REGULATORY ASSETS AND REGULATORY LIABILITIES:

There have been no significant changes to the nature of SJG’s regulatory assets and liabilities since December 31, 2016, which are described in Note 11 to the Consolidated Financial Statements in Item 8 of SJI’s Annual Report on Form 10-K for the year ended December 31, 2016 and Note 4 to the Financial Statements in Item 8 of SJG’s Annual Report on Form 10-K for the year ended December 31, 2016. SJI has no regulatory assets or regulatory liabilities other than those of SJG.

SJI's and SJG's Regulatory Assets consisted of the following items (in thousands):



	September 30, 2017		December 31, 2016
Environmental Remediation Costs:
Expended - Net	$	93,724	$	71,997
Liability for Future Expenditures	176,805		153,047
Deferred Asset Retirement Obligation Costs	42,283		43,014
Deferred Pension and Other Postretirement Benefit Costs	85,693		85,693
Deferred Gas Costs - Net	15,245		—
Conservation Incentive Program Receivable	32,429		27,567
Societal Benefit Costs Receivable	906		—
Deferred Interest Rate Contracts	7,280		7,365
Energy Efficiency Tracker	1,994		219
Pipeline Supplier Service Charges	862		2,122
Pipeline Integrity Cost	5,160		4,810
AFUDC - Equity Related Deferrals	12,331		12,434
Other Regulatory Assets	2,745		2,478

Total Regulatory Assets	$	477,457	$	410,746

ENVIRONMENTAL REMEDIATION COSTS - SJG has two regulatory assets associated with environmental costs related to the cleanup of 12 sites where SJG or its predecessors previously operated gas manufacturing plants. The first asset, "Environmental Remediation Cost: Expended - Net," represents what was actually spent to clean up the sites, less recoveries through the Remediation Adjustment Clause (RAC) and insurance carriers. These costs meet the deferral requirements of GAAP, as the BPU allows SJG to recover such expenditures through the RAC. The other asset, "Environmental Remediation Cost: Liability for Future Expenditures," relates to estimated future expenditures required to complete the remediation of these sites. SJG recorded this estimated amount as a regulatory asset with the corresponding current and noncurrent liabilities on the balance sheets under the captions "Current Liabilities" (both SJI and SJG), "Deferred Credits and Other Noncurrent Liabilities" (SJI) and "Regulatory and Other Noncurrent Liabilities" (SJG). The BPU allows SJG to recover the deferred costs over seven-year periods after they are spent. The increase from December 31, 2016 is a result of expenditures made during the first nine months of 2017 and an increase in the expected future expenditures for remediation activities, primarily due to a change in the proposed type of remediation at two of the sites currently under remediation. The proposed change results in an increase in contractor costs.

DEFERRED GAS COSTS - NET - Over/Under collections of gas costs are monitored through SJG's 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 change in the BGSS from a $17.8 million regulatory liability at December 31, 2016 to a $15.2 million regulatory asset at September 30, 2017 was primarily due to an unfavorable court ruling related to a pricing dispute between SJG and a supplier (See Notes 11 and 16) and the actual gas commodity costs exceeding recoveries from customers.

CONSERVATION INCENTIVE PROGRAM (CIP) RECEIVABLE – The CIP tracking mechanism adjusts earnings when actual usage per customer experienced during the period varies from an established baseline usage per customer. Actual usage per customer was less than the established baseline during the first nine months of 2017, resulting in an increase in the receivable. This is primarily the result of warm weather experienced in the region.

SOCIETAL BENEFIT COSTS (SBC) RECEIVABLE - This regulatory asset primarily represents the deferred expenses incurred under the New Jersey Clean Energy Program, which is a mechanism designed to recover costs associated with energy efficiency and renewable energy programs. Previous SBC rates produced recoveries greater than SBC costs, which resulted in the regulatory liability. The change from a liability at December 31, 2016 to an asset at September 30, 2017 is due to an increase in rates.

SJI's and SJG's Regulatory Liabilities consisted of the following items (in thousands):



	September 30, 2017		December 31, 2016
Excess Plant Removal Costs	$	23,485	$	28,226
Deferred Revenues - Net	—		17,800
Societal Benefit Costs	—		3,095

Total Regulatory Liabilities	$	23,485	$	49,121

DEFERRED REVENUES - NET - See discussion under "Deferred Gas Costs - Net" above.

SOCIETAL BENEFIT COSTS - See discussion under "Societal Benefit Costs Receivable" above.