INVESTMENTS IN EQUITY INVESTEES

9 Months Ended

Jun. 30, 2021

Investments, All Other Investments [Abstract]

7. INVESTMENTS IN EQUITY INVESTEES

NJR's investments in equity method investees include the following as of:


(Thousands)	June 30, 2021		September 30, 2020
Steckman Ridge (1)	$	111,537	$	112,378
PennEast (2)	5,479		95,997
Total	$	117,016	$	208,375

(1)Includes loans with a total outstanding principal balance of $70.4 million for both June 30, 2021 and September 30, 2020, which accrue interest at a variable rate that resets quarterly and are due October 1, 2023.

(2)September 30, 2020, included a deferred tax component related to AFUDC equity of $4.6 million. The deferred tax component related to AFUDC equity was reversed due to the impairment for June 30, 2021.

Steckman Ridge

The Company holds a 50 percent equity method investment in Steckman Ridge, a jointly owned and controlled natural gas storage facility located in Bedford County, Pennsylvania. NJNG and Energy Services have entered into storage and park and loan agreements with Steckman Ridge. See Note 16. Related Party Transactions for more information on these intercompany transactions.

PennEast

The Company, through its subsidiary NJR Pipeline Company, is a 20 percent investor in PennEast, a partnership whose purpose is to construct and operate a 120-mile natural gas pipeline that will extend from northeast Pennsylvania to western New Jersey. PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018.

On September 10, 2019, the Third Circuit issued an order overturning the United States District Court for the District of New Jersey’s order granting PennEast condemnation and immediate access in accordance with the Natural Gas Act to certain properties in which the State of New Jersey holds an interest. A Petition for Rehearing was denied by the Third Circuit on November 5, 2019.

On October 8, 2019, the NJDEP issued a letter indicating that it deemed PennEast’s freshwater wetlands permit application to be administratively incomplete and closed the matter without prejudice. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.

On October 4, 2019, PennEast filed a petition for Declaratory Order with FERC requesting an interpretation of the eminent domain authority of a FERC certificate holder under the Natural Gas Act. The Declaratory Order was granted on January 30, 2020.

On January 30, 2020, PennEast filed an amendment with FERC to construct the PennEast pipeline in two phases. Phase one consists of construction of a 68-mile pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction is expected to begin following approval by FERC of the phased approach and receipt of any remaining governmental and regulatory permits. As of June 30, 2021, the matter is still pending review and approval by FERC.

On February 18, 2020, PennEast filed a writ of certiorari with the Supreme Court to review the September 10, 2019 Third Circuit decision. On February 3, 2021, the Supreme Court granted the petition for a writ of certiorari and the matter was argued on April 28, 2021.

On June 29, 2021, the Supreme Court ruled in favor of PennEast reversing the earlier decision by the Third Circuit on the use of eminent domain to acquire state owned lands for pipeline construction and remanding the case back to the Third Circuit for further proceedings.

Despite the favorable outcome from the Supreme Court, PennEast continues to experience regulatory and legal challenges resulting in continued delays preventing the commencement of construction and commercial operation of the project. As a result, the Company evaluated its equity investment in PennEast for impairment as of June 30, 2021, and determined that it was other-than-temporarily impaired. The Company estimated the fair value of its investment in PennEast using probability weighted scenarios assigned to discounted future cash flows. The impairment is the result of management's estimates and assumptions regarding the likelihood of certain outcomes related to required regulatory approvals and pending legal matters, the timing of which remains uncertain, the timing and magnitude of construction costs and in-service dates, the evaluation of the current environmental and political climate as it relates to interstate pipeline development, and transportation capacity revenues and discount rates.

Based upon this analysis, as of June 30, 2021, the Company recognized an other-than-temporary impairment charge of $92.0 million, or approximately $72.7 million, net of income taxes. The other-than-temporary impairment is recorded in equity in (losses) earnings from affiliates in the Unaudited Condensed Consolidated Statements of Operations.

It is possible that future developments, including changes to the likelihood of successful outcomes for regulatory approvals and legal matters, construction costs and changes to the timing of construction and operation of the project, forecasted revenues and operating costs, and other further delays could result in a different fair value and the recognition of additional impairment charges.