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REPORTING SEGMENT AND OTHER OPERATIONS DATA
 6 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
REPORTING SEGMENT AND OTHER OPERATIONS DATA
13. REPORTING SEGMENT AND OTHER OPERATIONS DATA

The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated wholesale and retail energy operations; the Midstream segment consists of the Company’s investments in natural gas transportation and storage facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.

Information related to the Company's various reporting segments and other operations is detailed below:
 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
(Thousands)
2019
2018
2019
2018
Operating revenues
 
 
 
 
Natural Gas Distribution
 
 
 
 
External customers
$
301,420

$
317,064

$
501,385

$
526,851

Clean Energy Ventures
 
 
 
 
External customers
11,360

12,866

26,257

26,862

Energy Services
 
 
 
 
External customers (1)
541,794

681,475

1,126,754

1,153,646

Intercompany
6,031

43,838

8,338

49,648

Subtotal
860,605

1,055,243

1,662,734

1,757,007

Home Services and Other
 
 
 
 
External customers
11,681

7,638

23,626

16,989

Intercompany
652

623

1,197

1,229

Eliminations
(6,683
)
(44,461
)
(9,535
)
(50,877
)
Total
$
866,255

$
1,019,043

$
1,678,022

$
1,724,348

Depreciation and amortization
 
 
 
 
Natural Gas Distribution
$
13,972

$
13,353

$
27,868

$
26,136

Clean Energy Ventures
8,091

8,928

16,014

17,863

Energy Services (2)
25

15

52

29

Midstream
2

2

3

3

Subtotal
22,090

22,298

43,937

44,031

Home Services and Other
222

189

443

377

Eliminations
(1
)
(27
)
(237
)
(94
)
Total
$
22,311

$
22,460

$
44,143

$
44,314

Interest income (3)
 
 
 
 
Natural Gas Distribution
$
181

$
131

$
380

$
250

Energy Services
14

106

14

106

Midstream
945

771

2,001

1,435

Subtotal
1,140

1,008

2,395

1,791

Home Services and Other
669

354

1,105

558

Eliminations
(1,390
)
(1,168
)
(2,882
)
(2,099
)
Total
$
419

$
194

$
618

$
250

(1)
Includes sales to Canada, which are immaterial.
(2)
The amortization of acquired wholesale energy contracts is excluded above and is included in gas purchases - nonutility on the Unaudited Condensed Consolidated Statements of Operations.
(3)
Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations.
 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
(Thousands)
2019
2018
2019
2018
Interest expense, net of capitalized interest
 
 
 
 
Natural Gas Distribution
$
5,762

$
6,523

$
11,865

$
13,059

Clean Energy Ventures
4,657

4,344

10,085

8,552

Energy Services
1,624

1,203

3,511

2,460

Midstream
565

385

1,108

694

Subtotal
12,608

12,455

26,569

24,765

Home Services and Other
611

21

1,003

111

Eliminations
(710
)
(678
)
(1,577
)
(1,173
)
Total
$
12,509

$
11,798

$
25,995

$
23,703

Income tax provision (benefit)
 
 
 
 
Natural Gas Distribution
$
12,266

$
17,991

$
18,096

$
29,695

Clean Energy Ventures
(14,042
)
(12,722
)
(37,246
)
(86,710
)
Energy Services
(1,388
)
23,965

8,256

37,708

Midstream
1,219

3,131

2,181

(9,712
)
Subtotal
(1,945
)
32,365

(8,713
)
(29,019
)
Home Services and Other
(659
)
(1,281
)
(851
)
10,417

Eliminations
(348
)
(183
)
(349
)
(665
)
Total
$
(2,952
)
$
30,901

$
(9,913
)
$
(19,267
)
Equity in earnings of affiliates
 
 
 
 
Midstream
$
3,998

$
4,068

$
7,799

$
8,197

Eliminations
(627
)
(875
)
(1,267
)
(1,740
)
Total
$
3,371

$
3,193

$
6,532

$
6,457

Net financial earnings (loss)
 
 
 
 
Natural Gas Distribution
$
68,546

$
60,442

$
100,259

$
94,551

Clean Energy Ventures
21,730

10,051

31,935

81,301

Energy Services
19,304

72,832

27,674

93,106

Midstream
4,498

1,315

8,149

18,826

Subtotal
114,078

144,640

168,017

287,784

Home Services and Other
(1,581
)
(2,488
)
(1,505
)
(10,204
)
Eliminations
(80
)
(90
)
(2
)
(185
)
Total
$
112,417

$
142,062

$
166,510

$
277,395

Capital expenditures
 
 
 
 
Natural Gas Distribution
$
79,341

$
55,397

$
139,096

$
102,787

Clean Energy Ventures
20,394

40,605

52,520

58,992

Midstream
(1,689
)
—

—

—

Subtotal
98,046

96,002

191,616

161,779

Home Services and Other
5,055

1,846

5,786

3,159

Total
$
103,101

$
97,848

$
197,402

$
164,938

Investments in equity investees
 
 
 
 
Midstream
$
1,457

$
3,975

$
1,457

$
11,177

Total
$
1,457

$
3,975

$
1,457

$
11,177


The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company's segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income is as follows:
 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
(Thousands)
2019
2018
2019
2018
Net financial earnings (1)
$
112,417

$
142,062

$
166,510

$
277,395

Less:
 
 
 
 
Unrealized loss (gain) on derivative instruments and related transactions
10,226

(11,608
)
(707
)
23,246

Tax effect
(2,435
)
4,716

149

(3,343
)
Effects of economic hedging related to natural gas inventory
22,367

6,125

756

(19,262
)
Tax effect
(5,316
)
(1,715
)
(180
)
6,529

NFE tax adjustment
14,002

4,278

6,671

6,260

Net income (1)
$
73,573

$
140,266

$
159,821

$
263,965


(1)
Includes income tax benefit related to the Tax Act of $967,000 and $58.5 million, for the three and six months ended March 31, 2018, 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 when 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, SRECs and foreign currency contracts. Consequently, to reconcile between net income 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. Included in the tax effects are current and deferred income tax expense corresponding with the NFE. Also included in the tax effects during the three and six months ended March 31, 2018, are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the quarter. 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)
March 31,
2019
September 30,
2018
Assets at end of period:
 
 
Natural Gas Distribution
$
2,790,221

$
2,663,054

Clean Energy Ventures (1)
721,162

865,018

Energy Services
320,476

396,852

Midstream
218,557

242,069

Subtotal
4,050,416

4,166,993

Home Services and Other
195,381

114,732

Intercompany assets (2)
(155,824
)
(138,061
)
Total
$
4,089,973

$
4,143,664

(1)
Includes assets held for sale of $206.9 million for September 30, 2018.
(2)
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.