NEW JERSEY RESOURCES CORP

Energy Services

ES markets and sells natural gas to wholesale and retail customers and manages natural gas transportation and storage assets throughout major market areas across North America. ES maintains a strategic portfolio of natural gas transportation and storage contracts that it utilizes in conjunction with its market expertise to provide service and value to its customers. Availability of these transportation and storage contracts allows ES to generate market opportunities by capturing price differentials over specific time horizons and between geographic market locations.

ES also provides management of transportation and storage assets for natural gas producers and regulated utilities. These management transactions typically involve the release of producer/utility-owned storage and/or transportation capacity in combination with an obligation to purchase and/or deliver physical natural gas. In addition to the contractual purchase and/or sale of physical natural gas, ES generates or pays fee-based margin in exchange for its active management and may provide the producer and/or utility with additional margin based on actual results.

Part I

In conjunction with the active management of these contracts, ES generates Financial Margin by identifying market opportunities and simultaneously entering into natural gas purchase/sale, storage or transportation contracts and financial derivative contracts. In cases where storage is utilized to fulfill these contracts, these forecast sales and/or purchases are economically hedged through the use of financial derivative contracts. The financial derivative contracts consist primarily of exchange-traded futures, options and swap contracts, and are frequently used to lock in anticipated transactional cash flows and to help manage volatility in natural gas market prices. Generally, when its transportation and storage contracts are exposed to periods of increased market volatility, ES is able to implement strategies that allow it to capture margin by improving the respective time or geographic spreads on a forward basis.

ES accounts for its physical commodity contracts and its financial derivative instruments at fair value on the Unaudited Condensed Consolidated Balance Sheets. Changes in the fair value of physical commodity contracts and financial derivative instruments are included in earnings as a component of operating revenues or natural gas purchases on the Unaudited Condensed Consolidated Statements of Operations. Volatility in reported net income at ES can occur over periods of time due to changes in the fair value of derivatives, as well as timing differences related to certain transactions. Unrealized gains and losses can fluctuate as a result of changes in the price of natural gas and SRECs from the original transaction price. Volatility in earnings can also occur as a result of timing differences between the settlement of financial derivatives and the sale of the underlying physical commodity. For example, when a financial instrument settles and the physical natural gas is injected into inventory, the realized gains and losses associated with the financial instrument are recognized in earnings. However, the gains and losses associated with the physical natural gas are not recognized in earnings until the natural gas inventory is withdrawn from storage and sold, at which time ES realizes the entire margin on the transaction.

During December 2020, ES entered into a series of AMAs with an investment grade public utility to release pipeline capacity associated with certain natural gas transportation contracts. The utility provides certain asset management services and ES may deliver natural gas to the utility in exchange for aggregate net proceeds of approximately $500M, payable through November 1, 2030. The AMAs include a series of initial and permanent releases, which commenced in November 2021. NJR received a total of approximately $260M in cash from fiscal 2022 through fiscal 2024 and will receive approximately $34M per year from fiscal 2025 through fiscal 2031 under the agreements. ES recognized approximately $4.9M and $9.5M during the three months ended March 31, 2025 and 2024, respectively, and approximately $9.9M and $19.0M during the six months ended March 31, 2025 and 2024, respectively, of operating revenue related to the AMAs on the Unaudited Condensed Consolidated Statements of Operations. Amounts received in excess of revenue totaling approximately $46.7M and $22.3M as of March 31, 2025 and September 30, 2024, respectively, are included in deferred revenue on the Unaudited Condensed Consolidated Balance Sheets.

ES’s financial results are summarized as follows:

(1)Includes related party transactions of approximately $(3.7)M and $(4.9)M during the three and six months ended March 31, 2024, respectively, which are eliminated in consolidation. There were no related party transactions during the three and six months ended March 31, 2025.

(2)Costs associated with pipeline and storage capacity are expensed over the term of the related contracts, which generally varies from less than one year to 10 years.

(3)Includes related party transactions of approximately $0.3M during both the three months ended March 31, 2025 and 2024, and $0.6M during both the six months ended March 31, 2025 and 2024, a portion of which is eliminated in consolidation.

Part I

ES's portfolio of financial derivative instruments is composed of:

During the six months ended March 31, 2025 and 2024, the net short position resulted in unrealized (losses) gains of approximately $(8.2)M and $6.8M, respectively.

Operating revenues increased approximately $101.5M and $88.2M during the three and six months ended March 31, 2025, compared with the three and six months ended March 31, 2024, respectively, due primarily to an 84% and 46% increase in natural gas prices, respectively, partially offset by a decrease in revenue related to the AMAs and an 8% and 7% decrease in volumes, respectively. Natural gas purchases increased approximately $46.2M and $53.9M during the three and six months ended March 31, 2025, compared with the three and six months ended March 31, 2024, respectively, due primarily to a 55% and 41% increase in natural gas purchase prices, respectively.

Future results at ES are contingent upon natural gas market price volatility driven by variations in both the supply and demand balances caused by weather and other factors. As a result, variations in weather patterns in the key market areas served may affect earnings during the fiscal year. Changes in market fundamentals, such as an increase in supply and decrease in demand due to warmer temperatures, and reduced volatility can negatively impact ES's earnings. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Natural Gas Distributionfor TETCO M-3 Daily Prices, which illustrates the daily natural gas prices in the Northeast market region.

Net income increased approximately $44.3M during the three months ended March 31, 2025, compared with the three months ended March 31, 2024, due primarily to the following factors:

•$101.5M increase in operating revenues, as previously discussed; partially offset by

•$46.2M increase in natural gas purchases, as previously discussed; and

•$13.8M increase in income tax expense related to higher operating income.

Net income increased approximately $30.6M during the six months ended March 31, 2025, compared with the six months ended March 31, 2024, due primarily to the following factors:

•$88.2M increase in operating revenues, as previously discussed; partially offset by

•$53.9M increase in natural gas purchases, as previously discussed; and

•$9.1M increase in income tax expense related to higher operating income.

Management uses Financial Margin and NFE, non-GAAP financial measures, when evaluating the operating results of ES. Financial Margin and NFE are based on removing timing differences associated with certain derivative instruments. GAAP also requires us, during the interim periods, to estimate our annual effective tax rate and use this rate to calculate the year-to-date tax provision. We also determine an annual estimated effective tax rate for NFE purposes and calculate a quarterly tax adjustment based on the differences between our forecasted net income and our forecasted NFE for the fiscal year. This adjustment is applied to ES, as the adjustment primarily relates to timing differences associated with certain derivative instruments that impacts the estimate of the annual effective tax rate for NFE. No adjustment is needed during the fourth quarter, since the actual effective tax rate is calculated at year end.

Part I

Management views these measures as representative of the overall expected economic result and uses these measures to compare ES's results against established benchmarks and earnings targets as these measures eliminate the impact of volatility on GAAP earnings as a result of timing differences associated with the settlement of derivative instruments. To the extent that there are unanticipated impacts from changes in the market value related to the effectiveness of economic hedges, ES's actual non-GAAP results can differ from the results anticipated at the outset of the transaction. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measure.

When ES reconciles the most directly comparable GAAP measure to both Financial Margin and NFE, the current period unrealized gains and losses on derivatives are excluded as a reconciling item. Financial Margin and NFE also exclude the effects of economic hedging of the value of our natural gas in storage and, therefore, only include realized gains and losses related to natural gas withdrawn from storage, effectively matching the full earnings effects of the derivatives with realized margins on the related physical natural gas flows. To the extent we utilize forwards, futures or other derivatives to hedge natural gas transactions and forecasted SREC production, the resulting unrealized gains and losses are also eliminated from NFE. Financial Margin differs from gross margin as defined on a GAAP basis as it excludes certain operations and maintenance expense and depreciation and amortization as well as the effects of derivatives as discussed above.

Financial Margin

A reconciliation of gross margin, the closest GAAP financial measure, to ES's Financial Margin is as follows:

(1)Includes unrealized gains related to intercompany transactions between NJNG and ES that have been eliminated in consolidation of approximately $3.7M and $4.9M during the three and six months ended March 31, 2024, respectively. There were no unrealized gains related to intercompany transactions between NJNG and ES during the three and six months ended March 31, 2025.

(2)Excludes SG&A of approximately $0.3M and $0.5M during the three months ended March 31, 2025 and 2024, respectively, and $0.6M and $1.0M during the six months ended March 31, 2025 and 2024, respectively.

(3)Effects of hedging natural gas inventory transactions where the economic impact is realized in a future period.

Financial Margin decreased approximately $4.9M and $8.6M during the three and six months ended March 31, 2025, compared with the three and six months ended March 31, 2024, respectively, due primarily to lower AMA related revenue.

Part I

Net Financial Earnings

A reconciliation of ES's net income, the most directly comparable GAAP financial measure, to NFE is as follows:

(1)Includes taxes related to intercompany transactions between NJNG and ES that have been eliminated in consolidation of approximately $0.9M and $1.2M during the three and six months ended March 31, 2024, respectively. There were no taxes related to intercompany transactions for the three and six months ended March 31, 2025.

NFE decreased approximately $2.3M during both the three and six months ended March 31, 2025, compared with the three and six months ended March 31, 2024, due primarily to lower AMA related revenue, as previously discussed.

Future results are subject to the ability of ES to expand its wholesale sales and service activities and are contingent upon many other factors, including an adequate number of appropriate and credit qualified counterparties in an active and liquid natural marketplace; volatility in the natural gas market due to weather or other fundamental market factors impacting supply and/or demand; transportation, storage and/or other market arbitrage opportunities, sufficient liquidity in the overall energy trading market; and continued access to liquidity in the capital markets.