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REPORTING SEGMENT AND OTHER OPERATIONS DATA
 9 Months Ended
Jun. 30, 2018
Segment Reporting [Abstract]  
REPORTING SEGMENT AND OTHER OPERATIONS DATA
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 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
Nine Months Ended
 
June 30,
June 30,
(Thousands)
2018
2017
2018
2017
Operating revenues
 
 
 
 
Natural Gas Distribution
 
 
 
 
External customers
$
104,538

$
121,362

$
631,389

$
602,464

Clean Energy Ventures
 
 
 
 
External customers
15,348

14,915

42,210

35,425

Energy Services
 
 
 
 
External customers (1)
409,417

307,448

1,563,063

1,063,986

Intercompany
(12
)
(309
)
49,636

621

Subtotal
529,291

443,416

2,286,298

1,702,496

Home Services and Other
 
 
 
 
External customers
14,132

13,798

31,121

30,222

Intercompany
627

610

1,856

2,696

Eliminations
(615
)
(301
)
(51,492
)
(3,317
)
Total
$
543,435

$
457,523

$
2,267,783

$
1,732,097

Depreciation and amortization
 
 
 
 
Natural Gas Distribution
$
13,473

$
12,425

$
39,609

$
36,718

Clean Energy Ventures
6,702

8,154

24,565

23,118

Energy Services (2)
21

16

50

49

Midstream
1

1

4

4

Subtotal
20,197

20,596

64,228

59,889

Home Services and Other
193

186

570

606

Eliminations
(70
)
(22
)
(164
)
(147
)
Total
$
20,320

$
20,760

$
64,634

$
60,348

Interest income (3)
 
 
 
 
Natural Gas Distribution
$
202

$
202

$
452

$
374

Energy Services
134

6

240

6

Midstream
945

581

2,380

1,555

Subtotal
1,281

789

3,072

1,935

Home Services and Other
340

155

898

408

Eliminations
(1,419
)
(785
)
(3,518
)
(2,001
)
Total
$
202

$
159

$
452

$
342

(1)
Includes sales to Canada, which are immaterial.
(2)
The amortization of acquired wholesale energy contracts is excluded above and is included in gas purchases - nonutility on the Unaudited Condensed Consolidated Statements of Operations.
(3)
Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations.
 
Three Months Ended
Nine Months Ended
 
June 30,
June 30,
(Thousands)
2018
2017
2018
2017
Interest expense, net of capitalized interest
 
 
 
 
Natural Gas Distribution
$
6,226

$
6,294

$
19,285

$
19,510

Clean Energy Ventures
4,708

4,345

13,260

11,724

Energy Services
581

586

3,041

1,873

Midstream
471

211

1,165

681

Subtotal
11,986

11,436

36,751

33,788

Home Services and Other
(129
)
116

(18
)
313

Eliminations
(820
)
(388
)
(1,993
)
(886
)
Total
$
11,037

$
11,164

$
34,740

$
33,215

Income tax (benefit) provision
 
 
 
 
Natural Gas Distribution
$
(25,314
)
$
1,496

$
4,381

$
46,882

Clean Energy Ventures
(565
)
(8,122
)
(87,275
)
(44,765
)
Energy Services
(4,786
)
(1,767
)
32,922

11,334

Midstream
989

1,609

(8,723
)
4,760

Subtotal
(29,676
)
(6,784
)
(58,695
)
18,211

Home Services and Other
1,122

853

11,539

1,674

Eliminations
20

115

(645
)
249

Total
$
(28,534
)
$
(5,816
)
$
(47,801
)
$
20,134

Equity in earnings of affiliates
 
 
 
 
Midstream
$
3,907

$
4,049

$
12,104

$
13,499

Eliminations
(694
)
(984
)
(2,434
)
(3,044
)
Total
$
3,213

$
3,065

$
9,670

$
10,455

Net financial earnings (loss)
 
 
 
 
Natural Gas Distribution
$
2,440

$
5,951

$
96,991

$
96,532

Clean Energy Ventures
(829
)
6,276

80,472

31,861

Energy Services
(15,079
)
933

78,027

20,166

Midstream
3,489

2,959

22,315

10,294

Subtotal
(9,979
)
16,119

277,805

158,853

Home Services and Other
1,993

1,295

(8,211
)
3,545

Eliminations
(17
)
(19
)
(202
)
(514
)
Total
$
(8,003
)
$
17,395

$
269,392

$
161,884

Capital expenditures
 
 
 
 
Natural Gas Distribution
$
70,623

$
42,235

$
173,410

$
115,834

Clean Energy Ventures
29,424

32,053

88,416

121,958

Midstream
975

—

3,579

—

Subtotal
101,022

74,288

265,405

237,792

Home Services and Other
745

417

1,300

933

Total
$
101,767

$
74,705

$
266,705

$
238,725

Investments in equity investees
 
 
 
 
Midstream
$
3,319

$
13,559

$
14,496

$
24,097

Total
$
3,319

$
13,559

$
14,496

$
24,097


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
Nine Months Ended
 
June 30,
June 30,
(Thousands)
2018
2017
2018
2017
Net financial (loss) earnings (1)
$
(8,003
)
$
17,395

$
269,392

$
161,884

Less:
 
 
 
 
Unrealized loss (gain) on derivative instruments and related transactions
2,657

(15,981
)
25,904

(42,534
)
Tax effect
(577
)
5,985

(3,920
)
15,907

Effects of economic hedging related to natural gas inventory
4,474

13,203

(14,788
)
29,592

Tax effect
(1,011
)
(4,947
)
5,518

(11,077
)
Net income to NFE tax adjustment
728

178

6,987

1,408

Net (loss) income (1)
$
(14,274
)
$
18,957

$
249,691

$
168,588


(1)
Includes income tax benefit related to the Tax Act of $844,000 and $57.7 million, for the three and nine months ended June 30, 2018, respectively.

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

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

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

NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Additionally, realized derivative gains and losses are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical gas flows. Included in the tax effects are current and deferred income tax expense corresponding with the non-GAAP measure. Also included in the tax effects during the three and nine months ended June 30, 2018, are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the quarter. NJR also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.

The Company's assets for the various business segments and business operations are detailed below:
(Thousands)
June 30,
2018
September 30,
2017
Assets at end of period:
 
 
Natural Gas Distribution
$
2,558,895

$
2,519,578

Clean Energy Ventures (1)
796,380

771,340

Energy Services
375,548

398,277

Midstream
255,777

232,806

Subtotal
3,986,600

3,922,001

Home Services and Other
143,469

114,801

Intercompany assets (2)
(152,681
)
(108,295
)
Total
$
3,977,388

$
3,928,507

(1)
Includes assets held for sale of $206.9 million for June 30, 2018.
(2)
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.