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BUSINESS SEGMENT AND OTHER OPERATIONS DATA
 3 Months Ended
Dec. 31, 2013
Segment Reporting [Abstract]  
BUSINESS SEGMENT AND OTHER OPERATIONS DATA
BUSINESS SEGMENT AND OTHER OPERATIONS DATA

NJR organizes its businesses based on its products and services as well as regulatory environment. As a result, the Company manages the businesses through the following reportable segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Energy Services segment consists of unregulated wholesale energy operations; the Clean Energy Ventures segment consists of capital investments in distributed power projects; the Midstream segment consists of NJR's investments in natural gas transportation and storage facilities; the Retail and Other operations consist of heating, cooling and water appliance installation and services, commercial real estate development, other investments and general corporate activities.

Information related to the Company's various business segments and other operations is detailed below:
 
Three Months Ended
 
December 31,
(Thousands)
2013
2012
Operating revenues
 
 
Natural Gas Distribution
 
 
External customers
$
233,469

$
218,849

Energy Services
 
 
External customers (1)
633,691

503,635

Intercompany
4,018

107

Clean Energy Ventures
 
 
External customers
2,173

3,179

Subtotal
873,351

725,770

Retail and Other
 
 
External customers
9,072

10,355

Intercompany
202

263

Eliminations
(4,220
)
(369
)
Total
$
878,405

$
736,019

Depreciation and amortization
 
 
Natural Gas Distribution
$
9,835

$
9,277

Energy Services
12

11

Clean Energy Ventures
2,511

1,831

Midstream
1

2

Subtotal
12,359

11,121

Retail and Other
207

191

Eliminations
—

(9
)
Total
$
12,566

$
11,303

Interest income (2)
 
 
Natural Gas Distribution
$
261

$
167

Energy Services
—

—

Midstream
268

271

Subtotal
529

438

Retail and Other
—

1

Eliminations
(233
)
(232
)
Total
$
296

$
207

(1)
Includes sales to Canada, which accounted for 3.8 percent and 7.6 percent of total operating revenues during the three months ended December 31, 2013 and 2012, respectively.
(2)
Included in other income on the Unaudited Condensed Consolidated Statements of Operations.
 
Three Months Ended
 
December 31,
(Thousands)
2013
2012
Interest expense, net of capitalized interest
 
 
Natural Gas Distribution
$
3,984

$
3,584

Energy Services
616

568

Clean Energy Ventures
1,186

783

Midstream
398

591

Subtotal
6,184

5,526

Retail and Other
111

299

Total
$
6,295

$
5,825

Income tax provision (benefit)
 
 
Natural Gas Distribution
$
14,183

$
14,507

Energy Services
(11,273
)
16,164

Clean Energy Ventures
(2,044
)
(7,769
)
Midstream
996

1,243

Subtotal
1,862

24,145

Retail and Other
(191
)
(123
)
Eliminations
(166
)
(42
)
Total
$
1,505

$
23,980

Equity in earnings of affiliates
 
 
Midstream
$
2,942

$
3,491

Eliminations
(800
)
(936
)
Total
$
2,142

$
2,555

Net financial earnings (loss)
 
 
Natural Gas Distribution
$
27,639

$
25,492

Energy Services
7,374

3,014

Clean Energy Ventures
3,614

5,305

Midstream
1,434

1,785

Subtotal
40,061

35,596

Retail and Other
(201
)
(94
)
Eliminations
—

(9
)
Total
$
39,860

$
35,493

Capital expenditures
 
 
Natural Gas Distribution
$
35,401

$
34,145

Clean Energy Ventures
24,917

15,320

Subtotal
60,318

49,465

Retail and Other
205

154

Total
$
60,523

$
49,619


The chief operating decision maker of the Company is the Chief Executive Officer. The Chief Executive Officer uses NFE as a measure of profit or loss in measuring the results of the Company's segments and operations. A reconciliation of consolidated NFE to consolidated net income is as follows:
 
Three Months Ended
 
December 31,
(Thousands)
2013
2012
Consolidated net financial earnings
$
39,860

$
35,493

Less:
 
 
Unrealized loss (gain) from derivative instruments and related transactions(1)
65,652

(18,334
)
Effects of economic hedging related to natural gas inventory
(22,880
)
(20,748
)
Tax adjustments
(10,605
)
14,369

Consolidated net income
$
7,693

$
60,206


(1)
Excludes unrealized losses related to an intercompany transaction between NJNG and NJRES that have been eliminated in consolidation of approximately $285,000 and $67,000 for the three months ended December 31, 2013 and 2012, 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 as 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. Consequently, to reconcile between GAAP 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. 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)
December 31,
2013
September 30,
2013
Assets at end of period:
 
 
Natural Gas Distribution
$
2,165,350

$
2,094,940

Energy Services
591,430

468,096

Clean Energy Ventures
301,645

253,663

Midstream
152,271

153,536

Subtotal
3,210,696

2,970,235

Retail and Other
90,267

85,293

Intercompany assets (1)
(104,145
)
(50,745
)
Total
$
3,196,818

$
3,004,783

(1)
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.