10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC20549

FORM 10-Q

(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

OR

[   ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number 000-22211

SOUTH JERSEY GAS COMPANY

(Exact name of registrant as specified in its charter)

New Jersey	21-0398330
(State of incorporation)	(IRS employer identification no.)

1 South Jersey Plaza, Folsom, NJ 08037

(Address of principal executive offices, including zip code)

(609) 561-9000

(Registrant's telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]      No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

(Check one):                Large accelerated filer   [  ]            Accelerated filer [  ]             Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [  ]      No  [X]

As of May 1, 2008 there were 2,339,139 shares of the registrant’s common stock outstanding. All common shares are owned by South Jersey Industries, Inc., the parent company of South Jersey Gas Company.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements — See Pages 3 through 14

SJG - 2

SOUTH JERSEY GAS COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands)
	Three Months Ended
	March 31,
	2008			2007
Operating Revenues	$	237,904		$	277,864
Operating Expenses:
Cost of Sales (Excluding depreciation)		162,917			205,544
Operations		15,125			13,901
Maintenance		1,852			1,472
Depreciation		6,305			6,053
Energy and Other Taxes		4,357			4,624
Total Operating Expenses		190,556			231,594
Operating Income		47,348			46,270
Other Income and Expense		170			100
Interest Charges		(4,975	)		(5,241	)
Income Before Income Taxes		42,543			41,129
Income Taxes		(17,530	)		(16,870	)
Net Income	$	25,013		$	24,259
The accompanying notes are an integral part of the unaudited condensed financial statements.

SJG - 3

SOUTH JERSEY GAS COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In Thousands)
	Three Months Ended
	March 31,
	2008			2007
Net Income	$	25,013		$	24,259
Other Comprehensive (Loss) Income - Net of Tax:
Unrealized (Loss) Gain on Available-for-Sale Securities		(238	)		66
Unrealized Gain on Derivatives - Other		7			121
Other Comprehensive (Loss) Income - Net of Tax		(231	)		187
Comprehensive Income	$	24,782		$	24,446
The accompanying notes are an integral part of the unaudited condensed financial statements.

SJG - 4

SOUTH JERSEY GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
	Three Months Ended
	March 31,
	2008			2007
Net Cash Provided by Operating Activities	$	60,772		$	77,099
Cash Flows from Investing Activities:
Capital Expenditures		(11,414	)		(10,553	)
Merchandise Loans		(1,166	)		(1,124	)
Proceeds from Merchandise Loans		928			1,099
Purchase of Restricted Investment with Escrowed Loan Proceeds		(18	)		(120	)
Net Cash Used in Investing Activities		(11,670	)		(10,698	)
Cash Flows from Financing Activities:
Net Repayments of Lines of Credit		(46,540	)		(61,300	)
Excess Tax Benefit from Restricted Stock Plan		236			-
Net Cash Used in Financing Activities		(46,304	)		(61,300	)
Net Increase in Cash and Cash Equivalents		2,798			5,101
Cash and Cash Equivalents at Beginning of Period		3,230			1,967
Cash and Cash Equivalents at End of Period	$	6,028		$	7,068
The accompanying notes are an integral part of the unaudited condensed financial statements.

SJG - 5

SOUTH JERSEY GAS COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
(In Thousands)
	March 31,			December 31,
	2008			2007
Assets
Property, Plant and Equipment:
Utility Plant, at original cost	$	1,134,288		$	1,123,992
Accumulated Depreciation		(281,588	)		(276,301	)
Property, Plant and Equipment - Net		852,700			847,691
Investments:
Available-for-Sale Securities		6,251			6,714
Restricted Investments		2,257			2,239
Total Investments		8,508			8,953
Current Assets:
Cash and Cash Equivalents		6,028			3,230
Accounts Receivable		89,723			48,984
Accounts Receivable - Related Parties		991			2,267
Unbilled Revenues		29,404			41,576
Provision for Uncollectibles		(3,424	)		(3,265	)
Natural Gas in Storage, average cost		11,666			56,404
Materials and Supplies, average cost		1,566			1,436
Prepaid Taxes		-			10,849
Derivatives - Energy Related Assets		14,078			2,236
Other Prepayments and Current Assets		2,044			2,278
Total Current Assets		152,076			165,995
Regulatory and Other Noncurrent Assets:
Regulatory Assets		184,702			188,688
Unamortized Debt Issuance Costs		6,188			6,307
Prepaid Pension		6,129			1,472
Accounts Receivable - Merchandise		6,287			6,118
Derivatives - Energy Related Assets		222			93
Other		2,170			1,845
Total Regulatory and Other Noncurrent Assets		205,698			204,523
Total Assets	$	1,218,982		$	1,227,162
The accompanying notes are an integral part of the unaudited condensed financial statements.

SJG - 6

SOUTH JERSEY GAS COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
(In Thousands, except per share amounts)
	March 31,			December 31,
	2008			2007
Capitalization and Liabilities
Common Equity:
Common Stock, Par Value $2.50 per share:
Authorized - 4,000,000 shares
Outstanding - 2,339,139 shares	$	5,848		$	5,848
Other Paid-In Capital and Premium on Common Stock		200,553			200,317
Accumulated Other Comprehensive Loss		(5,587	)		(5,356	)
Retained Earnings		197,619			177,539
Total Common Equity		398,433			378,348
Long-Term Debt		294,873			294,873
Total Capitalization		693,306			673,221
Current Liabilities:
Notes Payable		31,800			78,340
Accounts Payable - Commodity		30,281			34,870
Accounts Payable - Other		13,644			13,650
Accounts Payable - Related Parties		17,640			22,417
Derivatives - Energy Related Liabilities		206			4,360
Deferred Income Taxes - Net		11,095			11,582
Customer Deposits and Credit Balances		14,486			18,067
Environmental Remediation Costs		20,572			25,447
Taxes Accrued		19,272			2,937
Pension Benefits		841			765
Interest Accrued		4,602			6,245
Dividends Declared		4,933			-
Other Current Liabilities		4,782			5,777
Total Current Liabilities		174,154			224,457
Deferred Credits and Other Noncurrent Liabilities:
Regulatory Liabilities		75,908			55,779
Deferred Income Taxes - Net		173,054			168,254
Environmental Remediation Costs		46,330			48,433
Asset Retirement Obligations		23,706			24,364
Pension and Other Postretirement Benefits		24,334			24,682
Investment Tax Credits		2,070			2,149
Derivatives - Energy Related Liabilities		20			61
Derivatives - Other		1,601			618
Other		4,499			5,144
Total Deferred Credits and Other Noncurrent Liabilities		351,522			329,484
Commitments and Contingencies (Note 9)
Total Capitalization and Liabilities	$	1,218,982		$	1,227,162
The accompanying notes are an integral part of the unaudited condensed financial statements.

SJG - 7

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Entity - South Jersey Industries, Inc. (SJI) owns all of the outstanding common stock of South Jersey Gas Company (SJG), a regulated natural gas utility. SJG distributes natural gas in the seven southern most counties of New Jersey. In our opinion, the condensed financial statements reflect all normal and recurring adjustments needed to fairly present our financial position and operating results at the dates and for the periods presented. SJG’s business is subject to seasonal fluctuations and accordingly, this interim financial information should not be the basis for estimating the full year’s operating results. As permitted by the rules and regulations of the Securities and Exchange Commission, the accompanying condensed financial statements contain certain condensed financial information and exclude certain note disclosures normally included in annual audited financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). These condensed financial statements should be read in conjunction with SJG’s 2007 Form 10-K for a more complete discussion of our accounting policies and certain other information.

Revenue Based Taxes - SJG collects certain revenue-based energy taxes from its customers. Such taxes include New Jersey State Sales Tax, Transitional Energy Facility Assessment (TEFA) and Public Utilities Assessment (PUA). State sales tax is recorded as a liability when billed to customers and is not included in revenue or operating expenses. TEFA and PUA are included in both revenues and cost of sales and totaled  $3.8 million and $4.0 million for the three months ended  March 31, 2008 and 2007, respectively.

Capitalized Interest - SJG capitalizes interest on construction at the rate of return on rate base utilized by the New Jersey Board of Public Utilities (BPU) to set rates in our last base rate proceeding (See Note 2). Capitalized interest is included in Utility Plant on the condensed balance sheets. Interest Charges are presented net of capitalized interest on the condensed statements of income. SJG capitalized interest of $29,000 and $97,000 for the three month periods ended  March 31, 2008 and 2007, respectively.

Derivative Instruments - As part of its gas purchasing strategy, SJG uses physical and financial contracts to hedge against forward price risk. The costs or benefits of these short-term contracts are recoverable through SJG’s Basic Gas Supply Service (BGSS) clause, subject to BPU approval. As of  March 31, 2008 and December 31, 2007, SJG had $14.1 million of benefits and $2.1 million of costs, respectively, included in its BGSS related to open financial contracts.

SJG has entered into interest rate derivatives and similar agreements to hedge exposure to increasing interest rates, and the impact of those rates on cash flows of variable-rate debt. These interest rate derivatives and are included in Derivatives-Other on the condensed balance sheets.  There have been no significant changes to SJG’s active interest rate swaps since December 31, 2007 which are described in Note 1 to the Financial Statements in Item 8 of SJG’s Annual Report on Form 10-K as of December 31, 2007.

The differential to be paid or received as a result of these swap agreements is accrued as interest rates change and is recognized as an adjustment to interest expense.  As of March 31, 2008 and December 31, 2007, the net unrealized loss on these swaps was $1.6 million and $0.6 million, respectively.  The market value represents the amount SJG would have to pay the counterparty to terminate these contracts as of those dates.  For selected interest rate derivatives, the market value upon termination can be recovered in rates and has therefore been included in Other Regulatory Assets in the condensed balance sheets in accordance with FASB Standard No. 71,“Accounting for the Effects of Certain Types of Regulation.”

Stock-Based Compensation Plans - - The following table summarizes the SJI nonvested restricted stock awards pertaining to SJG outstanding at March 31, 2008, and the assumptions used to estimate the fair value of the awards:

Grant	Shares		Fair Value		Expected			Risk-Free
Date	Outstanding		Per Share		Volatility			Interest Rate
Jan. 2006		8,450	$	27.950		16.9	%		4.5	%
Jan. 2007		9,526	$	29.210		18.5	%		4.9	%
Jan. 2008		10,000	$	34.030		21.7	%		2.9	%

SJG - 8

Expected volatility is based on the actual daily volatility of SJI’s share price over the preceding 3-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the 3-year term of the restricted shares. As notional dividend equivalents are credited to the holders, which are reinvested during the 3-year service period, no reduction to the fair value of the award is required.

 The cost of restricted stock awards during the three months ended March 31, 2008 and 2007 approximated $64,600 and $51,800, respectively.

As of March 31, 2008, there was $0.5 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted under the restricted stock plans. That cost is expected to be recognized over a weighted average period of 2.2 years.

The following table summarizes information regarding restricted stock award activity during the three months ended March 31, 2008, excluding accrued dividend equivalents:

	Shares			Weighted Average Grant Date Fair Value
Nonvested Shares Outstanding, January 1, 2008		26,102		$	27.540
Granted		10,000			34.030
Vested*		(8,126	)		25.155
Nonvested Shares Outstanding, March 31, 2008		27,976		$	30.552
* Actual Shares awarded upon vesting, including dividend equivalents and adjustments for performance measures, totaled 12,299 shares.

 

During the  three months ended March 31, 2008, SJG awarded 12,299 shares to its officers at a market value of $0.4 million. During the  three months ended March 31, 2007, SJG awarded 17,143 shares at a market value of $0.6 million. As discussed earlier, SJG has a policy of making cash payments to SJI to satisfy its obligations under this plan. Cash payments to SJI during the three months ended March 31, 2008 and 2007 were approximately $0.6 million and $1.1 million, respectively, relating to stock awards and include obligations for services previously rendered by officers that are currently employed by affiliates as a result of a January 1, 2006 corporate restructuring by SJI. Additionally, a change in control could result in the nonvested shares becoming nonforfeitable or immediately payable in cash.

New Accounting Pronouncements - In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements (FAS 157),” which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007. However for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, FAS 157 is effective in fiscal years beginning after November 15, 2008.  The adoption of the initial phase of this statement did not have a material effect on SJG’s condensed financial statements.  Management does not anticipate that the adoption of the remainder of this statement will have a material effect on SJG’s condensed financial statements (See Note 10).

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” The statement permits entities to choose to measure certain financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is effective for the first fiscal year beginning after November 15, 2007. The Company has not elected this fair value option and, as a result, the adoption of this statement did not have an effect on SJG’s condensed financial statements.

SJG - 9

In April 2007, the FASB posted FASB Staff Position FIN 39-1, “Amendment of FASB Interpretation No. 39”, which addresses questions received by the FASB staff regarding Interpretation 39 relating to the offsetting of amounts recognized for forward, interest rate swap, currency swap, option, and other conditional or exchange contracts. The guidance in this FSP is effective for fiscal years beginning after November 15, 2007. The adoption of this position did not have a material effect on SJG’s condensed financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of SFAS No. 133” (FAS 161).  This statement requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  FAS 161 is effective for fiscal years beginning after November 15, 2008.  Management is currently evaluating the impact that the adoption of this statement will have on SJG’s condensed financial statements.

CORRECTION IN THE PRESENTATION OF THE STATEMENT OF CASH FLOWS - The following item represents a correction madeto the three months ended March 31, 2007 on the statements of condensed cash flows:

· Cash flows related to merchandise loans to customers for the purpose of attracting conversions to natural gas heating systems should have been classified under the caption Cash Flows from Investing Activities on the statements of condensed cash flows. Accordingly, cash outflows for loans originated of $1.1 million and cash inflows from the principal collection on these loans of $1.1 million during the three months ended March 31, 2007 are now included within Cash Flows from Investing Activities. The overall net impact resulted in an insignificant amount of Cash Flows from Operating Activities for the three months ended March 31, 2007 now being included within Cash Flows from Investing Activities.

This change did not impact previously reported revenue or net income and is considered immaterial to the overall presentation of thecondensed financial statements.

2.RATES AND REGULATORY ACTIONS:

SJG is subject to the rules and regulations of the BPU. There have been no significant regulatory actions or changes to SJG’s rate structure since December 31, 2007. See Note 2 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2007.

3.REGULATORY ASSETS AND LIABILITIES:

Other than the Deferred Gas Costs and Revenues - Net, discussed below, there have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2007, which are described in Note 3 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2007.

Regulatory Assets consisted of the following items (in thousands):

	March 31,		December 31,
	2008		2007
Environmental Remediation Costs: Expended - Net	$	29,738	$	25,960
Liability for Future Expenditures		66,902		73,880
Income Taxes - Flowthrough Depreciation		3,463		3,707
Deferred Asset Retirement Obligation Costs		21,757		21,572
Deferred Pension and Other Postretirement Benefit Costs		32,591		32,686
Temperature Adjustment Clause Receivable		2,580		6,516
Conservation Incentive Program Receivable		22,202		18,173
Societal Benefit Costs Receivable		1,253		2,952
Premium for Early Retirement of Debt		1,329		1,370
Other Regulatory Assets		2,887		1,872
	$	184,702	$	188,688

SJG - 10

Regulatory Liabilities consisted of the following items (in thousands):

	March 31,		December 31,
	2008		2007
Excess Plant Removal Costs	$	48,782	$	48,705
Liability for NJCEP		2,404		2,797
Deferred Gas Costs and  Revenues - Net		23,014		2,586
Other		1,708		1,691
Total Regulatory Liabilities	$	75,908	$	55,779

Deferred Gas Costs and Revenues - Net- Over/under collections of gas costs are monitored through SJG’s Basic Gas Supply Service Clause (BGSS) mechanism. Net undercollected gas costs are classified as a regulatory asset and net overcollected gas costs are classified as a regulatory liability. Derivative contracts used to hedge natural gas purchases are also included in the BGSS, subject to BPU approval. The BGSS increased from a $2.6 million regulatory  liability at December 31, 2007 to a $23.0 million regulatory  liability at March 31, 2008 primarily as a result of gas costs recovered from customers exceeding the actual cost of the commodity incurred during the first quarter.  Gas costs recoveries are typically very high in the first and fourth quarters of the year as customer consumption is at its highest point during the winter months.  In addition, a change in the fair value of energy related derivatives resulting from an increase in the average future prices accounted for $16.2 million of the fluctuation.

4.RELATED PARTY TRANSACTIONS:

There have been no significant changes in the nature of SJG’s related party transactions since December 31, 2007. See Note 4 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2007 for a detailed description of such transactions.

A summary of related party transactions, excluding pass-through items, included in Operating Revenues were as follows for the three month periods ended March 31, (in thousands):

	2008		2007
Operating Revenues / Affiliates:
SJRG	$	1,407	$	12,503
Other		127		92
Total Operating Revenues / Affiliates	$	1,534	$	12,595

Related party transactions, excluding pass-through items, included in Operating Expenses were as follows for the three month periods ended March 31, (in thousands):

	2008			2007
Costs of Sales / Affiliates (Excluding depreciation):
SJRG	$	12,596		$	18,088
Total Cost of Sales / Affiliates	$	12596		$	18,088
Operations Expense / Affiliates:
SJI	$	1,646		$	1,363
SJIS		1,048			1,082
Millennium		713			700
Other		(158	)		(114	)
Total Operations Expense / Affiliates	$	3,249		$	3,031

SJG - 11

5.           RESTRICTED INVESTMENTS:

In accordance with the terms of SJG’s tax-exempt first mortgage bonds, unused proceeds are required to be escrowed pending approved construction expenditures. As of March 31, 2008 and December 31, 2007, the escrowed proceeds, including interest earned, totaled $2.3 million and $2.2 million, respectively.

6.           UNUSED LINES OF CREDIT:

Bank credit available to SJG totaled $176.0 million at March 31, 2008, of which $31.8 million was used. Those bank facilities consist of a $100.0 million credit facility and $76.0 million of uncommitted bank lines. The revolving credit facility expires in August 2011 and contains one financial covenant regarding the ratio of total debt to total capitalization, measured on a quarterly basis. SJG was in compliance with this covenant as of March 31, 2008.  Borrowings under these credit facilities are at market rates. The average borrowing cost, which changes daily, was 3.30% and 5.81% at  March 31, 2008 and 2007, respectively.

7.           RETAINED EARNINGS:

SJG is restricted as to the amount of cash dividends or other distributions that may be paid on its common stock by an order issued by the BPU in July 2004 that granted SJG an increase in base rates. Per the order, SJG is required to maintain total common equity of no less than $289.2 million. SJG’s total common equity balance was $398.4 million at March 31, 2008.

Various loan agreements also contain potential restrictions regarding the amount of cash dividends or other distributions that SJG may pay on its common stock. As of March 31, 2008, these loan restrictions did not affect the amount that may be distributed from SJG’s retained earnings.

8.PENSION AND OTHER POSTRETIREMENT BENEFITS:

For the three months ended  March 31, 2008 and 2007, net periodic benefit cost related to the employee and officer pension and other postretirement benefit plans consisted of the following components (in thousands):

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2008			2007			2008			2007
Service Cost	$	556		$	652		$	201		$	191
Interest Cost		1,322			1,683			558			664
Expected Return on Plan Assets		(1,669	)		(2,069	)		(408	)		(476	)
Amortizations:
Prior Service Cost (Credits)		48			60			(65	)		(66	)
Actuarial Loss		265			423			140			162
Net Periodic Benefit Cost		522			749			426			475
Capitalized Benefit Costs		(256	)		(367	)		(209	)		(233	)
Total Net Periodic Benefit Expense	$	266		$	382		$	217		$	242

.

SJG - 12

Capitalized benefit costs reflected in the table above relate to our construction program.

During the three months ended March 31, 2008, SJG contributed $4.8 million to its pension plans.  No contribution was made during the three months ended March 31, 2007.

See Note 11 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2007, for additional information related to SJG’s pension and other postretirement benefits

9.COMMITMENTS AND CONTINGENCIES:

Contractual Cash Obligations - SJG has incurred various contractual obligations in the normal course of activities. These obligations primarily include future cash payments required under debt agreements, commodity supply purchase agreements, regulatory agreements and construction contracts. There were no significant changes to SJG’s contractual obligations described in Note 12 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2007.

Environmental Remediation Costs - SJG incurred and recorded costs for environmental cleanup of 12 sites where SJG or its predecessors operated gas manufacturing plants. SJG stopped manufacturing gas in the 1950s. There have been no change to the status of SJG’s environmental remediation efforts since December 31, 2007,  as described in Note 12 to the Financial Statements in Item 8 of SJG’s Form 10-K as of December 31, 2007. However, the lower end of the range of expected remediation costs, which is recorded as a liability on the condensed balance sheet, has decreased $7.0 million since December 31, 2007.  This decrease is the result of expenditures of $4.7 million during the first quarter of 2008 and revised forecasts of  expected remediation costs for all of  SJG’s sites as additional information has become available.

10.            FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Effective January 1, 2008, SJG adopted the provisions of FAS 157 that relate to financial assets and financial liabilities as discussed in Note 1.  FAS 157 establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques.  The levels of the hierarchy are described below:

· Level 1:  Observable inputs such as quoted prices in active markets for identical assets or liabilities.  

· Level 2:  Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.  

· Level 3:  Unobservable inputs that reflect the reporting entity’s own assumptions.

Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy.

SJG - 13

For financial assets and financial liabilities measured at fair value on a recurring basis, information about the fair value measurements for each major category as of March 31, 2008 is as follows (in thousands):

	Total		Level 1		Level 2		Level 3
Assets
Available-for-Sale Securities (A)	$	6,251	$	6,251	$	-	$	-
Derivatives – Energy Related Assets (B)		14,300		14,300		-		-
	$	20,551	$	20,551	$	-	$	-
Liabilities
Derivatives – Energy Related Liabilities (B)	$	226	$	226	$	-	$	-
Derivatives – Other (C)		1,601		-		1,601		-
	$	1,827	$	226	$	1,601	$	-

(A) Available-for-Sale Securities are valued using the quoted principal market close prices that are provided by the trustees of these securities.

(B) Derivatives – Energy Related Assets and Liabilities are valued using quoted market sources in active markets.  When this pricing is not available, contracts are valued using broker or dealer quotes or auction prices.

(C) Derivatives – Other are valued using quoted prices on commonly quoted intervals, which are interpolated for periods different than the quoted intervals, as inputs to a market valuation model.  Market inputs can generally be verified and model selection does not involve significant management judgment.

SJG - 14

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations (Unaudited)

OVERVIEW:

Organization - SJG is an operating public utility company engaged in the purchase, transmission and sale of natural gas for residential, commercial and industrial use. SJG also sells natural gas and pipeline transportation capacity (off-system sales) on a wholesale basis to various customers on the interstate pipeline system and transports natural gas purchased directly from producers or suppliers to their customers. SJG served 337,455 customers at March 31, 2008 compared with 332,465 customers at March 31, 2007.

Forward-Looking Statements and Risk Factors- Certain statements contained in this Quarterly Report may qualify as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report should be considered forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Words such as “anticipate”, “believe”, “expect”, “estimate”, “forecast”, “goal”, “intend”, “objective”, “plan”, “project”, “seek”, “strategy” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include, but are not limited to, the following: general economic conditions on an international, national, state and local level; weather conditions in our marketing areas; changes in commodity costs; changes in the availability of natural gas; “non-routine” or “extraordinary” disruptions in our distribution system; regulatory, legislative and court decisions; competition; the availability and cost of capital; costs and effects of legal proceedings and environmental liabilities; the failure of customers or suppliers to fulfill their contractual obligations; and changes in business strategies.

A discussion of these and other risks and uncertainties may be found in SJG’s Form 10-K for the year ended December 31, 2007 and in other filings made by us with the Securities and Exchange Commission. These cautionary statements should not be construed by you to be exhaustive and they are made only as of the date of this Quarterly Report on Form 10-Q, or in any document incorporated by reference, at the date of such document. While SJG believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, SJG undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

Critical Accounting Policies - Estimates and Assumptions - Management must make estimates and assumptions that affect the amounts reported in the condensed financial statements and related disclosures. Actual results could differ from those estimates. Five types of transactions presented in our condensed financial statements require a significant amount of judgment and estimation. These relate to regulatory accounting, derivatives, environmental remediation costs, pension and other postretirement benefit costs, and revenue recognition. A discussion of these estimates and assumptions may be found in SJG’s Form 10-K for the year ended December 31, 2007.

New Accounting Pronouncements - See detailed discussions concerning New Accounting Pronouncements and their impact in Note 1 to the condensed financial statements.

Regulatory Actions - There have been no significant regulatory actions since December 31, 2007. See detailed discussions concerning Regulatory Actions in Note 2 to the Financial Statements in item 8 of SJG’s Form 10-K for the year ended December 31, 2007.

Environmental Remediation – Other than the changes discussed in Note 9 to the condensed Financial Statements, there have been no significant changes to the status of SJG’s environmental remediation efforts since December 31, 2007. See detailed discussion concerning Environmental Remediation in Note 12 to the Financial Statements in item 8 of SJG’s Form 10-K for the year ended December 31, 2007.

Competition - See detailed discussion concerning competition in SJG’s Form 10-K for the year ended December 31, 2007.

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Customer Choice Legislation - All residential natural gas customers in New Jersey can choose their natural gas commodity supplier under the terms of the “Electric Discount and Energy Competition Act of 1999.” This bill created the framework and necessary time schedules for the restructuring of the state’s electric and natural gas utilities. The Act established unbundling, under which redesigned utility rate structures allow natural gas and electric consumers to choose their energy supplier.  Customers purchasing natural gas from a provider other than the local utility (marketer) are charged for the gas costs by the marketer and charged for the transportation costs by the utility.   The number of customers purchasing their natural gas from marketers was 29,358 and 24,866 at March 31, 2008 and 2007, respectively.

RESULTS OF OPERATIONS:

The following table summarizes the composition of selected gas utility data for the three months ended March 31 (in thousands, except for degree day data):

	2008				2007
Utility Throughput – dth:
Firm Sales - -
Residential		10,183	28	%		11,281	30	%
Commercial		2,584	7	%		2,929	8	%
Industrial		75	-			106	-
Cogeneration and electric                    generation		16	-			31	-
Firm Transportation -
Residential		952	3	%		871	2	%
Commercial		2,460	7	%		2,610	7	%
Industrial		3,280	9	%		3,111	8	%
Cogeneration and electric generation		352	-			414	1	%
Total Firm Throughput		19,902	54	%		21,353	56	%
Interruptible Sales		9	-			10	-
Interruptible Transportation		912	3	%		651	3	%
Off-System		4,239	12	%		6,835	18	%
Capacity Release		11,230	31	%		8,814	23	%
Total Throughput		36,292	100	%		37,663	100	%

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Utility Operating Revenues:
Firm Sales-
Residential	$	143,468	60	%	$	168,072	60	%
Commercial		31,186	13	%		36,578	13	%
Industrial		3,555	2	%		3,983	1	%
Cogeneration and electric generation		327	-			449	-
Firm Transportation -
Residential		4,469	2	%		3,574	2	%
Commercial		7,653	3	%		7,028	3	%
Industrial		3,192	2	%		3,090	1	%
Cogeneration and electric generation		322	-			394	-
Total Firm Revenues		194,172	82	%		223,168	80	%
Interruptible Sales		125	-			140	-
Interruptible Transportation		596	-			463	-
Off-System		39,990	17	%		52,066	19	%
Capacity Release		2,800	1	%		1,744	1	%
Other		221	-			283	-
Total Utility Operating Revenues	$	237,904	100	%	$	277,864	100	%
Less:
Cost of sales		162,917				205,544
Conservation recoveries *		3,065				1,213
RAC recoveries *		695				472
Revenue taxes		3,790				4,035
Utility Margin	$	67,437			$	66,600
Margin:
Residential	$	40,982	61	%	$	44,262	67	%
Commercial and industrial		14,318	21	%		15,360	23	%
Cogeneration and electric generation		289	-			359	-
Interruptible		65	-			57	-
Off-system & capacity release		1,081	2	%		991	2	%
Other revenues		220	-			282	-
Margin before weather normalization & decoupling		56,955	84	%		61,311	92	%
CIP mechanism		10,482	16	%		5,289	8	%
Utility Margin	$	67,437	100	%	$	66,600	100	%
Degree Days:		2,264				2,418
* Represents revenues for which there is a corresponding charge in operating expenses. Therefore, such recoveries have no impact on our financial results.

Throughput - Total gas throughput decreased 3.6% for the three months ended March 31, 2008, compared with the same period in 2007. Firm throughput  declined in both the residential and commercial markets as a result of 6.4% warmer weather and customer conservation.  Off-System sales (OSS) volume decreased as SJG’s portfolio of assets available for OSS has been reduced under the Conservation Incentive Program, as discussed under “Rates and Regulation” in Item 7 of SJG’s Form 10-K for the year ended December 31, 2007. These decreases were partially offset by an increase in capacity release activity, primarily in March 2008 when the demand for capacity release in the market area rose sharply due to colder weather experienced throughout the winter season in the extreme Northeastern region of the country.

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Conservation Incentive Program (CIP) - The effects of the CIP on our net income and the associated weather comparisons were as follows ($’s in millions):

	Three Months Ended
	March 31,
	2008		2007
Net Income Benefit:
CIP – Weather Related	$	1.6	$	0.3
CIP – Usage Related		4.6		2.8
Total Net Income Benefit	$	6.2	$	3.1
Weather Compared to 20-Year Average	6.8% warmer		0.5 % warmer
Weather Compared to Prior Year	6.4% warmer		11.8 % colder

Operating Revenues - Revenues decreased $40.0 million or 14.4%, during the first quarter of 2008 compared with the same period in the prior year.  Off-System sales (OSS) volume decreased $12.1 million as activity during the period shifted from sales, which include the cost of commodity, to capacity release activity, which does not include the transfer of commodity.  As a result, OSS revenues decreased; however, the net contribution to the company’s earnings from these activities are not significant.     Next, weather was 6.4% warmer than last year during this three month period which contributed significantly to a $29.0 million reduction in firm sales revenue.  In addition, the Basic Gas Supply Service (BGSS) rate in effect during the first quarter of 2008 was 12.7% lower than the rate in effect during the same time last year.  SJG reduced its BGSS rate in October 2007 primarily due to a combination of actual and forecasted decreases in wholesale gas costs. The decrease in revenue attributable to the BGSS as a result of both lower sales due to the weather and the rate decrease was $23.7 million.    Further, the number of transportation customers increased to 29,358 at March 31, 2008 as compared to 24,866 at March 31, 2007. Transportation customers generate less revenue for the Company because they purchase the gas commodity from a third party marketer. However, as the Company does not profit from the sale of the commodity, neither BGSS rate changes nor customer migration between sales and transportation have an impact on Company profitability.  

Margin (pre-tax) - SJG’s margin is defined as natural gas revenues less natural gas costs; volumetric and revenue based energy taxes; and regulatory rider expenses. SJG believes that margin provides a more meaningful basis for evaluating utility operations than revenues since natural gas costs, energy taxes and regulatory rider expenses are passed through to customers, and therefore, they have no effect on margin. Natural gas costs are charged to operating expenses on the basis of therm sales at the prices approved by the New Jersey Board of Public Utilities through SJG’s BGSS tariff.

Total margin increased $0.8 million, or 1.3%, for the three months ended March 31, 2008 compared with the same period in 2007 primarily due to customer additions, as noted above.  The CIP protected $10.5 million of pre-tax margin in 2008 that would have been lost due to lower customer usage compared to $5.3 million in the same period last year.  Of these amounts, $2.7 million and $0.5 million were related to weather variations and $7.8 million and $4.8 million were related to other customer usage variations, in 2008 and 2007, respectively.

Operating Expenses - A summary of changes in operating expenses (in thousands):

	Three Months Ended March 31,
	2008 vs. 2007
Operations	$	1,224
Maintenance		380
Depreciation		252
Energy and Other Taxes		(267	)

Operations– Operations expense increased $1.2 million for the three months ended March 31, 2008, as compared with the same period in 2007.  The increase is primarily comprised of two factors.

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First, there was an increase of $1.9 million in our spending under the New Jersey Clean Energy Programs (NJCEP) during the three months ended March 31, 2008 compared to the same period last year.  Such costs are recovered on a dollar-for-dollar basis; therefore, SJG experienced an offsetting increase in revenues during the period. The BPU-approved NJCEP allows for full recovery of costs, including carrying costs when applicable.  As a result, the increase in expense had no impact on our net income.

Second, there was an offset as expense associated with the uncollectible customer account reserve decreased $0.7 million due to lower levels of customer account receivables in 2008 than in 2007. The first quarter of 2007 was negatively impacted following a very warm start to the 2006-2007 winter season, which allowed the December 31, 2006 reserve to drop to a relatively low level for a calendar year end.  Followed by a much colder first quarter 2007, the resulting increase in the accounts receivable balance caused an unusually high charge to expense last year, as the reserve requirement also rose sharply.   

Maintenance - Maintenance expense increased for the three months ended March 31, 2008 compared with the same period during 2007 primarily due to higher levels of Remediation Adjustment Clause (RAC) amortization.  RAC-related expenses do not affect earnings as we recognize an offsetting amount in revenues.

Depreciation - Depreciation expense increased for the three months ended March 31, 2008, as compared with the same period in 2007, due mainly to SJG’s continuing investment in utility plant.

Energy and Other Taxes - Energy and Other Taxes decreased for the three months ended March 31, 2008, compared with the same period in 2007, primarily due to lower energy-related taxes. Lower taxable firm throughput in 2008 resulted from 6.4% warmer weather.

Interest Charges– Interest Charges decreased by $0.3 million for the three months ended March 31, 2008, compared with the same period in 2007.  The decrease was the result of lower short-term interest rates and debt levels.

LIQUIDITY AND CAPITAL RESOURCES:

Liquidity needs are driven by factors that include natural gas commodity prices; the impact of weather on customer bills; lags in fully collecting gas costs from customers under the Basic Gas Supply Service charge; the timing of construction and remediation expenditures and related permanent financings; mandated tax payment dates; both discretionary and required repayments of long-term debt; and the amounts and timing of dividend payments.

Cash Flows from Operating Activities - Cash generated from operating activities constitutes our primary source of liquidity and varies from year-to-year due to the impact of weather on customer demand and related gas purchases, customer usage factors related to conservation efforts and the price of the natural gas commodity, inventory utilization and recoveries provided through our various rate mechanisms. Net cash provided by operating activities was $60.8 million for the  three months ended March 31, 2008, compared with $77.1 million for the same period in 2007. The decrease is primarily due to lower recoveries of gas costs under the company’s BGSS resulting from lower sales volume and a decrease in the BPU-approved BGSS rate in effect during the first quarter of 2008, as discussed previously under “Results of Operations”.  

Cash Flows from Investing Activities - SJG has a continuing need for cash resources for capital purchases, primarily to invest in new and replacement facilities and equipment. Cash used for capital purchases was $11.4 million and $10.6 million during the first quarter of 2008 and 2007, respectively.

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Cash Flows from Financing Activities - SJG uses short-term borrowings under lines of credit from commercial banks to supplement cash from operations, to support working capital needs and to finance capital expenditures as incurred. From time to time, the Company refinances short-term debt incurred to finance capital expenditures with long-term debt. Debt is incurred primarily to expand and upgrade our gas transmission and distribution system and to support seasonal working capital needs related to inventories and customer receivables.

Bank credit available to SJG totaled $176.0 million at March 31, 2008, of which  $31.8 million was used. Those bank facilities consist of a $100.0 million revolving credit facility and $76.0 million of uncommitted bank lines. The revolving credit facility expires in August 2011 and contains one financial covenant that limits SJG’s total debt to total capitalization ratio to no more than 65%, measured on a quarterly basis. The Company is in compliance with this covenant as of March 31, 2008. Based upon the existing credit facilities and a regular dialogue with the company’s banks, management believes that there will continue to be sufficient credit available to meet SJG’s future liquidity needs. 

The decrease in the net borrowings of short-term debt of $46.5 million from December 31, 2007 to March 31, 2008, was the result of recovery of costs previously deferred under our various rate mechanisms, as well as the seasonal improvement in cash flows during the first quarter of the year as storage gas has been sold and customer receivables from high usage periods have been collected.  Typically, SJG’s gas storage facilities are refilled in increments between April and October in preparation for the upcoming winter season.

SJG supplements its operating cash flow and credit lines with both debt and equity capital. Over the years, the company has used long-term debt, primarily in the form of First Mortgage Bonds and Medium Term Notes (MTN), secured by the same pool of utility assets, to finance our long-term borrowing needs. These needs are primarily capital expenditures for property, plant and equipment. In September 2005, SJG established a $150.0 million MTN program and $115.0 million remains available for issuance under that program.

SJG’s capital structure was as follows:

	As of March 31, 2008			As of December 31, 2007
Common Equity		54.9	%		50.3	%
Long-Term Debt		40.7			39.3
Short-Term Debt		4.4			10.4
Total		100.0	%		100.0	%

SJG’s long-term, senior secured debt is rated “A” and “Baa1” by Standard & Poor’s and Moody’s Investor Services, respectively. These ratings have not changed in the past five years.

SJG is restricted as to the amount of cash dividends or other distributions that may be paid on its common stock by an order issued by the BPU in July 2004 that granted SJG an increase in base rates. Per the order, SJG is required to maintain total common equity of no less than $289.2 million. SJG’s total common equity balance was $398.4 million at March 31, 2008.

COMMITMENTS AND CONTINGENCIES:

SJG has a continuing need for cash resources and capital, primarily to invest in new and replacement facilities and equipment, working capital, and for environmental remediation costs. Net cash outflows for capital expenditures and remediation projects for the three months ended March 31, 2008 amounted to $11.4 million and $4.7 million, respectively. Management estimates total cash outflows for capital expenditures and remediation projects for 2008, 2009 and 2010, to be approximately $78.5 million, $67.3 million and $59.2 million, respectively.  As discussed in Notes 2 and 12 to the Financial Statements in Item 8 of SJG’s 10-K as of December 31, 2007, environmental remediation costs are subject to recovery from insurance carriers and ratepayers.

SJG - 20

SJG has certain commitments for both pipeline capacity and gas supply for which it pays fees regardless of usage. Those commitments as of March 31, 2008, average $49.9 million annually and total $207.0 million over the contracts’ lives. Approximately 52% of the financial commitments under these contracts expire during the next five years. SJG expects to renew each of these contracts under renewal provisions as provided in each contract. SJG recovers all prudently incurred fees through rates via the Basic Gas Supply Service clause.

Contractual Cash Obligations - Details concerning contractual cash obligations may be found in SJG’s Form 10-K for the year ended December 31, 2007. There were no significant changes to SJG’s contractual cash obligations as described therein.

Off-Balance Sheet Arrangements - We have no off-balance sheet financing arrangements.

Pending Litigation - We are subject to claims arising in the ordinary course of business and other legal proceedings. We accrue liabilities related to claims when we can determine the amount or range of amounts of probable settlement costs. Management does not currently anticipate the disposition of any known claims to have a material adverse effect on our financial position, results of operations or liquidity.

Ratio of Earnings to Fixed Charges - Our ratio of earnings to fixed charges for each of the periods indicated is as follows:

Twelve Months Ended March 31,		Year Ended December 31,
2008		2007		2006		2005		2004		2003
	4.3x		4.1x		3.8x		4.0x		3.9x		3.3x

The ratio of earnings to fixed charges represents, on a pre-tax basis, the number of times earnings covers fixed charges. Earnings consist of net income, to which has been added fixed charges and taxes based on income before discontinued operations. Fixed charges consist of interest charges and preferred securities dividend requirements and an interest factor in rentals.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

MARKET RISKS:

Commodity Market Risks - We are involved in buying, selling, transporting and storing natural gas and are subject to market risk due to price fluctuations. To hedge against this risk, we enter into a variety of physical and financial transactions including forward contracts, futures and options agreements. To manage these transactions, we have a well-defined risk management policy approved by our Board of Directors that includes volumetric and monetary limits. Management reviews reports detailing activity daily. Generally, the derivative activities described above are entered into for risk management purposes.

We transact commodities on a physical basis and typically do not enter into financial derivative positions directly. South Jersey Resources Group, LLC (SJRG), an affiliate by common ownership, manages our risk by entering into the types of transactions noted above. As part of our gas purchasing strategy, we use financial contracts to hedge against forward price risk. These contracts are recoverable through our BGSS, subject to BPU approval. It is management’s policy, to the extent practical, within predetermined risk management policy guidelines, to have limited unmatched positions on a deal or portfolio basis while conducting these activities. As a result of holding open positions to a minimal level, the economic impact of changes in value of a particular transaction is substantially offset by an opposite change in the related hedge transaction. The majority of our contracts are typically less than 12-months long. The fair value and maturity of all these energy trading and hedging contracts determined using mark-to-market accounting as of  March 31, 2008 is as follows (in thousands):

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Assets:		Maturity		Maturity
	Source of Fair Value	<1 Year		1 - 3 Years		Total
Prices Actively Quoted	NYMEX	$	14,078	$	222	$	14,300
Liabilities:		Maturity		Maturity
	Source of Fair Value	<1 Year		1 - 3 Years		Total
Prices Actively Quoted	NYMEX	$	206	$	20	$	226

NYMEX (New York Mercantile Exchange) is the primary national commodities exchange on which natural gas is traded. Contracted volumes of our NYMEX contracts are 7.2 MMDth with a weighted-average settlement price of $8.20 per dth.

A reconciliation of our estimated net fair value of energy-related derivatives follows (in thousands):

Net Derivatives — Energy Related Liability, January 1, 2008	$	(2,092	)
Contracts Settled During the Three Months ended March 31, 2008, Net		1,971
Other Changes in Fair Value from Continuing and New Contracts, Net		14,195
Net Derivatives — Energy Related Assets, March 31, 2008	$	14,074

The change in our derivative position from a $2.1 million liability at January 1, 2008, to a $14.1 million asset at March 31, 2008, is primarily due to the change in value of our financial positions held with SJRG.    This change in value is primarily due to the increase in futures prices resulting in an increase in the value of these financial contracts.  However, the purchase price of a portion of our future gas purchases is fixed, regardless of future fluctuations in the market price.

Interest Rate Risk - Our exposure to interest rate risk relates primarily to short-term, variable-rate borrowings. Short-term, variable-rate debt outstanding at March 31, 2008, was $31.8 million and averaged $54.4 million during the first three months of 2008. A hypothetical 100 basis point (1%) increase in interest rates on our average variable-rate debt outstanding would result in a $321,000 increase in our annual interest expense, net of tax. The 100 basis point increase was chosen for illustrative purposes, as it provides a simple basis for calculating the impact of interest rate changes under a variety of interest rate scenarios. Over the past five years, the change in basis points (b.p.) of our average monthly interest rates from the beginning to end of each year was as follows: 2007 – 36 b.p. decrease; 2006 - 72 b.p. increase; 2005 - 191 b.p. increase; 2004 - 115 b.p. increase; and 2003 - 31 b.p. decrease. As of March 31, 2008, our average borrowing cost, which changes daily, was 3.30%.

We issue long-term debt either at fixed rates or use interest rate derivatives to reduce exposure to changing interest rates on variable-rate, long-term debt. Consequently, interest expense on existing long-term debt is not significantly impacted by changes in market interest rates.

However, during 2008, due to general market conditions, the demand for auction-rate securities has been disrupted, resulting in increased interest rate volatility for tax-exempt auction-rate debt.  As a result, the $25.0 million of tax-exempt auction-rate debt issued by the Company is exposed to changes in interest rates that may not be completely mitigated by the related interest rate derivatives. 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

SJG’s management, with the participation of its chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of SJG’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2008. Based on that evaluation, SJG’s chief executive officer and chief financial officer concluded   that the disclosure controls and procedures employed at SJG are effective.

SJG - 22

Changes in Internal Control Over Financial Reporting

There has not been any change in SJG’s internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended  March 31, 2008 that has materially affected, or is reasonably likely to materially affect, SJG’s internal control over financial reporting. 

PART II — OTHER INFORMATION

Item l. Legal Proceedings

Information required by this Item is incorporated by reference to Part I, Item 2, Pending Litigation, beginning on page 21.

Item 6. Exhibits

(a)          Exhibits

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
32.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).
32.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) of the Exchange Act as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOUTH JERSEY GAS COMPANY

(Registrant)

Dated: May 13, 2008	By: /s/ Edward J. Graham
	Edward J. Graham
	President & Chief Executive Officer
Dated: May 13, 2008	By: /s/ David A. Kindlick
	David A. Kindlick
	Senior Vice President & Chief Financial Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Edward J. Graham, certify that:

1.  I have reviewed this report on Form 10-Q for the period ended March 31, 2008 of South Jersey Gas Company;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2008	/s/ Edward J. Graham
	Edward J. Graham
	President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, David A. Kindlick, certify that:

1.  I have reviewed this report on Form 10-Q for the period ended March 31, 2008, of South Jersey Gas Company;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2008	/s/   David A. Kindlick
	David A. Kindlick
	Senior Vice President & Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q of South Jersey Gas Company (the “Company”) for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Graham, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)           The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Edward J. Graham

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Name:  Edward J. Graham

Title:  Chief Executive Officer

May 13, 2008

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q of South Jersey Gas Company (the “Company”) for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Kindlick, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)           The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David A. Kindlick

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Name: David A. Kindlick

Title: Chief Financial Officer

May 13, 2008