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FAIR VALUE | 12 Months Ended
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Sep. 30, 2017
Fair Value Disclosures [Abstract] |
FAIR VALUE | 6. FAIR VALUE Fair Value of Assets and Liabilities The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the Company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value. As of September 30, the estimated fair value of long-term debt at NJNG and NJR, including current maturities, excluding capital leases, debt issuance costs and solar asset financing obligations, is as follows:
(Thousands) | 2017 | 2016
NJNG |  |
Carrying value (1) (2) | $ | 672,045 |  | $ | 707,845 |
Fair market value | $ | 673,051 |  | $ | 731,615 |
NJR |  |
Carrying value (3) | $ | 425,000 |  | $ | 375,000 |
Fair market value | $ | 434,625 |  | $ | 399,462 |
(1) | Excludes capital leases of $39.7 million and $42.2 million as of September 30, 2017 and 2016, respectively.
(2) | Excludes debt issuance costs of $6.3 million and $7.7 million as of September 30, 2017 and 2016, respectively.
(3) | Excludes debt issuance costs of $770,000 and $853,000 as of September 30, 2017 and 2016, respectively.
The Company utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate, for the maturity of the specific issue and the Company’s credit rating. As of September 30, 2017 and 2016, the Company disclosed its debt within Level 2 of the fair value hierarchy. Fair Value Hierarchy The Company applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, available for sale securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and includes the following:
Level 1 | Unadjusted quoted prices for identical assets or liabilities in active markets. The Company’s Level 1 assets and liabilities include exchange traded natural gas futures and options contracts, listed equities and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that the Company refers internally to as basis swaps, fixed swaps, futures and financial options that are cleared through a FCM.
Level 2 | Other significant observable inputs, such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. The Company’s Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available. Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). NJNG’s treasury lock is also considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation model. Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts, the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:
• | widely accepted and public;
• | non-proprietary and sourced from an independent third party; and
• | observable and published.
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
Level 3 | Inputs derived from a significant amount of unobservable market data. These include the Company’s best estimate of fair value and are derived primarily through the use of internal valuation methodologies.
Financial derivative portfolios of NJNG and Energy Services consist mainly of futures, options and swaps. The Company primarily uses the market approach and its policy is to use actively quoted market prices when available. The principal market for its derivative transactions is the natural gas wholesale market, therefore, the primary sources for its price inputs are CME, NYMEX and ICE. Energy Services uses Platts and Natural Gas Exchange for Canadian delivery points. However, Energy Services also engages in transactions that result in transporting natural gas to delivery points for which there is no actively quoted market price. In most instances, the transportation cost to the final delivery location is not significant to the overall valuation. If required, Energy Services’ policy is to use the best information available to determine fair value based on internal pricing models, which would include estimates extrapolated from broker quotes or other pricing services. The Company also has available for sale securities and other financial assets that include listed equities, mutual funds and money market funds for which there are active exchange quotes available. When the Company determines fair values, measurements are adjusted, as needed, for credit risk associated with its counterparties, as well as its own credit risk. The Company determines these adjustments by using historical default probabilities that correspond to the applicable S&P issuer ratings, while also taking into consideration collateral and netting arrangements that serve to mitigate risk. Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs |
(Thousands) | (Level 1) | (Level 2) | (Level 3) | Total
As of September 30, 2017: |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |
Physical commodity contracts |  | $ | — |  |  |  | $ | 21,866 |  |  |  | $ | — |  |  | $ | 21,866 |
Financial commodity contracts |  | 17,335 |  |  |  | — |  |  |  | — |  |  | 17,335 |
Financial commodity contracts - foreign exchange |  | — |  |  |  | 44 |  |  |  | — |  |  | 44 |
Available for sale equity securities |  | 65,752 |  |  |  | — |  |  |  | — |  |  | 65,752 |
Money market funds |  | 112 |  |  |  | — |  |  |  | — |  |  | 112 |
Other |  | 1,090 |  |  |  | — |  |  |  | — |  |  | 1,090 |
Total assets at fair value |  | $ | 84,289 |  |  |  | $ | 21,910 |  |  |  | $ | — |  |  | $ | 106,199 |
Liabilities |  |  |  |  |  |  |  |  |  |
Physical commodity contracts |  | $ | — |  |  |  | $ | 25,371 |  |  |  | $ | — |  |  | $ | 25,371 |
Financial commodity contracts |  | 24,036 |  |  |  | — |  |  |  | — |  |  | 24,036 |
Financial commodity contracts - foreign exchange |  | — |  |  |  | — |  |  |  | — |  |  | — |
Interest rate contracts |  | — |  |  |  | 8,467 |  |  |  | — |  |  | 8,467 |
Total liabilities at fair value |  | $ | 24,036 |  |  |  | $ | 33,838 |  |  |  | $ | — |  |  | $ | 57,874 |
As of September 30, 2016: |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |
Physical commodity contracts |  | $ | — |  |  |  | $ | 10,216 |  |  |  | $ | — |  |  | $ | 10,216 |
Financial commodity contracts |  | 24,974 |  |  |  | — |  |  |  | — |  |  | 24,974 |
Financial commodity contracts - foreign exchange |  | — |  |  |  | 1 |  |  |  | — |  |  | 1 |
Available for sale equity securities |  | 55,789 |  |  |  | — |  |  |  | — |  |  | 55,789 |
Money market funds |  | 34,072 |  |  |  | — |  |  |  | — |  |  | 34,072 |
Other |  | 1,444 |  |  |  | — |  |  |  | — |  |  | 1,444 |
Total assets at fair value |  | $ | 116,279 |  |  |  | $ | 10,217 |  |  |  | $ | — |  |  | $ | 126,496 |
Liabilities |  |  |  |  |  |  |  |  |  |
Physical commodity contracts |  | $ | — |  |  |  | $ | 14,026 |  |  |  | $ | — |  |  | $ | 14,026 |
Financial commodity contracts |  | 49,201 |  |  |  | — |  |  |  | — |  |  | 49,201 |
Financial commodity contracts - foreign exchange |  | — |  |  |  | 32 |  |  |  | — |  |  | 32 |
Interest rate contracts |  | — |  |  |  | 23,073 |  |  |  | — |  |  | 23,073 |
Total liabilities at fair value |  | $ | 49,201 |  |  |  | $ | 37,131 |  |  |  | $ | — |  |  | $ | 86,332 |
Assets measured at fair value on a non-recurring basis are summarized as follows:
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs |
(Thousands) | (Level 1) | (Level 2) | (Level 3) | Total
As of September 30, 2017: |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |
Acquired wholesale energy contracts (1) |  | $ | — |  |  |  | $ | 41,084 |  |  |  | $ | — |  |  | $ | 41,084 |
Total assets at fair value |  | $ | — |  |  |  | $ | 41,084 |  |  |  | $ | — |  |  | $ | 41,084 |
(1) | Included in intangible asset on the Consolidated Balance Sheets, see Note 3. Acquisition for more information regarding the acquired contracts.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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