LEASES

6 Months Ended

Mar. 31, 2024

Leases [Abstract]

LEASES

12. LEASES

Lessee Accounting

The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. After the criteria are satisfied, the Company accounts for these arrangements as leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases.

The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of certain natural gas meters.

Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. The variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.

Generally, the Company’s solar land lease terms are between 20 and 50 years and may include multiple options to extend the terms for an additional five to 20 years. The Company’s office leases vary in duration, ranging from two to 11 years and may or may not include extension or early purchase options. The Company’s meter lease terms are between six and 10 years with purchase options available prior to the end of the term. Equipment leases include general office equipment that also vary in duration, with an average term of nine years. The Company's storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases.

The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with various NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation.

The following table presents the Company's lease costs included in the Unaudited Condensed Consolidated Statements of Operations:

		Three Months Ended				Six Months Ended
		March 31,				March 31,
(Thousands)	Income Statement Location	2024		2023		2024		2023
Operating lease cost (1)	Operation and maintenance	$	2,524	$	2,307	$	5,064	$	4,724
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	552		540		1,080		1,025
Interest on lease liabilities	Interest expense, net of capitalized interest	236		298		488		533
Total finance lease cost		788		838		1,568		1,558
Variable lease cost	Operation and maintenance	246		272		446		495
Total lease cost		$	3,558	$	3,417	$	7,078	$	6,777

(1)Net of capitalized costs.

The following table presents supplemental cash flow information related to leases:

	Six Months Ended
	March 31,
(Thousands)	2024		2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	4,199	$	3,652
Operating cash flows for finance leases	$	488	$	533
Financing cash flows for finance leases	$	3,875	$	3,577

Assets obtained or modified through operating lease liabilities totaled approximately $2.6M and $0.3M during the three months ended March 31, 2024 and 2023, respectively, and totaled approximately $4.1M and $0.4M during the six months ended March 31, 2024 and 2023, respectively.

Assets obtained or modified through other leases, including those which are finance leases and financing transactions for accounting purposes, totaled $8.4M during the six months ended March 31, 2023. There were no assets obtained or modified through finance leases during the three and six months ended March 31, 2024, and the three months ended March 31, 2023.

The following table presents the balance and classifications of the Company's right of use assets and lease liabilities included in the Unaudited Condensed Consolidated Balance Sheets:

(Thousands)	Balance Sheet Location	March 31, 2024		September 30, 2023
Assets
Noncurrent
Operating lease assets	Operating lease assets	$	177,176	$	175,740
Finance lease assets	Utility plant	27,168		28,248
Total lease assets		$	204,344	$	203,988
Liabilities
Current
Operating lease liabilities	Operating lease liabilities	$	4,780	$	4,772
Finance lease liabilities	Current maturities of long-term debt	8,816		8,477
Noncurrent
Operating lease liabilities	Operating lease liabilities	150,971		148,023
Finance lease liabilities	Long-term debt	18,661		22,875
Total lease liabilities		$	183,228	$	184,147

For operating lease assets and liabilities, the weighted average remaining lease term was 28.6 years and 29.2 years for and the weighted average discount rate used in the valuation over the remaining lease term was 3.6% and 3.5% for March 31, 2024 and September 30, 2023, respectively. For finance lease assets and liabilities, the weighted average remaining lease term was 3.4 years and 3.3 years and the weighted average discount rate used in the valuation over the remaining lease term was 3.3% and 2.7% as of March 31, 2024 and September 30, 2023, respectively.

LEASES

12. LEASES

Lessee Accounting

The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. After the criteria are satisfied, the Company accounts for these arrangements as leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases.

The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of certain natural gas meters.

Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. The variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.

Generally, the Company’s solar land lease terms are between 20 and 50 years and may include multiple options to extend the terms for an additional five to 20 years. The Company’s office leases vary in duration, ranging from two to 11 years and may or may not include extension or early purchase options. The Company’s meter lease terms are between six and 10 years with purchase options available prior to the end of the term. Equipment leases include general office equipment that also vary in duration, with an average term of nine years. The Company's storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases.

The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. In July 2021, NJNG entered into 16-year lease agreements, as Lessor, with various NJR subsidiaries, as Lessees, for office space at the Company’s headquarters in Wall, New Jersey, the effects of which are eliminated in consolidation.

The following table presents the Company's lease costs included in the Unaudited Condensed Consolidated Statements of Operations:

		Three Months Ended				Six Months Ended
		March 31,				March 31,
(Thousands)	Income Statement Location	2024		2023		2024		2023
Operating lease cost (1)	Operation and maintenance	$	2,524	$	2,307	$	5,064	$	4,724
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	552		540		1,080		1,025
Interest on lease liabilities	Interest expense, net of capitalized interest	236		298		488		533
Total finance lease cost		788		838		1,568		1,558
Variable lease cost	Operation and maintenance	246		272		446		495
Total lease cost		$	3,558	$	3,417	$	7,078	$	6,777

(1)Net of capitalized costs.

The following table presents supplemental cash flow information related to leases:

	Six Months Ended
	March 31,
(Thousands)	2024		2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	4,199	$	3,652
Operating cash flows for finance leases	$	488	$	533
Financing cash flows for finance leases	$	3,875	$	3,577

Assets obtained or modified through operating lease liabilities totaled approximately $2.6M and $0.3M during the three months ended March 31, 2024 and 2023, respectively, and totaled approximately $4.1M and $0.4M during the six months ended March 31, 2024 and 2023, respectively.

Assets obtained or modified through other leases, including those which are finance leases and financing transactions for accounting purposes, totaled $8.4M during the six months ended March 31, 2023. There were no assets obtained or modified through finance leases during the three and six months ended March 31, 2024, and the three months ended March 31, 2023.

The following table presents the balance and classifications of the Company's right of use assets and lease liabilities included in the Unaudited Condensed Consolidated Balance Sheets:

(Thousands)	Balance Sheet Location	March 31, 2024		September 30, 2023
Assets
Noncurrent
Operating lease assets	Operating lease assets	$	177,176	$	175,740
Finance lease assets	Utility plant	27,168		28,248
Total lease assets		$	204,344	$	203,988
Liabilities
Current
Operating lease liabilities	Operating lease liabilities	$	4,780	$	4,772
Finance lease liabilities	Current maturities of long-term debt	8,816		8,477
Noncurrent
Operating lease liabilities	Operating lease liabilities	150,971		148,023
Finance lease liabilities	Long-term debt	18,661		22,875
Total lease liabilities		$	183,228	$	184,147

For operating lease assets and liabilities, the weighted average remaining lease term was 28.6 years and 29.2 years for and the weighted average discount rate used in the valuation over the remaining lease term was 3.6% and 3.5% for March 31, 2024 and September 30, 2023, respectively. For finance lease assets and liabilities, the weighted average remaining lease term was 3.4 years and 3.3 years and the weighted average discount rate used in the valuation over the remaining lease term was 3.3% and 2.7% as of March 31, 2024 and September 30, 2023, respectively.