NEW JERSEY RESOURCES CORP

CEV actively pursues opportunities in the renewable energy markets. CEV enters into various agreements to install solar net-metered systems for residential and commercial customers, as well as large commercial grid-connected projects. In addition, CEV enters into various long-term agreements, including PPAs, to supply energy from commercial solar projects.

Capital expenditures related to clean energy projects are subject to change due to a variety of factors that may affect our ability to commence operations at these projects on a timely basis or at all, including logistics associated with the start-up of residential and commercial solar projects, such as timing of construction schedules, the permitting and regulatory process, any delays related to electric grid interconnection, economic trends, unforeseen events and the ability to access capital or allocation of capital to other investments or business opportunities. CEV is also subject to various risks, which may include impacts to residential solar customer growth and customer collections, our ability to identify and develop commercial solar asset investments, impacts to our supply chain and our ability to source materials for construction.

The primary contributors toward the value of qualifying clean energy projects are tax incentives and RECs. Changes in the federal statutes related to the ITC and/or relevant state legislation and regulatory policies affecting the market for solar renewable energy credits, could significantly affect future results.

Solar projects placed in service and related expenditures are as follows:

(1)Includes projects subject to sale leaseback arrangements.

CEV has approximately 476.5 MW of solar capacity in service. Projects that were placed in service through December 31, 2019, qualified for a 30% federal ITC. The credit declined to 26% for property under construction during 2020 through the end of 2022. In August 2022, the federal ITC was restored to 30% through the end of 2032. There are additional opportunities to increase the credit amount for certain facilities that are placed in service after December 31, 2022, based upon the type of project and location.

Part I

CEV may enter into transactions to sell certain of its commercial solar assets concurrent with agreements to lease the assets back over a period of five to 15 years. The Company will continue to operate the solar assets and are responsible for related expenses and entitled to retain the revenue generated from RECs and energy sales. ITCs and other tax attributes associated with these solar projects transfer to the buyer if applicable; however, the lease payments are structured so that CEV is compensated for the transfer of the related tax incentives. Accordingly, for solar projects financed under sale leasebacks for which the assets were sold during the first 5 years of in-service life, CEV recognizes the equivalent value of the ITC in other income on the Unaudited Condensed Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease. CEV received proceeds of approximately $101.8M during the three months ended June 30, 2023, and $24.4M and $163.6M during the nine months ended June 30, 2024 and 2023, respectively, in connection with sale leasebacks of commercial solar assets. There were no proceeds received during the three months ended June 30, 2024.

As part of its solar investment portfolio, CEV operates a residential and small commercial solar program, The Sunlight Advantage®, that provides qualifying homeowners and small business owners the opportunity to have a solar system installed at their home or place of business with no installation or maintenance expenses. CEV owns, operates and maintains the system over the life of the contract in exchange for monthly payments.

For solar installations placed in-service in New Jersey prior to April 30, 2020, each MWh of electricity produced creates an SREC that represents the renewable energy attribute of the solar-electricity generated that can be sold to third parties, predominantly load-serving entities that are required to comply with the solar requirements under New Jersey's renewable portfolio standard.

Following the close of the SREC market in New Jersey, the BPU established the TREC as the successor program to the SREC program. TRECs provide a fixed compensation base multiplied by an assigned project factor in order to determine their value. The project factor is determined by the type and location of the project, as defined. All TRECs generated are required to be purchased monthly by a TREC program administrator as appointed by the BPU.

In July 2021, the BPU established a new successor solar incentive program. This Administratively Determined Incentive Program provides administratively set incentives for net metered residential projects and net metered non-residential projects of 5 MW or less. RECs generated through the production of electricity under this program are known as SREC IIs.

In December 2022, the BPU established the Competitive Solar Incentive Program, which provides incentives to larger solar facilities. It is open to qualifying grid supply solar facilities, non-residential net metered solar installations with a capacity greater than 5MW, and eligible grid supply solar facilities installed in combination with energy storage. Pricing is determined based on a competitive bid solicitation process.

REC activity during the nine months ended, consisted of the following:

(1)TREC and SREC II inventory balances are due primarily to the timing of generation and when RECs are delivered to state administrator.

Part I

CEV hedges its expected SREC production through the use of forward sales contracts. The following table reflects the hedged percentage of our projected inventory of SRECs related to its in-service commercial and residential assets:

(1)Energy years are compliance periods for New Jersey's renewable portfolio standard that run from June 1 to May 31.

There are no direct costs associated with the production of RECs by our solar assets. All related costs are included as a component of O&M on the Unaudited Condensed Consolidated Statements of Operations, including such expenses as facility maintenance and broker fees.

CEV’s financial results are summarized as follows:

Net loss increased approximately $14.0M during the three months ended June 30, 2024, compared with the three months ended June 30, 2023, due primarily to the following factors:

•$16.2M decrease in income tax benefit due to the reversal of a valuation allowance for certain deferred tax assets during June 2023; and

•$1.4M increase in O&M due to higher project maintenance expenses and lease expenses; partially offset by

•$1.7M increase in other income, net due primarily to the recognition of ITCs associated with solar sale leaseback financing transactions; and

•$1.5M increase in operating revenues due to higher SREC and electricity sales.

Net loss decreased approximately $3.9M during the nine months ended June 30, 2024, compared with the nine months ended June 30, 2023, due primarily to the following factors:

•$18.9M increase in operating revenues due to higher SREC, TREC and electricity sales; and

•$11.4M increase in other income, net due primarily to the recognition of ITCs associated with solar sale leaseback financing transactions; partially offset by

•$22.6M decrease in income tax benefit as previously discussed;

•$2.1M increase in depreciation expense as a result of additional solar assets being placed into service; and

•$1.1M increase in O&M as previously discussed.