging from
7
-
39
years. As of December 31, 2015, the carrying costs of this property and equipment under capital lease was
$4.1 million
and was included in Nonutility Property and Equipment in the consolidated balance sheets. On December 31, 2016, BCLE terminated the lease and purchased the respective assets for
$10.6 million
. Total accumulated depreciation taken on this capital lease, prior to termination, was
$0.2 million
as of
December 31, 2016
;
no
depreciation was taken on this lease by Marina as of December 31, 2015.
|
|
10.
|
RATES AND REGULATORY ACTIONS:
|
BASE RATES - SJG is subject to the rules and regulations of the BPU.
In September 2014, the BPU granted SJG a base rate increase of
$20.0 million
, which was predicated, in part, upon a
7.10%
rate of return on rate base that included a
9.75%
return on common equity. The
$20.0 million
includes approximately
$7.5 million
of revenue associated with previously approved Accelerated Infrastructure Replacement Program (AIRP) investments that were rolled into base rates. SJG was also permitted to recover certain regulatory assets and to reduce its composite depreciate rate from
2.4%
to
2.1%
. These changes became effective on October 1, 2014.
In January 2017, SJG filed a base rate case with the BPU to increase its base rates in order to obtain a return on new capital investments made by SJG since the settlement of its last base rate case in 2014. SJG expects the base rate case to be concluded during 2017 (see Note 19).
RATE MECHANISMS - SJG's tariff, a schedule detailing the terms, conditions and rate information applicable to its various types of natural gas service, as approved by the BPU, has several primary rate mechanisms as discussed in detail below:
Basic Gas Supply Service (BGSS) Clause
- The BGSS price structure allows SJG to recover all prudently incurred gas costs. BGSS charges to customers can be either monthly or periodic (annual). Monthly BGSS charges are applicable to large use customers and are referred to as monthly because the rate changes on a monthly basis pursuant to a BPU-approved formula based on commodity market prices. Periodic BGSS charges are applicable to lower usage customers, which include all of SJG's residential customers, and are evaluated at least annually by the BPU. However, to some extent, more frequent rate changes to the periodic BGSS are allowed. SJG collects gas costs from customers on a forecasted basis and defers periodic over/under recoveries to the following BGSS year, which runs from October 1 through September 30. If SJG is in a net cumulative undercollected position, gas costs deferrals are reflected on the balance sheet as a regulatory asset. If SJG is in a net cumulative overcollected position, amounts due back to customers are reflected on the balance sheet as a regulatory liability. SJG pays interest on net overcollected BGSS balances at the rate of return on rate base utilized by the BPU to set rates in the last base rate proceeding.
South Jersey Industries, Inc.
Part II
Regulatory actions regarding the BGSS were as follows:
|
|
•
|
January 2014 - SJG credited the accounts of its periodic BGSS customer with refunds totaling
$11.2 million
due to gas costs that were lower than projected.
|
|
|
•
|
May 2014 - SJG filed its annual BGSS filing with the BPU requesting a
$27.0 million
, or a
9.3%
increase in gas cost recoveries.
|
|
|
•
|
September 2014 - The BPU issued an Order approving, on a provisional basis, SJG’s request for a
$27.0 million
increase in gas cost recoveries.
|
|
|
•
|
June 2015 - SJG filed its annual BGSS filing with the BPU, requesting a
$28.4 million
decrease in gas cost recoveries.
|
|
|
•
|
September 2015 - The BPU issued an Order approving, on a provisional basis, SJG’s request for a
$28.4 million
decrease in gas cost recoveries.
|
|
|
•
|
January 2016 - SJG provided a BGSS bill credit of approximately
$20.0 million
to its residential and small commercial customers. This credit was in addition to the overall rate reduction that was approved by the BPU and took effect in 2015.
|
|
|
•
|
June 2016 - SJG filed its annual BGSS filing with the BPU, requesting a
$47.1 million
decrease in gas cost recoveries.
|
|
|
•
|
September 2016 - The BPU issued an Order approving, on a provisional basis, SJG’s request for a
$47.1 million
decrease in gas cost recoveries, effective October 2016.
|
|
|
•
|
December 2016 - SJG provided a BGSS bill credit of approximately
$10.0 million
to its residential and small commercial customers. The credit was in addition to the overall rate reduction that was approved by the BPU and took effect in October 2016.
|
Conservation Incentive Program (CIP)
- The primary purpose of the CIP is to promote conservation efforts, without negatively impacting financial stability, and to base SJG's profit margin on the number of customers rather than the amount of natural gas distributed to customers. Each CIP year begins October 1 and ends September 30 of the subsequent year. On a monthly basis during the CIP year, SJG records adjustments to earnings based on weather and customer usage factors, as incurred. Subsequent to each year, SJG makes filings with the BPU to review and approve amounts recorded under the CIP. BPU-approved cash inflows or outflows generally will not begin until the next CIP year.
Regulatory actions regarding the CIP were as follows:
|
|
•
|
May 2014 - SJG made its annual CIP filing with the BPU requesting a revenue reduction of
$21.8 million
, which includes a
$4.2 million
increase in non-weather related revenues and a
$26.0 million
reduction in weather related revenues.
|
|
|
•
|
September 2014 - The BPU issued an Order approving, on a provisional basis, the 2014-2015 CIP rates filed in May 2014, effective October 1 2014.
|
|
|
•
|
June 2015 - SJG filed its annual CIP filing with the BPU, requesting a decrease in revenues of
$11.3 million
, which includes a
$8.8 million
decrease in non-weather related revenues and a
$2.5 million
decrease in weather related revenues.
|
|
|
•
|
September 2015 - The BPU issued an Order approving, on a provisional basis, the 2015-2016 CIP rates filed in June 2015, effective October 1, 2015.
|
|
|
•
|
June 2016 - SJG filed its annual CIP filing with the BPU, requesting a
$46.5 million
increase in revenues, which includes a
$9.9 million
increase in non-weather related revenues and a
$36.6 million
increase in weather related revenues.
|
|
|
•
|
September 2016 - The BPU issued an Order approving, on a provisional basis, the 2016-2017 CIP rates filed in June 2016, effective October 2016.
|
Accelerated Infrastructure Replacement Program (AIRP)
- In February 2013, the BPU issued an Order approving a
$141.2 million
program to replace cast iron and unprotected bare steel mains and services over a
four
-year period, with annual investments of approximately
$35.3 million
. Pursuant to the Order, AIRP investments are to be reviewed and included in rate base in future base rate proceedings.
Regulatory actions regarding AIRP were as follows:
|
|
•
|
September 2014 - The BPU approved SJG’s base rate case, which included a
$7.5 million
increase in revenues associated with the roll in of
$69.9 million
of AIRP investments, inclusive of
$3.2 million
of AFUDC, into base rates.
|
|
|
•
|
February 2016 - SJG filed a petition with the BPU for approval to continue its AIRP, which was set to expire at the end of 2016. In its petition, SJG requested to extend the AIRP for an additional
seven
years with program investments totaling approximately
$500.0 million
. In its Petition, SJG also requested to increase revenues by
$13.0 million
to reflect in base rates all AIRP investments made from the time of SJG’s last base rate case to the end of the initial AIRP.
|
South Jersey Industries, Inc.
Part II
|
|
•
|
October 2016 - The BPU issued an Order approving an extension of the AIRP for a
five
-year period (“AIRP II”), commencing October 1, 2016, with authorized investments of up to
$302.5 million
to continue replacing cast iron and unprotected bare steel mains and associated services. The BPU also approved an
$11.0 million
increase in revenues associated with the roll in of
$80.2 million
of AIRP investments, inclusive of
$5.7 million
of AFUDC, into base rates, effective December 1, 2016.
|
Storm Hardening and Reliability Program (SHARP)
- In September 2013, SJG filed with the BPU an asset hardening program pursuant to which SJG will invest approximately
$280.0 million
over
seven
years to replace low pressure distribution mains and services with high pressure mains and services in coastal areas that are susceptible to flooding during major storm events.
Regulatory actions regarding SHARP were as follows:
|
|
•
|
August 2014 - The BPU approved the SHARP, authorizing SJG to invest
$103.5 million
over
three
years for system hardening on barrier islands. SJG will earn a return on these investments as they are made and will reflect the investments in base rates through annual rate adjustments.
|
|
|
•
|
April 2015 - SJG filed a petition seeking a base rate adjustment to increase annual revenues by approximately
$4.0 million
to reflect approximately
$36.6 million
of SHARP investments made from July 2014 through June 2015.
|
|
|
•
|
September 2015 - The BPU approved SJG’s request to increase annual revenues from base rates by
$4.0 million
, effective October 1, 2015.
|
|
|
•
|
April 2016 - SJG filed a petition seeking a base rate adjustment to increase annual revenues by approximately
$4.3 million
to reflect approximately
$33.7 million
of SHARP investments made from July 2015 through June 2016.
|
|
|
•
|
September 2016 - The BPU approved an increase in annual revenues from base rates of
$3.9 million
to reflect the roll-in of
$33.7 million
of SHARP investments made from July 2015 through June 2016, effective October 1, 2016.
|
Energy Efficiency Tracker (EET)
- Under this program, SJG was permitted to invest
$17.0 million
over
two
years in energy efficiency measures to be installed in customer homes and businesses. SJG also recovered incremental operating and maintenance expenses and earn a return of, and return on, program investments. In June 2013, the BPU authorized SJG to continue to offer Energy Efficiency Programs (EEPs) through June 2015 with an approved budget of
$24.0 million
. In August 2015, the BPU approved a
two
-year extension of SJG’s EEPs through August 31, 2017, with a program budget of
$36.3 million
.
Regulatory actions regarding the EET/EEP were as follows:
|
|
•
|
May 2014 - SJG filed its annual EET rate adjustment petition requesting a
$1.4 million
increase in revenues to recover the costs of, and the allowed return on, prior investments associated with energy efficiency programs.
|
|
|
•
|
September 2014 - The BPU approved a revenue increase of
$2.2 million
associated with the 2012-2013 annual EET rate adjustment filing, with rates effective October 1, 2014.
|
|
|
•
|
January 2015 - SJG filed a petition with the BPU seeking to continue offering energy efficiency programs through June 2018 with a proposed budget of
$56.0 million
and with the same rate recovery mechanism that exists for its current EEPs.
|
|
|
•
|
June 2015, SJG filed its annual EET rate adjustment petition, requesting a
$7.6 million
decrease in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with EEPs.
|
|
|
•
|
August 2015, the BPU approved a
two
-year extension of SJG's EEPs through August 31, 2017, with a program budget of
$36.3 million
. The BPU’s approval permitted SJG to adjust its EET rate, effective September 1, 2015, to increase annual revenues by
$2.6 million
, to recover projected costs and the allowed return on the first year of its investments in the EEP extension.
|
|
|
•
|
February 2016 - The BPU approved a revenue decrease of
$7.9 million
associated with the two most recent annual EET rate adjustment filings, effective April 1, 2016.
|
|
|
•
|
June 2016 - SJG filed its annual EET rate adjustment petition, requesting a
$0.8 million
decrease in revenues to continue recovering the costs of, and the allowed return on, prior investments associated with EEPs.
|
|
|
•
|
October 2016 - The BPU approved a revenue decrease of
$1.6 million
associated with SJG's annual EET rate adjustment filing, effective November 10, 2016.
|
|
|
•
|
November 2016 - SJG filed a letter petition requesting an extension of its current Energy Efficiency Program (“EEP III”) through December 31, 2018, allowing SJG to spend the remainder of its existing BPU approved budget over the extended term. The BPU approved this extension in January 2017.
|
South Jersey Industries, Inc.
Part II
Societal Benefits Clause (SBC)
- The SBC allows SJG to recover costs related to several BPU-mandated programs. Within the SBC are a Remediation Adjustment Clause (RAC), a New Jersey Clean Energy Program (NJCEP) and a Universal Service Fund (USF) program.
Regulatory actions regarding the SBC, with the exception of USF, which requires separate regulatory filings, were as follows:
|
|
•
|
July 2014 - SJG made its annual 2014-2015 SBC filing requesting a
$25.7 million
decrease in SBC revenues. The BPU approved this filing in May 2015.
|
|
|
•
|
July 2015 - SJG made its annual 2015-2016 SBC filing, requesting a
$5.0 million
decrease in SBC revenues. The BPU approved this filing in April 2016.
|
|
|
•
|
July 2016 - SJG made its annual 2016-2017 SBC filing, requesting a
$16.0 million
increase in SBC revenues. This petition is currently pending.
|
Remediation Adjustment Clause (RAC)
- The RAC recovers environmental remediation costs of
12
former gas manufacturing plants (see Note 15). The BPU allows SJG to recover such costs over
seven
-year amortization periods. The net between the amounts actually spent and amounts recovered from customers is recorded as a regulatory asset, "Environmental Remediation Cost Expended - Net." RAC activity affects revenue and cash flows but does not directly affect earnings because of the cost recovery over
seven
-year amortization periods. As of
December 31, 2016
and
2015
, SJG reflected the unamortized remediation costs of
$72.0 million
and
$42.0 million
, respectively, on the consolidated balance sheets under Regulatory Assets (see Note 11). Since implementing the RAC in 1992, SJG has recovered
$112.7 million
through rates.
Clean Energy Program Clause (CLEP)
- A component of the SBC, the CLEP recovers costs associated with state mandated NJCEP as it relates to SJG's energy efficiency and renewable energy programs. In June 2013, the BPU approved a NJCEP funding level of
$345.0 million
through June 2014, of which SJG was responsible for
$14.5 million
. In June 2014, the BPU approved a NJCEP funding level of
$345.0 million
through June 2015, of which SJG was responsible for
$14.5 million
. In June 2015, the BPU approved a NJCEP funding level of
$345.0 million
through June 2016, of which SJG was responsible for
$14.6 million
. In June of 2016, the BPU approved a NJCEP funding level of
$345.0 million
through June 2017, of which SJG was responsible for
$14.6 million
.
CLEP adjustments affect revenue and cash flows but do not directly affect earnings as related costs are deferred and recovered through rates on an on-going basis.
Universal Service Fund (USF)
- The USF is a statewide program through which funds for the USF and Lifeline Credit and Tenants Assistance Programs are collected from customers of all New Jersey electric and gas utilities. USF adjustments affect cash flows but do not directly affect revenue or earnings as related costs are deferred and recovered through rates on an on-going basis.
Separate regulatory actions regarding the USF were as follows:
|
|
•
|
June 2014 - SJG made its annual USF filing, along with the State’s other electric and gas utilities, proposing to increase the statewide gas revenues by
$19.9 million
. This proposal was designed to increase SJG’s annual USF revenue by
$2.6 million
.
|
|
|
•
|
September 2014 - The BPU approved the statewide budget of
$71.8 million
for all the State’s gas utilities. SJG's portion of the total is approximately
$7.9 million
, which increased rates effective October 1, 2014, resulting in a
$2.6 million
increase to its USF recoveries.
|
|
|
•
|
June 2015 - SJG made its annual USF filing, along with the State’s other electric and gas utilities, proposing to decrease the statewide gas revenues by
$46.4 million
. This proposal was designed to decrease SJG’s annual USF revenue by
$3.4 million
.
|
|
|
•
|
September 2015 - The BPU approved the statewide budget of
$46.4 million
for all the State’s gas utilities. SJG's portion of the total is approximately
$5.2 million
, which decreased rates effective October 1, 2015, resulting in a
$3.4 million
decrease to its USF recoveries.
|
|
|
•
|
June 2016 - SJG made its annual USF filing, along with the State’s other electric and gas utilities, proposing to increase the statewide gas revenues by
$56.0 million
. This proposal was designed to increase SJG’s annual USF revenue by
$1.1 million
.
|
|
|
•
|
September 2016 - The BPU approved the statewide budget of
$56.0 million
for all the State’s gas utilities. SJG's portion of the total is approximately
$5.6 million
, which increased rates effective October 1, 2016, resulting in a
$1.1 million
increase to its USF recoveries.
|
South Jersey Industries, Inc.
Part II
Other Regulatory Matters
-
Unbundling
- This allows all natural gas consumers to select their natural gas commodity supplier. As of
December 31, 2016
,
33,467
of SJG's customers were purchasing their gas commodity from someone other than SJG. Customers choosing to purchase natural gas from providers other than the utility are charged for the cost of gas by the marketer. The resulting decrease in utility revenues is offset by a corresponding decrease in gas costs. While customer choice can reduce utility revenues, it does not negatively affect SJG's net income or financial condition. The BPU continues to allow for full recovery of prudently incurred natural gas costs through the BGSS. Unbundling did not change the fact that SJG still recovers cost of service, including certain deferred costs, through base rates.
Pipeline Integrity Costs
- SJG is permitted to defer and recover incremental costs incurred as a result of Pipeline Integrity Management regulations, which are aimed at enhancing public safety and reliability. The regulations require that utilities use a comprehensive analysis to assess, evaluate, repair and validate the integrity of certain transmission lines in the event of a leak or failure. As part of SJG's 2014 base rate case, it was permitted to recover previously deferred pipeline integrity costs incurred from October 2010 through June 2014. In addition, SJG is authorized to defer future program costs, including related carrying costs, for recovery in the next base rate proceeding, subject to review by the BPU. As of
December 31, 2016
and
2015
, deferred pipeline integrity costs totaled
$4.0 million
and
$2.7 million
, respectively, and are included in other regulatory assets (see Note 11).
Filings and petitions described above are still pending, unless otherwise indicated.
|
|
11.
|
REGULATORY ASSETS & REGULATORY LIABILITIES:
|
The discussion under Note 10, Rates and Regulatory Actions, is integral to the following explanations of specific regulatory assets and liabilities.
Regulatory Assets consisted of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Environmental Remediation Costs:
|
|
|
|
Expended - Net
|
$
|
71,997
|
|
|
$
|
42,032
|
|
Liability for Future Expenditures
|
153,047
|
|
|
123,194
|
|
Deferred Asset Retirement Obligation Costs
|
43,014
|
|
|
42,430
|
|
Deferred Pension and Other Postretirement Benefit Costs
|
85,693
|
|
|
79,779
|
|
Deferred Gas Costs - Net
|
—
|
|
|
2,701
|
|
Conservation Incentive Program Receivable
|
27,567
|
|
|
2,624
|
|
Deferred Interest Rate Contracts
|
7,365
|
|
|
7,631
|
|
Energy Efficiency Tracker
|
219
|
|
|
496
|
|
Pipeline Supplier Service Charges
|
2,122
|
|
|
3,776
|
|
Pipeline Integrity Cost
|
4,810
|
|
|
4,596
|
|
AFUDC - Equity Related Deferrals
|
12,434
|
|
|
11,423
|
|
Other Regulatory Assets
|
2,478
|
|
|
2,752
|
|
|
|
|
|
Total Regulatory Assets
|
$
|
410,746
|
|
|
$
|
323,434
|
|
Except where noted below, all regulatory assets are or will be recovered through utility rate charges, as detailed in the following discussion. SJG is currently permitted to recover interest on Environmental Remediation Costs, Societal Benefit Costs Receivable, Energy Efficiency Tracker and Pipeline Integrity Costs, while the other assets are being recovered without a return on investment.
South Jersey Industries, Inc.
Part II
Environmental Remediation Costs
- SJG has
two
regulatory assets associated with environmental costs related to the cleanup of
12
sites where SJG or its predecessors previously operated gas manufacturing plants. The first asset, "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the RAC and insurance carriers. These costs meet the deferral requirements of GAAP as the BPU allows SJG to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. SJG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the consolidated balance sheets under the captions "Current Liabilities" and "Deferred Credits and Other Noncurrent Liabilities." The BPU allows SJG to recover the deferred costs over
seven
-year periods after they are spent. The increase from December 31, 2015 is a result of expenditures made during 2016 and an increase in the expected future expenditures for remediation activities, primarily due to an increase in the scope of the remediation at a site related to additional contamination being discovered.
Deferred Asset Retirement Obligation (ARO) Costs
- This regulatory asset resulted from the recording of ARO and additional utility plant, primarily related to a legal obligation SJG has for certain safety requirements upon the retirement of its gas distribution and transmission system. SJG recovers asset retirement costs through rates charged to customers. All related accumulated accretion and depreciation amounts for these ARO represent timing differences in the recognition of retirement costs that SJG is currently recovering in rates and, as such, SJG is deferring such differences as regulatory assets.
Deferred Pension and Other Postretirement Benefit Costs
- The BPU authorized SJG to recover costs related to postretirement benefits under the accrual method of accounting consistent with GAAP. SJG's regulatory asset represents the recognition of the underfunded positions of SJG's pension and other postretirement benefit plans. Subsequent adjustments to this balance occur annually to reflect changes in the funded positions of these benefit plans caused by changes in actual plan experience as well as assumptions of future experience (see Note 12).
Deferred Gas Costs - Net
- Over/under collections of gas costs are monitored through SJG's BGSS mechanism. Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability (see Note 10). Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval (see Note 16).
Conservation Incentive Program Receivable
- The impact of the CIP is recorded as an adjustment to earnings as incurred, while cash recovery under the CIP generally occurs during the subsequent CIP year (see Note 10).
Deferred Interest Rate Contracts
- These amounts represent the market value of interest rate derivatives as discussed further in Note 16.
Energy Efficiency Tracker
- This regulatory asset represents cumulative investments less recoveries under the Energy Efficiency Program.
Pipeline Supplier Service Charges
- This regulatory asset represents costs necessary to maintain adequate supply and system pressures, which are being recovered on a monthly basis through the BGSS over the term of the underlying supplier contracts (see Note 10).
Pipeline Integrity Cost
- As part of SJG's September 2014 base rate increase, SJG was permitted to recover previously deferred pipeline integrity costs incurred through September 2014. In addition, SJG is authorized to defer future program costs, including related carrying costs, for recovery in SJG's next base rate proceeding, subject to review by the BPU (see Note 10).
AFUDC Equity Related Deferrals
- This regulatory asset represents the future revenue to recover the future income taxes related to the deferred tax liability for the equity component of AFUDC. Included in the balance is
$1.0 million
which is being recovered over a period of
three
years as approved by the BPU in SJG’s 2014 rate case settlement. The remaining balance is being amortized over the life of the associated utility plant.
Other Regulatory Assets
- Some of the assets included in Other Regulatory Assets are currently being recovered from ratepayers as approved by the BPU. Management believes the remaining deferred costs are probable of recovery from ratepayers through future utility rates.
South Jersey Industries, Inc.
Part II
Regulatory Liabilities consisted of the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Excess Plant Removal Costs
|
$
|
28,226
|
|
|
$
|
32,644
|
|
Deferred Revenue - Net
|
17,800
|
|
|
—
|
|
Societal Benefit Costs Payable
|
3,095
|
|
|
10,197
|
|
|
|
|
|
Total Regulatory Liabilities
|
$
|
49,121
|
|
|
$
|
42,841
|
|
Excess Plant Removal Costs
- Represents amounts accrued in excess of actual utility plant removal costs incurred to date. As part of SJG's September 2014 base rate increase, SJG is required to amortize approximately
$1.1 million
of this balance to depreciation expense each year.
Deferred Revenue - Ne
t - The BGSS changed from a
$2.7 million
regulatory asset at December 31, 2015 to a
$17.8 million
regulatory liability at December 31, 2016, primarily due to the gas costs recovered from customers exceeding the actual cost of the commodity. See previous discussion under "Deferred Gas Costs - Net" above.
Societal Benefit Costs Payable
- This regulatory liability primarily represents cumulative costs less recoveries under the USF and CLEP programs (see Note 10).
|
|
12.
|
PENSION AND OTHER POSTRETIREMENT BENEFITS:
|
SJI has several defined benefit pension plans and other postretirement benefit plans. Approximately
38.2%
of the Company's current, full-time, regular employees will be entitled to annuity payments upon retirement. Participation in the Company's qualified defined benefit pension plans was closed to new employees beginning in 2003; however, employees who are not eligible for these pension plans are eligible to receive an enhanced version of SJI's defined contribution plan. Certain SJI officers also participate in a non-funded supplemental executive retirement plan (SERP), a non-qualified defined benefit pension plan. The other postretirement benefit plans provide health care and life insurance benefits to some retirees.
Net periodic benefit cost related to the employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
2016
|
|
2015
|
|
2014
|
Service Cost
|
$
|
4,843
|
|
|
$
|
5,337
|
|
|
$
|
4,510
|
|
Interest Cost
|
12,125
|
|
|
11,168
|
|
|
10,735
|
|
Expected Return on Plan Assets
|
(13,508
|
)
|
|
(14,789
|
)
|
|
(13,491
|
)
|
Amortizations:
|
|
|
|
|
|
|
Prior Service Cost
|
212
|
|
|
212
|
|
|
175
|
|
Actuarial Loss
|
9,394
|
|
|
10,608
|
|
|
5,716
|
|
Net Periodic Benefit Cost
|
13,066
|
|
|
12,536
|
|
|
7,645
|
|
Capitalized Benefit Costs
|
(4,645
|
)
|
|
(4,805
|
)
|
|
(3,047
|
)
|
Deferred Benefit Costs
|
(645
|
)
|
|
(1,007
|
)
|
|
—
|
|
Total Net Periodic Benefit Expense
|
$
|
7,776
|
|
|
$
|
6,724
|
|
|
$
|
4,598
|
|
South Jersey Industries, Inc.
Part II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
2016
|
|
2015
|
|
2014
|
Service Cost
|
$
|
851
|
|
|
$
|
1,116
|
|
|
$
|
891
|
|
Interest Cost
|
2,615
|
|
|
2,973
|
|
|
2,852
|
|
Expected Return on Plan Assets
|
(3,104
|
)
|
|
(2,993
|
)
|
|
(2,603
|
)
|
Amortizations:
|
|
|
|
|
|
|
Prior Service (Credits) Cost
|
(344
|
)
|
|
608
|
|
|
152
|
|
Actuarial Loss
|
1,109
|
|
|
1,342
|
|
|
974
|
|
Net Periodic Benefit Cost
|
1,127
|
|
|
3,046
|
|
|
2,266
|
|
Capitalized Benefit Costs
|
(277
|
)
|
|
(1,043
|
)
|
|
(722
|
)
|
Deferred Benefit Costs
|
—
|
|
|
(256
|
)
|
|
—
|
|
Total Net Periodic Benefit Expense
|
$
|
850
|
|
|
$
|
1,747
|
|
|
$
|
1,544
|
|
Capitalized benefit costs reflected in the table above relate to SJG’s construction program. Deferred benefit costs relate to the deferral of incremental expenses associated with the adoption of new mortality tables in 2015. Deferred benefit costs are expected to be recovered through rates as part of SJG's next base rate case.
Companies with publicly traded equity securities that sponsor a postretirement benefit plan are required to fully recognize, as an asset or liability, the overfunded or underfunded status of its benefit plans and recognize changes in the funded status in the year in which the changes occur. Changes in funded status are generally reported in Other Comprehensive Loss; however, since SJG recovers all prudently incurred pension and postretirement benefit costs from its ratepayers, a significant portion of the charges resulting from the recording of additional liabilities under this requirement are reported as regulatory assets (see Note 11).
Details of the activity within the Regulatory Asset and Accumulated Other Comprehensive Loss associated with Pension and Other Postretirement Benefits are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
|
Accumulated Other
Comprehensive Loss
(pre-tax)
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
Balance at January 1, 2015
|
$
|
71,177
|
|
|
$
|
27,863
|
|
|
$
|
39,468
|
|
|
$
|
6,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Arising during the Period:
|
|
|
|
|
|
|
|
|
|
|
|
Net Actuarial (Loss)/Gain
|
(463
|
)
|
|
(3,155
|
)
|
|
59
|
|
|
(2,285
|
)
|
Prior Service Cost
|
|
|
|
(499
|
)
|
|
|
|
(106
|
)
|
Amounts Amortized to Net Periodic Costs:
|
|
|
|
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
(6,079
|
)
|
|
(1,107
|
)
|
|
(4,452
|
)
|
|
(221
|
)
|
Prior Service Cost
|
(203
|
)
|
|
(7,755
|
)
|
|
(9
|
)
|
|
(2,081
|
)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
64,432
|
|
|
15,347
|
|
|
35,066
|
|
|
2,062
|
|
|
|
|
|
|
|
|
|
Amounts Arising during the Period:
|
|
|
|
|
|
|
|
|
|
|
|
Net Actuarial Gain
|
9,706
|
|
|
2,584
|
|
|
8,370
|
|
|
829
|
|
Prior Service Credit
|
—
|
|
|
257
|
|
|
—
|
|
|
84
|
|
Amounts Amortized to Net Periodic Costs:
|
|
|
|
|
|
|
|
Net Actuarial Loss
|
(5,485
|
)
|
|
(945
|
)
|
|
(3,838
|
)
|
|
(154
|
)
|
Prior Service Cost
|
(203
|
)
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$
|
68,450
|
|
|
$
|
17,243
|
|
|
$
|
39,590
|
|
|
$
|
2,821
|
|
South Jersey Industries, Inc.
Part II
The estimated costs that will be amortized from Regulatory Assets into net periodic benefit costs in 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
Prior Service Cost/(Credit)
|
$
|
127
|
|
|
$
|
(257
|
)
|
Net Actuarial Loss
|
$
|
6,202
|
|
|
$
|
1,040
|
|
The estimated costs that will be amortized from Accumulated Other Comprehensive Loss into net periodic benefit costs in 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
Prior Service Cost/(Credit)
|
$
|
5
|
|
|
$
|
(87
|
)
|
Net Actuarial Loss
|
$
|
3,943
|
|
|
$
|
207
|
|
South Jersey Industries, Inc.
Part II
A reconciliation of the plans' benefit obligations, fair value of plan assets, funded status and amounts recognized in SJI's consolidated balance sheets follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in Benefit Obligations:
|
|
|
|
|
|
|
|
Benefit Obligation at Beginning of Year
|
$
|
254,195
|
|
|
$
|
265,434
|
|
|
$
|
57,430
|
|
|
$
|
75,592
|
|
Service Cost
|
4,843
|
|
|
5,337
|
|
|
851
|
|
|
1,116
|
|
Interest Cost
|
12,125
|
|
|
11,168
|
|
|
2,615
|
|
|
2,973
|
|
Actuarial Loss (Gain)
|
18,254
|
|
|
(17,349
|
)
|
|
3,121
|
|
|
(8,591
|
)
|
Retiree Contributions
|
—
|
|
|
—
|
|
|
81
|
|
|
700
|
|
Plan Amendments
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,899
|
)
|
Benefits Paid
|
(11,129
|
)
|
|
(10,395
|
)
|
|
(3,748
|
)
|
|
(4,461
|
)
|
Benefit Obligation at End of Year
|
$
|
278,288
|
|
|
$
|
254,195
|
|
|
$
|
60,350
|
|
|
$
|
57,430
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at Beginning of Year
|
$
|
184,824
|
|
|
$
|
180,523
|
|
|
$
|
47,759
|
|
|
$
|
43,222
|
|
Actual Return on Plan Assets
|
13,569
|
|
|
(2,321
|
)
|
|
2,784
|
|
|
(423
|
)
|
Employer Contributions
|
2,278
|
|
|
17,017
|
|
|
3,656
|
|
|
8,721
|
|
Retiree Contributions
|
—
|
|
|
—
|
|
|
81
|
|
|
700
|
|
Benefits Paid
|
(11,129
|
)
|
|
(10,395
|
)
|
|
(3,748
|
)
|
|
(4,461
|
)
|
Fair Value of Plan Assets at End of Year
|
$
|
189,542
|
|
|
$
|
184,824
|
|
|
$
|
50,532
|
|
|
$
|
47,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status at End of Year:
|
$
|
(88,746
|
)
|
|
$
|
(69,371
|
)
|
|
$
|
(9,818
|
)
|
|
$
|
(9,671
|
)
|
Amounts Related to Unconsolidated Affiliate
|
326
|
|
|
204
|
|
|
540
|
|
|
509
|
|
Accrued Net Benefit Cost at End of Year
|
$
|
(88,420
|
)
|
|
$
|
(69,167
|
)
|
|
$
|
(9,278
|
)
|
|
$
|
(9,162
|
)
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Statement of Financial Position Consist of:
|
|
|
|
|
|
|
|
Current Liabilities
|
$
|
(2,463
|
)
|
|
$
|
(2,261
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Noncurrent Liabilities
|
(85,957
|
)
|
|
(66,906
|
)
|
|
(9,278
|
)
|
|
(9,162
|
)
|
Net Amount Recognized at End of Year
|
$
|
(88,420
|
)
|
|
$
|
(69,167
|
)
|
|
$
|
(9,278
|
)
|
|
$
|
(9,162
|
)
|
|
|
|
|
|
|
|
|
Amounts Recognized in Regulatory Assets Consist of:
|
|
|
|
|
|
|
|
Prior Service Costs
|
$
|
538
|
|
|
$
|
741
|
|
|
$
|
(3,032
|
)
|
|
$
|
(3,289
|
)
|
Net Actuarial Loss
|
67,912
|
|
|
63,691
|
|
|
20,275
|
|
|
18,636
|
|
|
$
|
68,450
|
|
|
$
|
64,432
|
|
|
$
|
17,243
|
|
|
$
|
15,347
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of (pre-tax):
|
|
|
|
|
|
|
|
Prior Service Costs
|
$
|
69
|
|
|
$
|
77
|
|
|
$
|
(989
|
)
|
|
$
|
(1,074
|
)
|
Net Actuarial Loss
|
39,521
|
|
|
34,989
|
|
|
3,810
|
|
|
3,136
|
|
|
$
|
39,590
|
|
|
$
|
35,066
|
|
|
$
|
2,821
|
|
|
$
|
2,062
|
|
South Jersey Industries, Inc.
Part II
The projected benefit obligation (PBO) and accumulated benefit obligation (ABO) of SJI's qualified employee pension plans were
$224.3 million
and
$208.3 million
, respectively, as of
December 31, 2016
; and
$207.7 million
and
$191.9 million
, respectively, as of
December 31, 2015
. The ABO of these plans exceeded the value of the plan assets as of December 31, 2016 and 2015. The value of these assets were
$189.5 million
and
$184.8 million
as of
December 31, 2016
and
2015
, respectively, and can be seen in the table above. The PBO and ABO for SJI's non-funded SERP were
$53.9 million
and
$51.9 million
, respectively, as of
December 31, 2016
; and
$46.5 million
and
$45.0 million
, respectively, as of
December 31, 2015
. The SERP obligation is reflected in the tables above and has no assets.
The weighted-average assumptions used to determine benefit obligations at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount Rate
|
4.30
|
%
|
|
4.83
|
%
|
|
4.13
|
%
|
|
4.73
|
%
|
Rate of Compensation Increase
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Discount Rate
|
4.83
|
%
|
|
4.25
|
%
|
|
5.09
|
%
|
|
4.73
|
%
|
|
4.20
|
%
|
|
4.91
|
%
|
Expected Long-Term Return on Plan Assets
|
7.50
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
|
6.50
|
%
|
|
6.25
|
%
|
|
6.25
|
%
|
Rate of Compensation Increase
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
In 2014, the Society of Actuaries (SOA) released new mortality tables (RP-2014 base table with MP-2014 generational projection scale), which indicated that the average life expectancy of both active and retired plan participants had increased. Obligations as of December 31, 2014, disclosed herein reflect the use of those new tables. In 2015, the SOA released an update to the RP-2014 tables (MP-2015 base tables), slightly reducing the average life expectancy previously released. The obligations as of December 31, 2016 and 2015, disclosed herein, reflect the use of the updated 2015 tables. While the adoption of the new tables impacts liabilities significantly as of December 31of the year of adoption, the impact on expense did not occur until the subsequent year.
The discount rates used to determine the benefit obligations at December 31,
2016
and
2015
, which are used to determine the net periodic benefit cost for the subsequent year, were based on a portfolio model of high-quality investments with maturities that match the expected benefit payments under our pension and other postretirement benefit plans.
The expected long-term return on plan assets (“return”) has been determined by applying long-term capital market projections provided by our pension plan Trustee to the asset allocation guidelines, as defined in the Company's investment policy, to arrive at a weighted average return. For certain other equity securities held by an investment manager outside of the control of the Trustee, the return has been determined based on historic performance in combination with long-term expectations. The return for the other postretirement benefits plan is determined in the same manner as discussed above; however, the expected return is reduced based on the taxable nature of the underlying trusts.
The retiree medical plan changed effective January 1, 2016. Retirees are provided a fixed contribution to a health reimbursement account, allowing them to obtain coverage from health-care exchanges, rather than utilizing the Company provided health-care plan. Since the health-care benefits are now a fixed dollar amount under the new plan and will not increase in the future, the plan no longer has health care trend assumptions as of December 31, 2015. As a result, assumed health care cost trend rates no longer have a significant effect on the amounts reported for SJI's postretirement health care plans.
South Jersey Industries, Inc.
Part II
PLAN ASSETS - The Company's overall investment strategy for pension plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans. The Company has implemented this diversification strategy primarily with commingled common/collective trust funds. The target allocations for pension plan assets are
28
-
48
percent U.S. equity securities,
13
-
25
percent international equity securities,
32
-
42
percent fixed income investments, and
0
-
7
percent to all other types of investments. Equity securities include investments in commingled common/collective trust funds as well as large-cap and mid-cap companies. Fixed income securities include commingled common/collective trust funds, group annuity contracts for pension payments, and hedge funds. Other types of investments include investments in private equity funds and real estate funds that follow several different strategies.
The strategy recognizes that risk and volatility are present to some degree with all types of investments. We seek to avoid high levels of risk at the total fund level through diversification by asset class, style of manager, and sector and industry limits. Specifically prohibited investments include, but are not limited to, venture capital, margin trading, commodities and securities of companies with less than
$250.0 million
capitalization (except in the small-cap portion of the fund where capitalization levels as low as
$50.0 million
are permissible). These restrictions are only applicable to individual investment managers with separately managed portfolios and do not apply to mutual funds or commingled trusts.
SJI evaluated its pension and other postretirement benefit plans' asset portfolios for the existence of significant concentrations of credit risk as of
December 31, 2016
. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of
December 31, 2016
, there were no significant concentrations (defined as greater than 10 percent of plan assets) of risk in SJI's pension and other postretirement benefit plan assets.
GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. This hierarchy groups assets into three distinct levels, as fully described in Note 17, which will serve as the basis for presentation throughout the remainder of this Note.
South Jersey Industries, Inc.
Part II
The fair values of SJI's pension plan assets at
December 31, 2016
and
2015
by asset category are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2016
|
|
|
|
|
|
|
|
Cash / Cash Equivalents:
|
|
|
|
|
|
|
|
|
Cash
|
$
|
63
|
|
|
$
|
63
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Common/Collective Trust Funds (a)
|
460
|
|
|
—
|
|
|
460
|
|
|
—
|
|
STIF-Type Instrument (b)
|
1,431
|
|
|
—
|
|
|
1,431
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - U.S. (a)
|
51,902
|
|
|
—
|
|
|
51,902
|
|
|
—
|
|
Common/Collective Trust Funds - International (a)
|
33,096
|
|
|
—
|
|
|
33,096
|
|
|
—
|
|
U.S. Large-Cap (c)
|
17,792
|
|
|
17,792
|
|
|
—
|
|
|
—
|
|
U.S. Mid-Cap (c)
|
2,479
|
|
|
2,479
|
|
|
—
|
|
|
—
|
|
International (c)
|
3,340
|
|
|
3,340
|
|
|
—
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds (a)
|
54,970
|
|
|
—
|
|
|
54,970
|
|
|
—
|
|
Guaranteed Insurance Contract (d)
|
9,714
|
|
|
—
|
|
|
—
|
|
|
9,714
|
|
Other types of investments:
|
|
|
|
|
|
|
|
Private Equity Fund (f)
|
5,100
|
|
|
—
|
|
|
—
|
|
|
5,100
|
|
Common/Collective Trust Fund - Real Estate (g)
|
9,195
|
|
|
—
|
|
|
—
|
|
|
9,195
|
|
Total
|
$
|
189,542
|
|
|
$
|
23,674
|
|
|
$
|
141,859
|
|
|
$
|
24,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2015
|
|
|
|
|
|
|
|
Cash / Cash Equivalents:
|
|
|
|
|
|
|
|
Cash
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Common/Collective Trust Funds (a)
|
858
|
|
|
—
|
|
|
858
|
|
|
—
|
|
STIF-Type Instrument (b)
|
1,360
|
|
|
—
|
|
|
1,360
|
|
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - U.S. (a)
|
52,058
|
|
|
—
|
|
|
52,058
|
|
|
—
|
|
Common/Collective Trust Funds - International (a)
|
33,236
|
|
|
—
|
|
|
33,236
|
|
|
—
|
|
U.S. Large-Cap (c)
|
14,305
|
|
|
14,305
|
|
|
—
|
|
|
—
|
|
U.S. Mid-Cap (c)
|
3,407
|
|
|
3,407
|
|
|
—
|
|
|
—
|
|
U.S. Small-Cap (c)
|
260
|
|
|
260
|
|
|
—
|
|
|
—
|
|
International (c)
|
1,695
|
|
|
1,695
|
|
|
—
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds (a)
|
50,664
|
|
|
—
|
|
|
50,664
|
|
|
—
|
|
Guaranteed Insurance Contract (d)
|
9,960
|
|
|
—
|
|
|
—
|
|
|
9,960
|
|
Hedge Funds (e)
|
4,159
|
|
|
—
|
|
|
—
|
|
|
4,159
|
|
Other types of investments:
|
|
|
|
|
|
|
|
Private Equity Fund (f)
|
4,312
|
|
|
—
|
|
|
—
|
|
|
4,312
|
|
Common/Collective Trust Fund - Real Estate (g)
|
8,515
|
|
|
—
|
|
|
—
|
|
|
8,515
|
|
Total
|
$
|
184,824
|
|
|
$
|
19,702
|
|
|
$
|
138,176
|
|
|
$
|
26,946
|
|
|
|
(a)
|
This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets and prices for these assets are readily observable. Also included in these funds are interest rate swaps, asset-backed securities, mortgage-backed securities and other investments with observable market values. Holdings in these commingled funds are classified as Level 2 investments.
|
South Jersey Industries, Inc.
Part II
|
|
(b)
|
This category represents short-term investment funds held for the purpose of funding disbursement payment arrangements. Underlying assets are valued based on quoted prices in active markets, or where quoted prices are not available, based on models using observable market information. Since not all values can be obtained from quoted prices in active markets, these funds are classified as Level 2 investments.
|
|
|
(c)
|
This category of equity investments represents a managed portfolio of common stock investments in
five
sectors: telecommunications, electric utilities, gas utilities, water and energy. These common stocks are actively traded on exchanges and price quotes for these shares are readily available. These common stocks are classified as Level 1 investments.
|
|
|
(d)
|
This category represents SJI's Group Annuity contracts with a nationally recognized life insurance company. The contracts are the assets of the plan, while the underlying assets of the contracts are owned by the contract holder. Valuation is based on a formula and calculation specified within the contract. Since the valuation is based on the reporting entity's own assumptions, these contracts are classified as Level 3 investments.
|
|
|
(e)
|
This category represents a collection of underlying funds which are all domiciled outside of the United States. All of the underlying fund managers are based in the U.S.; however, they do not necessarily trade only in U.S. markets. The fair value of these funds is determined by the underlying fund's general partner or manager. These funds are classified as Level 3 investments.
|
|
|
(f)
|
This category represents a limited partnership/commingled trust which includes several investments in U.S. leveraged buyout, venture capital, and special situation funds. Fund valuations are reported on a
90
to
120
day lag and, therefore, the value reported herein represents the market value as of June 30 or September 30, 2015 and 2014, respectively, with cash flow changes through December applied. The fund's investments are stated at fair value, which is generally based on the valuations provided by the general partners or managers of such investments. Fund investments are illiquid and resale is restricted. These funds are classified as Level 3 investments.
|
|
|
(g)
|
This category represents real estate common/collective trust fund investments through a commingled employee benefit trust. These commingled funds are part of a direct investment in a pool of real estate properties. These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications. Since these valuation inputs are not highly observable, the real estate funds are classified as Level 3 investments.
|
South Jersey Industries, Inc.
Part II
Fair Value Measurement Using Significant
Unobservable Inputs (Level 3)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed
|
|
|
|
Private
|
|
|
|
|
|
Insurance
|
|
Hedge
|
|
Equity
|
|
Real
|
|
|
|
Contract
|
|
Funds
|
|
Funds
|
|
Estate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
$
|
10,912
|
|
|
$
|
4,331
|
|
|
$
|
3,616
|
|
|
$
|
7,476
|
|
|
$
|
26,335
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
(106
|
)
|
|
(172
|
)
|
|
(302
|
)
|
|
1,039
|
|
|
459
|
|
Relating to assets sold during the period
|
25
|
|
|
—
|
|
|
429
|
|
|
—
|
|
|
454
|
|
Purchases, Sales and Settlements
|
(871
|
)
|
|
—
|
|
|
569
|
|
|
—
|
|
|
(302
|
)
|
Balance at December 31, 2015
|
9,960
|
|
|
4,159
|
|
|
4,312
|
|
|
8,515
|
|
|
26,946
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
541
|
|
|
(67
|
)
|
|
(140
|
)
|
|
680
|
|
|
1,014
|
|
Relating to assets sold during the period
|
14
|
|
|
—
|
|
|
245
|
|
|
—
|
|
|
259
|
|
Purchases, Sales and Settlements
|
(801
|
)
|
|
(4,092
|
)
|
|
683
|
|
|
—
|
|
|
(4,210
|
)
|
Balance at December 31, 2016
|
$
|
9,714
|
|
|
$
|
—
|
|
|
$
|
5,100
|
|
|
$
|
9,195
|
|
|
$
|
24,009
|
|
As with the pension plan assets, the Company's overall investment strategy for post-retirement benefit plan assets is to achieve a diversification by asset class, style of manager, and sector and industry limits to achieve investment results that match the actuarially assumed rate of return, while preserving the inflation adjusted value of the plans. The Company has implemented this diversification strategy with a mix of common/collective trust funds, mutual funds and Company-owned life insurance policies. The target allocations for post-retirement benefit plan assets are
30
-
43
percent U.S. equity securities,
20
-
30
percent international equity securities, and
32
-
42
percent fixed income investments and
0
-
7
percent to all other types of investments. Equity securities include investments in large-cap, mid-cap and small-cap companies within mutual funds or common/collective trust funds. Fixed income securities within the common/collective trust fund include primarily investment grade, U.S. Government and mortgage-backed financial instruments. The insurance policies are backed by a series of commingled trust investments held by the insurance carrier.
South Jersey Industries, Inc.
Part II
The fair values of SJI's other postretirement benefit plan assets at
December 31, 2016
and
2015
by asset category are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
Cash
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - U.S. (a)
|
$
|
14,878
|
|
|
$
|
—
|
|
|
$
|
14,878
|
|
|
$
|
—
|
|
Common/Collective Trust Funds - International (a)
|
8,674
|
|
|
—
|
|
|
8,674
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - Bonds (a)
|
13,537
|
|
|
—
|
|
|
13,537
|
|
|
—
|
|
Other Types of Investments:
|
|
|
|
|
|
|
|
Company Owned Life Insurance (c)
|
13,443
|
|
|
—
|
|
|
13,443
|
|
|
—
|
|
Total
|
$
|
50,532
|
|
|
$
|
—
|
|
|
$
|
50,532
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
Cash
|
$
|
26
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - U.S. (a)
|
$
|
13,522
|
|
|
$
|
—
|
|
|
$
|
13,522
|
|
|
$
|
—
|
|
Common/Collective Trust Funds - International (a)
|
8,313
|
|
|
—
|
|
|
8,313
|
|
|
—
|
|
Mutual Fund - U.S. (b)
|
1,309
|
|
|
1,309
|
|
|
—
|
|
|
—
|
|
Mutual Funds - International (b)
|
983
|
|
|
983
|
|
|
—
|
|
|
—
|
|
Fixed Income:
|
|
|
|
|
|
|
|
Common/Collective Trust Funds - Bonds (a)
|
13,187
|
|
|
—
|
|
|
13,187
|
|
|
—
|
|
Mutual Funds - Bonds (b)
|
1,441
|
|
|
1,441
|
|
|
—
|
|
|
—
|
|
Other Types of Investments:
|
|
|
|
|
|
|
|
Mutual Funds - REITS (b)
|
152
|
|
|
152
|
|
|
—
|
|
|
—
|
|
Company Owned Life Insurance (c)
|
8,826
|
|
|
—
|
|
|
8,826
|
|
|
—
|
|
Total
|
$
|
47,759
|
|
|
$
|
3,911
|
|
|
$
|
43,848
|
|
|
$
|
—
|
|
|
|
(a)
|
This category represents common/collective trust fund investments through a commingled employee benefit trust (excluding real estate). These commingled funds are not traded publicly; however, the majority of the underlying assets held in these funds are stocks and bonds that are traded on active markets and prices for these assets are readily observable. Also included in these funds are interest rate swaps, asset-backed securities, mortgage-backed securities and other investments with observable market values. Holdings in these commingled funds are classified as Level 2 investments.
|
|
|
(b)
|
This category represents mutual fund investments. The mutual funds are actively traded on exchanges and price quotes for the shares are readily available. These mutual funds are classified as Level 1 investments.
|
|
|
(c)
|
This category represents Company-owned life insurance policies with a nationally known life insurance company. The value of these policies is backed by a series of common/collective trust funds held by the insurance carrier similar to category (a) above. Holdings in these insurance policies are classified as Level 2 investments.
|
South Jersey Industries, Inc.
Part II
FUTURE BENEFIT PAYMENTS - The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years (in thousands):
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
2017
|
$
|
12,141
|
|
|
$
|
4,399
|
|
2018
|
$
|
12,583
|
|
|
$
|
4,316
|
|
2019
|
$
|
13,529
|
|
|
$
|
4,403
|
|
2020
|
$
|
14,056
|
|
|
$
|
4,514
|
|
2021
|
$
|
14,757
|
|
|
$
|
4,511
|
|
2022 - 2025
|
$
|
86,727
|
|
|
$
|
21,308
|
|
CONTRIBUTIONS - SJI contributed
$15.0 million
to the pension plans in 2015, with
no
pension contribution made in 2016 or 2014. Payments related to the unfunded SERP plan in 2016, 2015 and 2014 were
$2.3 million
,
$2.0 million
and
$1.5 million
, respectively. SERP payments are expected to approximate
$2.5 million
in 2017. SJG also has a regulatory obligation to contribute approximately
$3.6 million
annually to its other postretirement benefit plans’ trusts, less costs incurred directly by SJG.
DEFINED CONTRIBUTION PLAN - SJI offers an Employees' Retirement Savings Plan (Savings Plan) to eligible employees. For employees eligible for participation in SJI's defined benefit pension plan, SJI matches
50%
of participants' contributions up to
6%
of base compensation. For employees who are not eligible for participation in SJI's defined benefit pension plans, SJI matches
50%
of participants' contributions up to
8%
of base compensation. Employees not eligible for the pension plans also receive a year-end contribution of
$1,500
, if
10
or fewer years of service, or
$2,000
, if more than
10
years of service. The amount expensed and contributed for the matching provision of the Savings Plan approximated
$2.3 million
,
$2.1 million
and
$2.0 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Credit facilities and available liquidity as of
December 31, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Total Facility
|
|
Usage
|
|
Available Liquidity
|
|
Expiration Date
|
|
SJG:
|
|
|
|
|
|
|
|
|
|
Commercial Paper Program/Revolving Credit Facility
|
|
$
|
200,000
|
|
|
$
|
105,100
|
|
(A)
|
$
|
94,900
|
|
|
May 2018
|
|
Uncommitted Bank Lines
|
|
10,000
|
|
|
—
|
|
|
10,000
|
|
|
August 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SJG
|
|
210,000
|
|
|
105,100
|
|
|
104,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
450,000
|
|
|
196,600
|
|
(B)
|
253,400
|
|
|
Various
|
(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SJI
|
|
450,000
|
|
|
196,600
|
|
|
253,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
660,000
|
|
|
$
|
301,700
|
|
|
$
|
358,300
|
|
|
|
|
(A) Includes letters of credit outstanding in the amount of
$0.8 million
.
(B) Includes letters of credit outstanding in the amount of
$4.8 million
.
South Jersey Industries, Inc.
Part II
(C) In September 2016, the Company entered into an unsecured
$50.0 million
,
364
-day revolving credit agreement. The agreement matures September 2017, at which time the principal and any accrued but unpaid interest must be paid. At the annual request of the Company, but on not more than
two
occasions, the credit agreement may be extended for an additional period of
364
days. The
364
-day revolving facility bears interest at a variable base rate or a variable London Interbank Offered Rate (“LIBOR”), at the Company’s election.
The SJG facilities are restricted as to use and availability specifically to SJG; however, if necessary, the SJI facilities can also be used to support SJG’s liquidity needs. Borrowings under these credit facilities are at market rates. The weighted average interest rate on these borrowings, which changes daily, was
1.47%
,
1.13%
and
0.83%
at
December 31, 2016
,
2015
and
2014
, respectively. Average borrowings outstanding under these credit facilities, not including letters of credit, during the years ended
December 31, 2016
and
2015
were
$321.9 million
and
$335.0 million
, respectively. The maximum amounts outstanding under these credit facilities, not including letters of credit, during the years ended
December 31, 2016
and
2015
were
$467.7 million
and
$471.1 million
, respectively.
The SJI and SJG facilities are provided by a syndicate of banks and contain one financial covenant limiting the ratio of indebtedness to total capitalization (as defined in the respective credit agreements) to not more than
0.65 to 1
, measured at the end of each fiscal quarter.
SJG has a commercial paper program under which SJG may issue short-term, unsecured promissory notes to qualified investors up to a maximum aggregate amount outstanding at any time of
$200.0 million
. The notes have fixed maturities which vary by note, but may not exceed
270
days from the date of issue. Proceeds from the notes are used for general corporate purposes. SJG uses the commercial paper program in tandem with the new
$200.0 million
revolving credit facility and does not expect the principal amount of borrowings outstanding under the commercial paper program and the credit facility at any time to exceed an aggregate of
$200.0 million
.
South Jersey Industries, Inc.
Part II
Outstanding Long-Term Debt at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Long-Term Debt (A):
|
|
|
|
|
|
South Jersey Gas Company:
|
|
|
|
|
|
First Mortgage Bonds: (B)
|
|
|
|
|
|
5.437%
|
Series due 2016 (C)
|
|
$
|
—
|
|
|
$
|
10,000
|
|
4.6%
|
Series due 2016 (C)
|
|
—
|
|
|
17,000
|
|
4.657%
|
Series due 2017
|
|
15,000
|
|
|
15,000
|
|
7.97%
|
Series due 2018
|
|
10,000
|
|
|
10,000
|
|
7.125%
|
Series due 2018
|
|
20,000
|
|
|
20,000
|
|
5.587%
|
Series due 2019
|
|
10,000
|
|
|
10,000
|
|
3.00%
|
Series due 2024 (D)
|
|
50,000
|
|
|
50,000
|
|
3.03%
|
Series due 2024 (E)
|
|
35,000
|
|
|
35,000
|
|
3.63%
|
Series due 2025 (F)
|
|
8,182
|
|
|
9,091
|
|
4.84%
|
Series due 2026 (G)
|
|
15,000
|
|
|
15,000
|
|
4.93%
|
Series due 2026 (H)
|
|
45,000
|
|
|
45,000
|
|
4.03%
|
Series due 2027
|
|
45,000
|
|
|
45,000
|
|
4.01%
|
Series due 2030 (I)
|
|
50,000
|
|
|
50,000
|
|
4.23%
|
Series due 2030
|
|
30,000
|
|
|
30,000
|
|
3.74%
|
Series due 2032
|
|
35,000
|
|
|
35,000
|
|
5.55%
|
Series due 2033
|
|
32,000
|
|
|
32,000
|
|
6.213%
|
Series due 2034
|
|
10,000
|
|
|
10,000
|
|
5.45%
|
Series due 2035
|
|
10,000
|
|
|
10,000
|
|
Series A 2006 Bonds at variable rates due 2036 (J)
|
|
24,900
|
|
|
24,900
|
|
SJG Term Facility (K)
|
|
200,000
|
|
|
139,000
|
|
|
|
|
|
|
|
Marina Energy LLC: (L)
|
|
|
|
|
|
Series A 2001 Bonds at variable rates due 2031
|
|
20,000
|
|
|
20,000
|
|
Series B 2001 Bonds at variable rates due 2021
|
|
25,000
|
|
|
25,000
|
|
Series A 2006 Bonds at variable rates due 2036
|
|
16,400
|
|
|
16,400
|
|
|
|
|
|
|
South Jersey Industries:
|
|
|
|
|
2.71%
|
Series B 2012 Notes due 2017 (M)
|
|
16,000
|
|
|
16,000
|
|
3.05%
|
Series due 2019
|
|
60,000
|
|
|
60,000
|
|
3.05%
|
Series due 2019
|
|
30,000
|
|
|
30,000
|
|
3.05%
|
Series due 2019
|
|
50,000
|
|
|
50,000
|
|
3.46%
|
Series C 2012 Notes due 2022
|
|
35,000
|
|
|
35,000
|
|
Series Notes at variable rates due 2019 (N)
|
|
40,000
|
|
|
40,000
|
|
Series Notes at variable rates due 2019 (N)
|
|
60,000
|
|
|
60,000
|
|
South Jersey Industries Term Loan at variable rates due 2020 (O)
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
|
ACB Energy Partners, LLC:
|
|
|
|
|
|
7.60
|
%
|
Loan & Security Agreement (P)
|
|
—
|
|
|
12,735
|
|
|
|
|
|
|
|
Other Energy Project Debt (Q):
|
|
|
|
|
|
4.83
|
%
|
ACLE
|
|
—
|
|
|
3,551
|
|
4.83
|
%
|
SCLE
|
|
—
|
|
|
1,738
|
|
4.83
|
%
|
SXLE
|
|
—
|
|
|
3,433
|
|
|
|
|
|
|
|
Total Long-Term Debt Outstanding (R)
|
|
$
|
1,047,482
|
|
|
$
|
1,035,848
|
|
Less Current Maturities
|
|
(231,909
|
)
|
|
(29,454
|
)
|
|
|
|
|
|
|
Total Long-Term Debt (R)
|
|
$
|
815,573
|
|
|
$
|
1,006,394
|
|
South Jersey Industries, Inc.
Part II
|
|
(A)
|
Long-term debt maturities for the succeeding
five
years are as follows (in thousands): 2017:
$231,909
; 2018:
$38,909
; 2019:
$258,909
; 2020:
$67,909
; and 2021:
$52,909
.
|
|
|
(B)
|
The First Mortgage dated October 1, 1947, as supplemented, securing the First Mortgage Bonds constitutes a direct first mortgage lien on substantially all utility plant. In January 2017, the First Mortgage was amended and restated in its entirety (see Note 19).
|
|
|
(C)
|
In July 2016, SJG retired
$17.0 million
of
4.60%
Medium Term Notes (MTN's) at maturity. In August 2016, SJG retired
$10.0 million
of
5.437%
MTN's at maturity.
|
|
|
(D)
|
SJG has
$50.0 million
of
3.00%
MTN's, with
$10.0 million
due annually beginning September 2020 with the final payment due September 2024.
|
|
|
(E)
|
SJG has
$35.0 million
of
3.03%
MTN's, with
$7.0 million
due annually beginning November 2020 with the final payment due November 2024.
|
|
|
(F)
|
SJG pays
$0.9 million
annually toward the principal amount of
3.63%
MTN's, with the final payment to be made December 2025. As such,
$0.9 million
of the total outstanding amount on this debt is classified in current portion of long-term debt on the consolidated balance sheets as it is due within one year.
|
|
|
(G)
|
SJG has
$15.0 million
of
4.84%
MTN's, with
$2.5 million
due annually beginning March 2021 with the final payment due March 2026.
|
|
|
(H)
|
SJG has
$45.0 million
of
4.93%
MTN's, with
$7.5 million
due annually beginning June 2021 with the final payment due June 2026.
|
|
|
(I)
|
SJG has
$50.0 million
of
4.01%
MTN's with several due dates, as follows:
$8.0 million
each due November 2018 and 2019;
$2.0 million
due November 2025;
$3.0 million
due November 2026;
$8.0 million
due November 2027; and
$7.0 million
each due November 2028, 2029 and 2030.
|
|
|
(J)
|
These variable rate demand bonds bear interest at a floating rate that resets weekly. The interest rate as of
December 31, 2016
was
0.74%
. Liquidity support on these bonds is provided under a separate letter of credit facility that expires in August 2018. These bonds contain no financial covenants.
|
|
|
(K)
|
SJG had a
$200.0 million
multiple-draw term facility offered by a syndicate of banks which was set to expire in June 2017. This facility bore interest at a floating rate based on LIBOR plus a spread determined by SJG's credit ratings. As of December 31, 2015, SJG had borrowed an aggregate
$139.0 million
under this facility at an average interest rate of
1.17%
and the proceeds were used to pay down short-term debt. In January 2016, SJG issued an additional
$61.0 million
of long-term debt at an average interest rate of
1.41%
under this facility. As such, the total outstanding amount under this facility as of December 31, 2016 was
$200.0 million
, which was classified in current portion of long-term debt on the consolidated balance sheets as it was due within one year. In January 2017, this term facility was paid in full (see Note 19).
|
|
|
(L)
|
Marina has issued
$61.4 million
of unsecured variable-rate revenue bonds through the New Jersey Economic Development Authority (NJEDA). The variable rates at
December 31, 2016
for the Series A 2001, Series B 2001, and Series A 2006 bonds were
0.72%
,
0.73%
and
0.72%
respectively. The interest rate on all but
$46.1 million
of the bonds has been effectively fixed via interest rate swaps at
4.22%
until January 2026. These bonds contain no financial covenants. Liquidity support on these bonds is provided under a letter of credit facility from a commercial bank that expires in March 2018.
|
|
|
(M)
|
As of December 31, 2016,
$16.0 million
of aggregate principal amount of
2.71%
Senior Notes, due June 2017, are classified in current portion of long-term debt on the consolidated balance sheets. SJI plans to pay off this debt at maturity.
|
|
|
(N)
|
At
December 31, 2016
, the floating rate on these Senior Notes was
2.32%
.
|
|
|
(O)
|
In October 2015, SJI entered into an unsecured, variable-rate term loan of
$50.0 million
, which matures in October 2020. This agreement replaced existing facilities that expired in October 2015. The variable rate at
December 31, 2016
was
1.79%
.
|
South Jersey Industries, Inc.
Part II
|
|
(P)
|
ACB had a Loan and Security Agreement (“LSA”) with a third party to borrow up to
$16.0 million
. Under the LSA, ACB paid principal and interest (at a fixed rate of
7.60%
) in equal quarterly installments that began in February 2011 and was scheduled to run through February 2021. In December 2015, ACB became a wholly-owned subsidiary of Marina (see Note 3); as such, the remaining outstanding debt of
$12.7 million
was included on the Company's consolidated balance sheets as of December 31, 2015. In January 2016, the Company paid
$12.7 million
to retire outstanding debt.
|
|
|
(Q)
|
ACLE, SCLE and SXLE (the "Other Energy Projects") had long-term debt agreements with a third party to borrow up to
$10.0 million
. Under the debt agreements, the Other Energy Projects paid principal and interest (at a fixed rate of
4.83%
) in equal installments that began December 2013 and was scheduled to run through December 2020. In December 2015, the Other Energy Projects became wholly-owned subsidiaries of Marina (see Note 3); as such, the outstanding debt of
$8.7 million
was included on the Company's consolidated balance sheets as of December 31, 2015. In August 2016, the Company paid an aggregate
$8.3 million
to retire outstanding long-term debt for the Other Energy Projects.
|
|
|
(R)
|
Total Long-Term Debt in the table above does not include unamortized debt issuance costs of
$7.6 million
and
$9.0 million
for the years ended December 31, 2016 and 2015, respectively, which were reclassified to Long-Term Debt on the consolidated balance sheets to conform to ASU 2015-03 (see Note 1).
|
In December 2015, SJG filed a petition with the BPU to issue up to
$400.0 million
of long term debt securities in various forms including MTN's and unsecured debt, with maturities of more than 12 months, over the next three years. This petition was approved in March 2016.
|
|
15.
|
COMMITMENTS AND CONTINGENCIES:
|
GAS SUPPLY CONTRACTS - In the normal course of business, SJG and SJRG have entered into long-term contracts for natural gas supplies, firm transportation and gas storage service. The transportation and storage service agreements with interstate pipeline suppliers were made under FERC approved tariffs. SJRG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services is approximately
$0.5 million
per month. SJG's cumulative obligation for demand charges and reservation fees paid to suppliers for these services averages approximately
$5.6 million
per month and is recovered on a current basis through the BGSS. SJRG has also committed to purchase a minimum of
745,000
dts/d and up to
940,000
dts/d of natural gas, from various suppliers, for terms ranging from
three
to
ten
years at index based prices.
PENDING LITIGATION - The Company is subject to claims arising in the ordinary course of business and other legal proceedings. The Company has been named in, among other actions, certain gas supply and capacity management contract disputes and certain product liability claims related to our former sand mining subsidiary.
The Company is currently involved in a pricing dispute related to
two
long-term gas supply contracts whereby the Company had sued the supplier to recover amounts that were improperly invoiced. Subsequently, the supplier countersued the Company claiming it is owed an amount which we extrapolate to be
$14.9 million
from SJG, plus interest, and
$40.2 million
from SJRG, plus interest, through
December 31, 2016
. We believe any monies received or paid associated with the SJG claims would reflect gas costs that would be recovered from SJG's customers through adjusted rates.
The Company is also involved in a dispute related to a
three
-year capacity management contract with a counterparty whereby the Company is the manager. The counterparty is claiming that it is owed approximately
$13.3 million
, plus interest, from SJRG under a sharing credit within the contract.
Liabilities related to these claims are accrued when the amount or range of amounts of probable settlement costs or other charges for these claims can be reasonably estimated. The Company has accrued approximately
$3.1 million
and
$3.2 million
related to all claims in the aggregate as of
December 31, 2016
and
2015
, respectively. Although the Company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the Company can provide no assurance regarding the outcome of litigation.
COLLECTIVE BARGAINING AGREEMENTS
— Unionized personnel represent approximately
45.0%
of our workforce at
December 31, 2016
. The Company has collective bargaining agreements with
two
unions that represent these employees: the International Brotherhood of Electrical Workers (IBEW) Local 1293 and the International Association of Machinists and Aerospace Workers (IAM) Local 76. SJG and SJESP employees represented by the IBEW operate under collective bargaining agreements that run through February 2018. The remaining unionized employees are represented by the IAM and operate under collective bargaining agreements that run through August 2017.
South Jersey Industries, Inc.
Part II
GUARANTEES - As of
December 31, 2016
, SJI, the parent company, has issued guarantees to third parties on behalf of its consolidated subsidiaries. These guarantees were issued to guarantee payment to third parties with whom SJI's consolidated subsidiaries have commodity supply contracts and for Marina's construction and operating activities. As of
December 31, 2016
, these guarantees support future firm commitments of SJI's consolidated subsidiaries and
$125.4 million
of the Accounts Payable already recorded on SJI's consolidated balance sheet.
As of
December 31, 2016
, SJI had issued
$6.0 million
of parental guarantees on behalf of an unconsolidated subsidiary. These guarantees generally expire within the next
two
years and were issued to enable our subsidiary to market retail natural gas.
STANDBY LETTERS OF CREDIT — As of
December 31, 2016
, SJI provided
$4.8 million
of standby letters of credit through its revolving credit facility to enable SJE to market retail electricity and for various construction and operating activities. SJG provided a
$0.8 million
letter of credit under its revolving credit facility to support the remediation of environmental conditions at certain locations in SJG's service territory. The Company also provided
$87.5 million
of additional letters of credit under separate facilities outside of the revolving credit facilities to support variable-rate demand bonds issued through the New Jersey Economic Development Authority (NJEDA) to finance the expansion of SJG’s natural gas distribution system and to finance Marina's initial thermal plant project.
ENVIRONMENTAL REMEDIATION COSTS — SJI incurred and recorded costs for environmental cleanup of
12
sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. SJI and some of its nonutility subsidiaries also recorded costs for environmental cleanup of sites where SJF previously operated a fuel oil business and Morie maintained equipment, fueling stations and storage.
SJI successfully entered into settlements with all of its historic comprehensive general liability carriers regarding the environmental remediation expenditures at the SJG sites. Also, SJG had purchased a Cleanup Cost Cap Insurance Policy limiting the amount of remediation expenditures that SJG was required to make at
11
of its sites. This policy provided coverage up to
$50.0 million
, which was exhausted in 2012.
Since the early 1980s, SJI accrued environmental remediation costs of
$437.1 million
, of which
$282.1 million
was spent as of
December 31, 2016
.
The following table details the amounts expended and accrued for SJI's environmental remediation during the last two years (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Beginning of Year
|
$
|
126,623
|
|
|
$
|
128,172
|
|
Accruals
|
60,713
|
|
|
19,489
|
|
Expenditures
|
(32,323
|
)
|
|
(21,038
|
)
|
End of Year
|
$
|
155,013
|
|
|
$
|
126,623
|
|
The balances are segregated between current and noncurrent on the consolidated balance sheets under the captions Current Liabilities and Deferred Credits and Other Noncurrent Liabilities.
Management estimates that undiscounted future costs to clean up SJG's sites will range from
$153.0 million
to
$257.1 million
.
Six
of SJG's sites comprise the majority of these estimates, the sum of the
six
sites range from a low of
$141.2 million
to a high of
$246.7 million
. SJG recorded the lower end of this range as a liability because a single reliable estimation point is not feasible due to the amount of uncertainty involved in the nature of projected remediation efforts and the long period over which remediation efforts will continue. Recorded amounts include estimated costs based on projected investigation and remediation work plans using existing technologies. Actual costs could differ from the estimates due to the long-term nature of the projects, changing technology, government regulations and site-specific requirements. Significant risks surrounding these estimates include unforeseen market price increases for remedial services, property owner acceptance of remedy selection, regulatory approval of selected remedy and remedial investigative findings.
The remediation efforts at SJG's
six
most significant sites include the following:
Site 1 - Several interim remedial actions have been completed at the site. Steps remaining to remediate the balance of the site include selection of the remedial action, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.
South Jersey Industries, Inc.
Part II
Site 2 - Various remedial investigation activities have been completed at this site and a final site remedy has been approved by the regulatory authority. The first phase of remedial action is underway and preparation for the next step is ongoing. Remaining steps to remediate the site include continued implementation of the approved remedy, long-term groundwater monitoring, and issuance of a Response Action Outcome.
Site 3 - Various remedial investigation activities have been completed at this site and a final site remedy is being developed for proposal to the regulatory authority. Steps remaining to remediate the site include
s
election of a final remedy, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy, long term groundwater monitoring, and issuance of a Response Action Outcome.
Site 4 - Remedial investigation activities are complete at this site and a final remedy has been approved by the regulatory authority. Steps remaining to remediate the site include installation of a sub-surface containment unit, post remediation groundwater monitoring, and issuance of a Response Action Outcome.
Site 5 -The remedial action to address impacted soil at the site is ongoing. Steps remaining include long-term groundwater monitoring and issuance of a Response Action Outcome.
Site 6 - Remedial investigation activities have been completed at this site and a final site remedy is being developed for proposal to the regulatory authority. Steps remaining to remediate the site include selection of a final remedy, confirmation of regulatory compliance of the selected remedy, implementation of the approved remedy and issuance of a Response Action Outcome.
With Morie's sale in 1996, EMI assumed responsibility for environmental liabilities currently estimated between
$1.3 million
and
$2.1 million
. The information available on these sites is sufficient only to establish a range of probable liability and no point within the range is more likely than any other. Therefore, EMI has accrued the lower end of the range. Changes in the accrual are included in the statements of consolidated income under Loss from Discontinued Operations.
SJI and SJF estimate their potential exposure for the future remediation of
five
sites where fuel oil operations existed years ago to range from
$0.7 million
to
$1.3 million
. The lower end of this range has been recorded under Current Liabilities and Deferred Credits and Other Noncurrent Liabilities as of
December 31, 2016
.
|
|
16.
|
DERIVATIVE INSTRUMENTS:
|
Certain SJI subsidiaries are involved in buying, selling, transporting and storing natural gas and buying and selling retail electricity for their own accounts as well as managing these activities for third parties. These subsidiaries are subject to market risk on expected future purchases and sales due to commodity price fluctuations. The Company uses a variety of derivative instruments to limit this exposure to market risk in accordance with strict corporate guidelines. These derivative instruments include forward contracts, swap agreements, options contracts and futures contracts. As of
December 31, 2016
, the Company had outstanding derivative contracts intended to limit the exposure to market risk on
67.9
MMdts of expected future purchases of natural gas,
62.1
MMdts of expected future sales of natural gas,
2.3
MMmwh of expected future purchases of electricity and
1.7
MMmwh of expected future sales of electricity. In addition to these derivative contracts, the Company has basis and index related purchase and sales contracts totaling
141.6
MMdts. These contracts, which have not been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives — Energy Related Assets or Derivatives — Energy Related Liabilities on the consolidated balance sheets. The net unrealized pre-tax gains and losses for these energy-related commodity contracts are included with realized gains and losses in Operating Revenues – Nonutility.
As part of its gas purchasing strategy, SJG uses financial contracts through SJRG to limit exposure to forward price risk. The costs or benefits of these short-term contracts are recoverable through SJG's BGSS clause, subject to BPU approval.
The retail gas operations of SJE transact commodities on a physical basis and typically does not directly enter into positions that financially settle. SJRG performs this risk management function for SJE and enters into the types of financial transactions noted above. The retail electric operations of SJE use forward physical and financial contracts to mitigate commodity price risk on fixed price electric contracts.
Management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in identifying, assessing and controlling various risks. Management reviews any open positions in accordance with strict policies to limit exposure to market risk.
South Jersey Industries, Inc.
Part II
The Company has also entered into interest rate derivatives to hedge exposure to increasing interest rates and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives, some of which have been designated as hedging instruments under GAAP, are measured at fair value and recorded in Derivatives - Other on the consolidated balance sheets. Hedge accounting has been discontinued for these derivatives. As a result, unrealized gains and losses on these derivatives, that were previously recorded in Accumulated Other Comprehensive Loss (AOCL) on the consolidated balance sheets, are being recorded into earnings over the remaining life of the derivative. These derivatives are expected to mature in 2026.
As of
December 31, 2016
, SJI's active interest rate swaps were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Fixed Interest Rate
|
|
Start Date
|
|
Maturity
|
Type of Debt
|
|
Obligor
|
$
|
14,500,000
|
|
|
3.905%
|
|
3/17/2006
|
|
1/15/2026
|
Tax-exempt
|
|
Marina
|
$
|
500,000
|
|
|
3.905%
|
|
3/17/2006
|
|
1/15/2026
|
Tax-exempt
|
|
Marina
|
$
|
330,000
|
|
|
3.905%
|
|
3/17/2006
|
|
1/15/2026
|
Tax-exempt
|
|
Marina
|
$
|
12,500,000
|
|
|
3.530%
|
|
12/1/2006
|
|
2/1/2036
|
Tax-exempt
|
|
SJG
|
$
|
12,500,000
|
|
|
3.430%
|
|
12/1/2006
|
|
2/1/2036
|
Tax-exempt
|
|
SJG
|
The unrealized gains and losses on interest rate derivatives that are not designated as cash flow hedges are included in Interest Charges. However, for selected interest rate derivatives at SJG, management believes that, subject to BPU approval, the market value upon termination can be recovered in rates and, therefore, these unrealized losses have been included in Other Regulatory Assets in the consolidated balance sheets.
The fair values of all derivative instruments, as reflected in the consolidated balance sheets as of December 31, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under GAAP
|
|
2016
|
|
2015
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Energy-related commodity contracts:
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related – Current
|
|
$
|
72,391
|
|
|
$
|
60,082
|
|
|
$
|
83,093
|
|
|
$
|
90,708
|
|
Derivatives – Energy Related – Non-Current
|
|
8,502
|
|
|
4,540
|
|
|
16,238
|
|
|
21,697
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
Derivatives - Other - Current
|
|
—
|
|
|
681
|
|
|
—
|
|
|
—
|
|
Derivatives - Other - Non-Current
|
|
—
|
|
|
9,349
|
|
|
—
|
|
|
10,943
|
|
Total derivatives not designated as hedging instruments under GAAP
|
|
80,893
|
|
|
74,652
|
|
|
99,331
|
|
|
123,348
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
$
|
80,893
|
|
|
$
|
74,652
|
|
|
$
|
99,331
|
|
|
$
|
123,348
|
|
South Jersey Industries, Inc.
Part II
The Company enters into derivative contracts with counterparties, some of which are subject to master netting arrangements, which allow net settlements under certain conditions. The Company presents derivatives at gross fair values on the consolidated balance sheets. As of
December 31, 2016
and
2015
, information related to these offsetting arrangements were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of recognized assets/liabilities
|
|
Gross amount offset in the balance sheet
|
|
Net amounts of assets/liabilities in balance sheet
|
|
Gross amounts not offset in the balance sheet
|
|
Net amount
|
|
|
|
|
Financial Instruments
|
|
Cash Collateral Posted
|
|
Derivatives - Energy Related Assets
|
|
$
|
80,893
|
|
|
$
|
—
|
|
|
$
|
80,893
|
|
|
$
|
(38,809
|
)
|
(A)
|
$
|
(3,474
|
)
|
|
$
|
38,610
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(64,622
|
)
|
|
$
|
—
|
|
|
$
|
(64,622
|
)
|
|
$
|
38,809
|
|
(B)
|
$
|
—
|
|
|
$
|
(25,813
|
)
|
Derivatives - Other
|
|
$
|
(10,030
|
)
|
|
$
|
—
|
|
|
$
|
(10,030
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(10,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of recognized assets/liabilities
|
|
Gross amount offset in the balance sheet
|
|
Net amounts of assets/liabilities in balance sheet
|
|
Gross amounts not offset in the balance sheet
|
|
Net amount
|
|
|
|
|
Financial Instruments
|
|
Cash Collateral Posted
|
|
Derivatives - Energy Related Assets
|
|
$
|
99,331
|
|
|
$
|
—
|
|
|
$
|
99,331
|
|
|
$
|
(35,491
|
)
|
(A)
|
$
|
—
|
|
|
$
|
63,840
|
|
Derivatives - Energy Related Liabilities
|
|
$
|
(112,405
|
)
|
|
$
|
—
|
|
|
$
|
(112,405
|
)
|
|
$
|
35,491
|
|
(B)
|
$
|
23,045
|
|
|
$
|
(53,869
|
)
|
Derivatives - Other
|
|
$
|
(10,943
|
)
|
|
$
|
—
|
|
|
$
|
(10,943
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(10,943
|
)
|
(A) The balances at
December 31, 2016
and
2015
were related to derivative liabilities which can be net settled against derivative assets.
(B) The balances at
December 31, 2016
and
2015
were related to derivative assets which can be net settled against derivative liabilities.
The effect of derivative instruments on the statements of consolidated income and comprehensive income for the year ended December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
2016
|
|
2015
|
|
2014
|
Interest Rate Contracts:
|
|
|
|
|
|
|
Losses recognized in AOCL on effective portion
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Losses reclassified from AOCL into income (a)
|
|
$
|
(333
|
)
|
|
$
|
(551
|
)
|
|
$
|
(419
|
)
|
Losses recognized in income on ineffective portion (a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(a) Included in Interest Charges
South Jersey Industries, Inc.
Part II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments under GAAP
|
|
2016
|
|
2015
|
|
2014
|
Gains (losses) on energy-related commodity contracts (a)
|
|
$
|
26,935
|
|
|
$
|
8,401
|
|
|
$
|
(6,592
|
)
|
Gains (losses) on interest rate contracts (b)
|
|
647
|
|
|
96
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,582
|
|
|
$
|
8,497
|
|
|
$
|
(7,059
|
)
|
(a) Included in Operating Revenues - Nonutility
(b) Included in Interest Charges
Net realized (losses) gains associated with SJG’s energy-related financial commodity contracts of
$(3.0) million
,
$(9.1) million
and
$1.7 million
for the years ended
2016
,
2015
and
2014
, respectively, are not included in the above table. These contracts are part of SJG’s regulated risk management activities that serve to mitigate BGSS costs passed on to its customers. As these transactions are entered into pursuant to, and recoverable through, regulatory riders, any changes in the value of SJG’s energy-related financial commodity contracts are deferred in Regulatory Assets or Liabilities, as applicable, and there is no impact on earnings.
Certain of the Company’s derivative instruments contain provisions that require immediate payment or demand immediate and ongoing collateralization on derivative instruments in net liability positions in the event of a material adverse change in the credit standing of the Company. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on
December 31, 2016
, is
$9.6 million
. If the credit-risk-related contingent features underlying these agreements were triggered on
December 31, 2016
, the Company would have been required to settle the instruments immediately or post collateral to its counterparties of approximately
$8.1 million
after offsetting asset positions with the same counterparties under master netting arrangements.
|
|
17.
|
FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
|
GAAP establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The levels of the hierarchy are described below:
|
|
•
|
Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.
For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Available-for-Sale Securities (A)
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives – Energy Related Assets (B)
|
80,893
|
|
|
33,994
|
|
|
11,814
|
|
|
35,085
|
|
|
$
|
80,925
|
|
|
$
|
34,026
|
|
|
$
|
11,814
|
|
|
$
|
35,085
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
64,622
|
|
|
$
|
16,502
|
|
|
$
|
22,070
|
|
|
$
|
26,050
|
|
Derivatives – Other (C)
|
10,030
|
|
|
—
|
|
|
10,030
|
|
|
—
|
|
|
$
|
74,652
|
|
|
$
|
16,502
|
|
|
$
|
32,100
|
|
|
$
|
26,050
|
|
South Jersey Industries, Inc.
Part II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Available-for-Sale Securities (A)
|
$
|
14,810
|
|
|
$
|
2,925
|
|
|
$
|
11,885
|
|
|
$
|
—
|
|
Derivatives – Energy Related Assets (B)
|
99,331
|
|
|
16,006
|
|
|
24,730
|
|
|
58,595
|
|
|
$
|
114,141
|
|
|
$
|
18,931
|
|
|
$
|
36,615
|
|
|
$
|
58,595
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives – Energy Related Liabilities (B)
|
$
|
112,405
|
|
|
$
|
42,170
|
|
|
$
|
11,008
|
|
|
$
|
59,227
|
|
Derivatives – Other (C)
|
10,943
|
|
|
—
|
|
|
10,943
|
|
|
—
|
|
|
$
|
123,348
|
|
|
$
|
42,170
|
|
|
$
|
21,951
|
|
|
$
|
59,227
|
|
(A) Available-for-Sale Securities include securities that are traded in active markets and securities that are not traded publicly. The securities traded in active markets are valued using the quoted principal market close prices that are provided by the trustees and are categorized in Level 1 in the fair value hierarchy. The remaining securities consist of funds that are not publicly traded. These funds, which consist of stocks and bonds that are traded individually in active markets, are valued using quoted prices for similar assets and are categorized in Level 2 in the fair value hierarchy.
(B) Derivatives – Energy Related Assets and Liabilities are traded in both exchange-based and non-exchange-based markets. Exchange-based contracts are valued using unadjusted quoted market sources in active markets and are categorized in Level 1 in the fair value hierarchy. Certain non-exchange-based contracts are valued using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask mid-point prices and are obtained from sources that management believes provide the most liquid market. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. In instances where observable data is unavailable, management considers the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 as the model inputs generally are not observable.
Significant Unobservable Inputs - Management uses the discounted cash flow model to value Level 3 physical and financial forward contracts, which calculates mark-to-market valuations based on forward market prices, original transaction prices, volumes, risk-free rate of return and credit spreads. Inputs to the valuation model are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third party pricing sources. The validity of the mark-to-market valuations and changes in mark-to-market valuations from period to period are examined and qualified against historical expectations by the risk management function. If any discrepancies are identified during this process, the mark-to-market valuations or the market pricing information is evaluated further and adjusted, if necessary.
Level 3 valuation methods for natural gas derivative contracts include utilizing another location in close proximity adjusted for certain pipeline charges to derive a basis value. The significant unobservable inputs used in the fair value measurement of certain natural gas contracts consist of forward prices developed based on industry-standard methodologies. Significant increases (decreases) in these forward prices for purchases of natural gas would result in a directionally similar impact to the fair value measurement and for sales of natural gas would result in a directionally opposite impact to the fair value measurement. Level 3 valuation methods for electric represent the value of the contract marked to the forward wholesale curve, as provided by daily exchange quotes for delivered electricity. The significant unobservable inputs used in the fair value measurement of electric contracts consist of fixed contracted electric load profiles; therefore no change in unobservable inputs would occur. Unobservable inputs are updated daily using industry-standard techniques. Management reviews and corroborates the price quotations to ensure the prices are observable which includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration.
(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model. Market inputs can generally be verified and model selection does not involve significant management judgment.
South Jersey Industries, Inc.
Part II
The following table provides quantitative information regarding significant unobservable inputs in Level 3 fair value measurements (in thousands, except for ranges):
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2016
|
Valuation Technique
|
Significant Unobservable Input
|
Range [Weighted Average]
|
|
|
Assets
|
Liabilities
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
23,301
|
|
$
|
18,109
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$1.03 - $11.33
[$2.71]
|
(A)
|
Forward Contract - Electric
|
$
|
11,784
|
|
$
|
7,941
|
|
Discounted Cash Flow
|
Fixed electric load profile (on-peak)
|
21.43% - 100.00%
[55.14%]
|
(B)
|
Fixed electric load profile (off-peak)
|
0.00% - 78.57%
[44.86%]
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
Fair Value at December 31, 2015
|
Valuation Technique
|
Significant Unobservable Input
|
Range [Weighted Average]
|
|
|
Assets
|
Liabilities
|
|
|
|
|
Forward Contract - Natural Gas
|
$
|
29,459
|
|
$
|
31,733
|
|
Discounted Cash Flow
|
Forward price (per dt)
|
$(0.77) - $10.00 [$2.15]
|
(A)
|
Forward Contract - Electric
|
$
|
29,136
|
|
$
|
27,494
|
|
Discounted Cash Flow
|
Fixed electric load profile (on-peak)
|
8.47% - 100.00% [56.20%]
|
(B)
|
Fixed electric load profile (off-peak)
|
0.00% - 91.53% [43.80%]
|
(B)
|
(A) Represents the range, along with the weighted average, of forward prices for the sale and purchase of natural gas.
(B) Represents the range, along with the weighted average, of the percentage of contracted usage that is loaded during on-peak hours versus off-peak.
The changes in fair value measurements of Derivatives – Energy Related Assets and Liabilities at
December 31, 2016
and
2015
, using significant unobservable inputs (Level 3), are as follows (in thousands):
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
Balance at January 1, 2016
|
|
$
|
(632
|
)
|
Other changes in fair value from continuing and new contracts, net
|
|
5,657
|
|
Transfers in to/(out of) of Level 3 (A)
|
|
4,116
|
|
Settlements
|
|
(106
|
)
|
|
|
|
Balance at December 31, 2016
|
|
$
|
9,035
|
|
South Jersey Industries, Inc.
Part II
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
Balance at January 1, 2015
|
|
$
|
(5,608
|
)
|
Other changes in fair value from continuing and new contracts, net
|
|
(5,069
|
)
|
Transfers in to/(out of) of Level 3 (A)
|
|
7,402
|
|
Settlements
|
|
2,643
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
(632
|
)
|
(A) Transfers between different levels of the fair value hierarchy may occur based on the level of observable inputs used to value the instruments from period to period. During the years ended December 31, 2016 and 2015,
$4.1 million
and
$7.4 million
of net derivative assets were transferred from Level 2 to Level 3, due to decreased observability of market data, which is assessed quarterly by management.
Total gains for
2016
included in earnings for the year ended
December 31, 2016
that are attributable to the change in unrealized gains relating to those assets and liabilities included in Level 3 still held as of
December 31, 2016
, are
$5.7 million
. These gains are included in Operating Revenues-Nonutility on the statements of consolidated income.
|
|
18.
|
ACCUMULATED OTHER COMPREHENSIVE LOSS (AOCL):
|
The following table summarizes the changes in accumulated other comprehensive loss (AOCL) for the year ended
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Liability Adjustment
|
|
Unrealized Gain (Loss) on Derivatives-Other
|
|
Unrealized Gain (Loss) on Available-for-Sale Securities
|
|
Other Comprehensive Income (Loss) of Affiliated Companies
|
|
Total
|
Balance at January 1, 2016 (a)
|
$
|
(22,145
|
)
|
|
$
|
(2,129
|
)
|
|
$
|
(128
|
)
|
|
$
|
(97
|
)
|
|
$
|
(24,499
|
)
|
Other comprehensive income before reclassifications
|
(5,617
|
)
|
|
—
|
|
|
323
|
|
|
—
|
|
|
(5,294
|
)
|
Amounts reclassified from AOCL (b)
|
2,420
|
|
|
197
|
|
|
(205
|
)
|
|
—
|
|
|
2,412
|
|
Net current period other comprehensive income
|
(3,197
|
)
|
|
197
|
|
|
118
|
|
|
—
|
|
|
(2,882
|
)
|
Balance at December 31, 2016 (a)
|
$
|
(25,342
|
)
|
|
$
|
(1,932
|
)
|
|
$
|
(10
|
)
|
|
$
|
(97
|
)
|
|
$
|
(27,381
|
)
|
(a) Determined using a combined average statutory tax rate of
40%
.
(b) See table below.
South Jersey Industries, Inc.
Part II
The following table provides details about reclassifications out of AOCL for the year ended
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from AOCL
|
|
Affected Line Item in the Statements of Consolidated Income
|
For the Year Ended December 31, 2016
|
|
Actuarial Loss on Postretirement Benefits
|
$
|
4,001
|
|
|
Operating Expenses: Operations
|
Income Taxes
|
(1,581
|
)
|
|
Income Taxes (a)
|
|
$
|
2,420
|
|
|
|
Unrealized Loss on Derivatives-Other - interest rate contracts designated as cash flow hedges
|
$
|
333
|
|
|
Interest Charges
|
Income Taxes
|
(136
|
)
|
|
Income Taxes (a)
|
|
$
|
197
|
|
|
|
|
|
|
|
Unrealized Gain on Available-for-Sale Securities
|
$
|
(342
|
)
|
|
Other Income
|
Income Taxes
|
137
|
|
|
Income Taxes (a)
|
|
$
|
(205
|
)
|
|
|
|
|
|
|
Losses from reclassifications for the period net of tax
|
$
|
2,412
|
|
|
|
(a) Determined using a combined average statutory tax rate of
40%
.
In January 2017, SJG entered into a Supplemental Indenture Amending and Restating First Mortgage Indenture (the “New Mortgage”), which amended and restated in its entirety that Indenture of Mortgage dated October 1, 1947 (see Note 14). The New Mortgage provides for the issuance by SJG of bonds, notes or other securities that are secured by a lien on substantially all of the operating properties and franchises of SJG.
In January 2017, SJG issued
$200.0 million
aggregate principal amount of MTN's, Series E, 2017, due January 2047, with principal payments beginning in 2025. The MTN's bear interest at an annual rate of
3.0%
payable semiannually. Proceeds were used to pay down the
$200.0 million
multiple-draw term facility which was set to expire in June 2017.
In January 2017, SJG entered into an unsecured,
$200.0 million
term loan credit agreement ("Credit Agreement"), which is syndicated among
seven
banks. Term loans under the Credit Agreement bear interest at a variable base rate or a variable LIBOR rate, at SJG's election. Under the Credit Agreement, SJG can borrow up to an aggregate of
$200.0 million
until July 2018, of which SJG borrowed
$73.0 million
on January 31, 2017. All loans under the Credit Agreement become due in January 2019.
In January 2017, SJG filed a base rate case with the BPU to increase its base rates in order to obtain a return on new capital investments made by SJG since the settlement of its last base rate case in 2014. SJG expects the base rate case to be concluded during 2017.
South Jersey Industries, Inc.
Part II