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REPORTING SEGMENT AND OTHER OPERATIONS DATA
 9 Months Ended
Jun. 30, 2019
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 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
Nine Months Ended
 
June 30,
June 30,
(Thousands)
2019
2018
2019
2018
Operating revenues
 
 
 
 
Natural Gas Distribution
 
 
 
 
External customers
$
120,782

$
104,538

$
622,167

$
631,389

Clean Energy Ventures
 
 
 
 
External customers
11,450

15,348

37,707

42,210

Energy Services
 
 
 
 
External customers (1)
290,083

409,417

1,416,837

1,563,063

Intercompany
(62
)
(12
)
8,276

49,636

Subtotal
422,253

529,291

2,084,987

2,286,298

Home Services and Other
 
 
 
 
External customers
12,627

14,132

36,253

31,121

Intercompany
455

627

1,652

1,856

Eliminations
(393
)
(615
)
(9,928
)
(51,492
)
Total
$
434,942

$
543,435

$
2,112,964

$
2,267,783

Depreciation and amortization
 
 
 
 
Natural Gas Distribution
$
14,689

$
13,473

$
42,557

$
39,609

Clean Energy Ventures
8,239

6,702

24,253

24,565

Energy Services (2)
23

21

75

50

Midstream
1

1

4

4

Subtotal
22,952

20,197

66,889

64,228

Home Services and Other
230

193

673

570

Eliminations
(33
)
(70
)
(270
)
(164
)
Total
$
23,149

$
20,320

$
67,292

$
64,634

Interest income (3)
 
 
 
 
Natural Gas Distribution
$
187

$
202

$
567

$
452

Energy Services
26

134

40

240

Midstream
1,088

945

3,089

2,380

Subtotal
1,301

1,281

3,696

3,072

Home Services and Other
515

340

1,620

898

Eliminations
(1,320
)
(1,419
)
(4,202
)
(3,518
)
Total
$
496

$
202

$
1,114

$
452

(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)
2019
2018
2019
2018
Interest expense, net of capitalized interest
 
 
 
 
Natural Gas Distribution
$
6,301

$
6,226

$
18,166

$
19,285

Clean Energy Ventures
4,320

4,708

14,405

13,260

Energy Services
766

581

4,277

3,041

Midstream
522

471

1,630

1,165

Subtotal
11,909

11,986

38,478

36,751

Home Services and Other
407

(129
)
1,410

(18
)
Eliminations
(668
)
(820
)
(2,245
)
(1,993
)
Total
$
11,648

$
11,037

$
37,643

$
34,740

Income tax (benefit) provision
 
 
 
 
Natural Gas Distribution
$
(1,391
)
$
(25,314
)
$
16,705

$
4,381

Clean Energy Ventures
(1,787
)
(565
)
(39,033
)
(87,275
)
Energy Services
(1,193
)
(4,786
)
7,063

32,922

Midstream
729

989

2,910

(8,723
)
Subtotal
(3,642
)
(29,676
)
(12,355
)
(58,695
)
Home Services and Other
1,705

1,122

854

11,539

Eliminations
(4
)
20

(353
)
(645
)
Total
$
(1,941
)
$
(28,534
)
$
(11,854
)
$
(47,801
)
Equity in earnings of affiliates
 
 
 
 
Midstream
$
4,167

$
3,907

$
11,966

$
12,104

Eliminations
(672
)
(694
)
(1,939
)
(2,434
)
Total
$
3,495

$
3,213

$
10,027

$
9,670

Net financial (loss) earnings
 
 
 
 
Natural Gas Distribution
$
(3,795
)
$
2,440

$
96,464

$
96,991

Clean Energy Ventures
(7,138
)
(829
)
24,797

80,472

Energy Services
(14,030
)
(15,079
)
13,644

78,027

Midstream
3,052

3,489

11,201

22,315

Subtotal
(21,911
)
(9,979
)
146,106

277,805

Home Services and Other
4,437

1,993

2,932

(8,211
)
Eliminations
(32
)
(17
)
(34
)
(202
)
Total
$
(17,506
)
$
(8,003
)
$
149,004

$
269,392

Capital expenditures
 
 
 
 
Natural Gas Distribution
$
100,473

$
70,623

$
239,569

$
173,410

Clean Energy Ventures
38,813

29,424

91,333

88,416

Midstream
6,406

975

11,290

3,579

Subtotal
145,692

101,022

342,192

265,405

Home Services and Other
924

745

1,826

1,300

Total
$
146,616

$
101,767

$
344,018

$
266,705

Investments in equity investees
 
 
 
 
Midstream
$
1,239

$
3,319

$
2,696

$
14,496

Total
$
1,239

$
3,319

$
2,696

$
14,496


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)
2019
2018
2019
2018
Net financial (loss) earnings (1)
$
(17,506
)
$
(8,003
)
$
149,004

$
269,392

Less:
 
 
 
 
Unrealized (gain) loss on derivative instruments and related transactions
(24,646
)
2,657

(25,353
)
25,904

Tax effect
5,885

(577
)
6,034

(3,920
)
Effects of economic hedging related to natural gas inventory
11,317

4,474

12,073

(14,788
)
Tax effect
(2,689
)
(1,011
)
(2,869
)
5,518

NFE tax adjustment
1,029

728

7,700

6,987

Net (loss) income (1)
$
(8,402
)
$
(14,274
)
$
151,419

$
249,691


(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 NFE. 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,
2019
September 30,
2018
Assets at end of period:
 
 
Natural Gas Distribution
$
2,867,528

$
2,663,054

Clean Energy Ventures (1)
703,866

865,018

Energy Services
285,970

396,852

Midstream
229,099

242,069

Subtotal
4,086,463

4,166,993

Home Services and Other
129,882

114,732

Intercompany assets (2)
(92,933
)
(138,061
)
Total
$
4,123,412

$
4,143,664

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