13. REPORTING SEGMENT AND OTHER OPERATIONS DATA

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

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



	Three Months Ended
	December 31,
(Thousands)	2017			2016
Operating revenues
Natural Gas Distribution
External customers	$	209,787		$	185,556
Clean Energy Ventures
External customers	13,996			7,567
Energy Services
External customers ⁽¹⁾	472,171			338,930
Intercompany	5,810			(1,749		)
Subtotal	701,764			530,304
Home Services and Other
External customers	9,351			8,975
Intercompany	606			1,031
Eliminations	(6,416		)	718
Total	$	705,305		$	541,028
Depreciation and amortization
Natural Gas Distribution	$	12,783		$	12,030
Clean Energy Ventures	8,935			7,041
Energy Services	14			16
Midstream	1			1
Subtotal	21,733			19,088
Home Services and Other	188			221
Eliminations	(67		)	(49		)
Total	$	21,854		$	19,260
Interest income ⁽²⁾
Natural Gas Distribution	$	119		$	75
Midstream	664			462
Subtotal	783			537
Home Services and Other	204			121
Eliminations	(931		)	(583		)
Total	$	56		$	75


(1)	Includes sales to Canada, which accounted for .02 and 1.9 percent of total operating revenues during the three months ended December 31, 2017 and 2016, respectively.


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



	Three Months Ended
	December 31,
(Thousands)	2017			2016
Interest expense, net of capitalized interest
Natural Gas Distribution	$	6,536		$	6,824
Clean Energy Ventures	4,208			3,324
Energy Services	1,257			571
Midstream	309			56
Subtotal	12,310			10,775
Home Services and Other	90			74
Eliminations	(495		)	(234		)
Total	$	11,905		$	10,615
Income tax provision (benefit)
Natural Gas Distribution	$	11,704		$	14,887
Clean Energy Ventures	(73,988		)	(11,887		)
Energy Services	13,743			(3,176		)
Midstream	(12,843		)	1,649
Subtotal	(61,384		)	1,473
Home Services and Other	11,698			(245		)
Eliminations	(482		)	790
Total	$	(50,168	)	$	2,018
Equity in earnings of affiliates
Midstream	$	4,129		$	3,331
Eliminations	(865		)	(1,020		)
Total	$	3,264		$	2,311
Net financial earnings
Natural Gas Distribution	$	34,109		$	30,348
Clean Energy Ventures	71,250			2,842
Energy Services	20,274			3,487
Midstream	17,511			2,387
Subtotal	143,144			39,064
Home Services and Other	(7,716		)	1,542
Eliminations	(95		)	(223		)
Total	$	135,333		$	40,383
Capital expenditures
Natural Gas Distribution	$	47,390		$	38,855
Clean Energy Ventures	18,387			46,785
Subtotal	65,777			85,640
Home Services and Other	1,313			171
Total	$	67,090		$	85,811
Investments in equity investees
Midstream	$	7,202		$	4,636
Total	$	7,202		$	4,636

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



	Three Months Ended
	December 31,
(Thousands)	2017			2016
Net financial earnings	$	135,333		$	40,383
Less:
Unrealized loss on derivative instruments and related transactions	34,855			28,302
Tax effect	(8,059		)	(9,757		)
Effects of economic hedging related to natural gas inventory	(25,387		)	(17,939		)
Tax effect	8,244			6,204
Net income to NFE tax adjustment	1,981			(1,356		)
Net income	$	123,699		$	34,929

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


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


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

NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Additionally, realized derivative gains and losses are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical gas flows. Included in the tax effects are current and deferred income tax expense corresponding with the non-GAAP measure. Also included in the tax effects during the three month ended December 31, 2017, are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the quarter. NJR also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.

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



(Thousands)	December 31, 2017			September 30, 2017
Assets at end of period:
Natural Gas Distribution	$	2,590,623		$	2,519,578
Clean Energy Ventures	797,951			771,340
Energy Services	547,388			398,277
Midstream	248,498			232,806
Subtotal	4,184,460			3,922,001
Home Services and Other	125,149			114,801
Intercompany assets⁽¹⁾	(122,681		)	(108,295		)
Total	$	4,186,928		$	3,928,507


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